The reduction in ongoing FHA premiums will significantly reduce the ongoing growth of the HECM’s Principal Limit (available funds), or what many refer to as the line of credit. This development will substantially change several strategies touted in recent years, such as the Standby Reverse Mortgage, and those seeking to use increasing available funds as a hedge against unexpected financial shocks in retirement.
As reported, the average Principal Limit Factor will be reduced from 64% to 58%, an approximate 10% reduction in lending ratios.
Scenario comparing change in 2014 PLFs versus 2017 PLF rates
- 5.25% Expected Interest Rate
- 62 year Old
- $300,000 home value
Change in 2014 PLF Factor: .491 $147,300
Change in 2017 PLF Factor* .396 $118,800
* 20% reduction with new PLFs and lower interest rate floor change after October 2nd, 2017.
HOUSING AND URBAN DEVELOPMENT. HOUSING COMMISSIONER. www.hud.gov espanol.hud.gov. August 29, 2017 Mortgagee Letter 2017-12
Home Equity Conversion Mortgage (HECM) Program: Mortgage Insurance. Premium Rates and Principal Limit Factors
This Mortgagee Letter (ML) communicates revised initial and annual. Mortgage Insurance Premium (MIP) rates and Principal Limit Factors
(PLF) for all HECMs.
This ML is effective for all HECMs with FHA case numbers assigned on or after October 2, 2017.
FHA is committed to its fiduciary responsibility to taxpayers and ensuring its mortgage insurance programs remain viable and effective in the long term. To help sustain the HECM program as a viable financial resource for aging homeowners and to strengthen the Mutual Mortgage Insurance Fund, FHA has made changes to HECM MIP rates and the PLFs.
The initial MIP rate is changed to two percent (2.00%) of the Maximum Claim Amount (MCA). The initial MIP rate is applicable to all borrowers and is no longer associated with disbursements made to or on behalf of the borrower at closing or during the First 12-Month Disbursement Period. The annual MIP rate is changed to one-half of one percent (0.50%) of the outstanding mortgage balance. This guidance supersedes the Initial and Annual MIP Structure section of Mortgagee Letter 2014-21. The PLFs have been updated. The PLF table may be uploaded or copied from HUD’s web site directly into any reverse mortgage technology system or tool used to support the HECM program.
For information on this change or to get started to avoid the change please contact Scott Underwood “Alabama’s Reverse Mortgage Guy” at (205) 908-2993 or (256) 677-9767. Email me at ReverseMortgageAlabama@gmail.com.
We are Alabama’s only direct to consumer Reverse Mortgage (HECM) lender in Alabama, with local offices in Birmingham and Huntsville, Alabama.