Big changes to the Home Equity Conversion Mortgage (HECM) program are in store for 2010. You will need to make certain you are dealing with a very experienced loan officer to avoid delays and surprises.

New Principal Limits

Principal Limits were reduced by FHA in October of 2009 by 10%. Many seniors went underwater at this point because they owed too much to qualify after the overnight implementation by HUD. There is strong likelihood that Principal Limits could be reduced again in 2010. HUD continues to struggle to make the HECM program “deficit neutral” so that taxpayer money will not be required to make up any shortfall in insurance coverage. An alternate suggestion is that FHA Mortgage Insurance might be raised beyond the current 2% limit. It is possible that both events could take place in 2010.

FHA Appraisals

New rules regarding FHA appraisals go into effect on January 1, 2010. Basically, all appraisals will be assigned from a pool of approved appraisers instead of individual selection. The theory is that brokers and originators will no longer be allowed to communicate with appraisers and, therefore, values will be determined objectively – without undue influence. An unintended consequence is that an appraiser 50 miles distant may not be familiar with your local community and most anticipate values will be driven down.

HECM Condo Approval

If your home is a non-FHA approved condominium, it will also be more difficult to qualify for a HECM after February 1, 2010. The elimination of the “spot approval” process was scheduled for implementation several times in 2009. Latest cutoff date is now set to February 1st. If the project you live in is not FHA approved, it is unlikely that your association will be willing to undergo the expense to obtain FHA approval. Many seniors who are condo homeowners will become ineligible and unable to do the government insured HECM reverse mortgage after February 1st. I strongly advise submitting an application immediately and well before February. This will extend your eligibility and you could always withdraw your application if you ultimately decide against a reverse mortgage.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant

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