Reverse mortgage analysts weigh in on the 2025 HECM cap
The Federal Housing Administration (FHA) announced this week that the 2025 Home Equity Conversion Mortgage (HECM) limit will be $1,209,750. But reverse mortgage industry analysts who regularly discuss developments in this area are divided on whether the increase will make a material difference in the company’s trajectory in the new year.
The HECM limit is unique compared to the FHA limits applicable to Title II mortgage loan programs. In the reverse space, there is a single, national limit, as opposed to regional front limits, which are more representative of local property values.
But seniors own a large portion of the country’s housing stock. Recent data estimates that American homeowners are sitting on a record level of about $35 trillion in home equity. And older homeowners, who have been paying their mortgage for longer, belong to a select group that owns their home.
This cohort “represents nearly 40% of U.S. homeowners and includes anyone wealthy enough not to need home financing at all, as well as people who have lived in their home long enough to have paid off or fully paid off most of their mortgage.” solve,” according to recent reporting from The Wall Street Journal.
This means that people with higher-valued homes and more freedom to make mortgage payments in advance could see more immediate benefits from a higher HECM limit, said John Lunde, president of Reverse market insight (RMI).
“In light of the more moderate increase in house prices in 2024 compared to recent years, this increase seems reasonable to me,” Lunde said. HousingWire‘s Reverse Mortgage Daily (RMD). “Any increase in the limit makes HECM more suitable for households with higher home values.”
But the difference won’t be pronounced, he added.
I don’t think it will make a dramatic difference in terms of volume in 2025, but I don’t think it’s intended to be that way either,” Lunde said. “The annual review of lending limits keeps pace with what is happening nationally in terms of home values.”
But Michael McCully, a partner at New viewing advisorslooks more critically at the increased limit. McCully referred to RMD a recent blog post from his company on the financial status of the HECM program within the Mutual Mortgage Insurance (MMI) Fund. The post mentioned the increased limit, also known as the maximum claim amount (MCA).
“HECM productions remain weak because, and this is worth emphasizing, the initial MIP (mortgage insurance premium) significantly reduces HECM volume,” the post explains. “HECM borrowers must pay an upfront 2% MIP on the MCA, which can exceed $20,000. This staggering upfront fee is a non-starter for many potential borrowers.”
McCully noted that there were 26,501 new HECM loans made in fiscal year 2024, down from last year’s figure of nearly 33,000. “At this rate, the number of outstanding HECMs will continue to decline,” the release said.
Changing the annual mortgage insurance premium could turn things around, claims New View. It recommends maintaining the ongoing MIP at 0.50% per annum, along with a reduction in the initial MIP to 1% of the maximum claim amount.
New View Advisors said this will allow any loan to be made “instantly.” [make] meet the capital requirement without charging an exorbitant MIP upfront, which gets worse (as a percentage of the loan balance) as interest rates and MCA rise.
“With this trajectory of rising interest rates and rising MCA, HECM program volume will continue to suffer, perhaps fatally,” the company added.
Look for more information from RMD on the new HECM limit and the MMI report soon.
