New reverse mortgage limits give seniors lifeline

While job cuts and dwindling investment accounts continue to plague wage-earning households, many seniors continue to wonder how long their once-healthy retirement funds will provide them with the cash needed for their leisure years.

Some good news arrived recently, especially for older homeowners who continue to make mortgage payments on their primary residence. The economic stimulus bill signed into law raises the single national loan limit for the country's most popular reverse mortgage to $625,500 from the previous ceiling of $417,000.

"This is a great opportunity for seniors to tap into additional funds to offset losses they may have experienced in the current economic environment," said Sarah Hulbert, president of Senior Financial Corp., a reverse mortgage lender. "There are a great number of seniors in homes valued significantly over the old limit of $417,000 limit who will be able to maintain or enhance their standard of living through the implementation of this new loan limit."

The Federal Housing Administration, a component of the U.S. Department of Housing and Urban Development, insures the nation's most popular reverse mortgage known as the Home Equity Conversion Mortgage, or HECM. Other private reverse mortgage "jumbo" funds have virtually evaporated given the present credit crisis.

A reverse mortgage historically has enabled senior homeowners to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free. Here are the vitals of the new guidelines:

• All areas of the continental United States, as well as Alaska, Hawaii, Guam and the Virgin Islands, will operate under a single HECM loan limit of $625,500;
• The $625,500 limit applies to both regular HECM transactions and HECM for purchase;
• The current fee structure remains unchanged. HUD will continue to collect a 2 percent mortgage insurance premium upfront and 0.5 percent annually; and
• The maximum origination fee will remain $6,000.

Darryl Hicks, vice president of the National Reverse Mortgage Lenders Association, a nonprofit trade group based in Washington, D.C., said there is anecdotal evidence that reverse mortgages are helping seniors to avoid foreclosure, but the organization has no hard data to support the claim. NRMLA expects even more activity with the new loan ceilings as seniors look for ways to escape high monthly mortgage payments. ...CONTINUED

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