Bring on 2023!
We have a varied subscriber base at Understanding Reverse, but this message is specifically for the reverse mortgage professionals who work hard each day to change the lives of older homeowners. You help seniors live a more comfortable retirement and maximize their cash flow as they age in place. Your service is needed now more than ever, and my hope is this summary and forecast will encourage you as we look forward to 2023.
Interest rate indices have not been kind to the mortgage industry this year. Of course, with the federally insured Home Equity Conversion Mortgage (HECM), the borrower has no monthly principal and interest repayment obligation. For that reason, rising rates can drive more prospects to this option. In essence, rising rates don’t make reverse mortgages better; they make them better by comparison. Homeowners who want, or need, to draw some of their housing wealth should look at a reverse mortgage, NOT a cash-out refinance or HELOC, especially in today’s higher rate environment.
Rising rates don’t make reverse mortgages better; they make them better by comparison.
Remember, a HECM applicant’s initial principal limit is determined, in part, by their “expected rate.” The expected rate is based on the lender margin and the current 10-year Constant Maturity Treasury (CMT). When these long-term rates rise, new borrowers will qualify for less principal at closing. As you can see below, the third quarter 10-yr CMT dramatically increased expected rates and reduced reverse mortgage proceeds.
The good news is expected rates are improving as we wrap up 2022. As they decline, new applicants can take advantage of a “float-down” of their expected rate at closing.
HECM LIMIT INCREASES
HUD chose to increase the HECM limit to $1,089,300 for all case numbers assigned on, or after, January 1, 2023. For many homeowners with high value homes, this represents an increase of over $118,500 in potential MCA. Yeah, we’re talking about you, California. You need to be taking applications now and get your case numbers assigned on, or after, Tuesday, January 3rd.
No, this is not a “lending limit.” Stop calling it that. A lending limit is a traditional (forward) mortgage term. On the reverse side, borrowers can borrow more than this amount if they hold their HECM long enough and/or their line of credit grows to exceed this amount.
It is also not the “Maximum Claim Amount” or MCA. Even regulators make this mistake drafting the update each year. The MCA is the home’s value up to the HECM limit.
The HECM limit is the maximum home value that can be used for calculating principal limits in a calendar year. It’s essentially a cap on usable home value. Raising it is a very good thing for homeowners, loan originators, lenders, and FHA’s Mutual Mortgage Insurance Fund (MMIF).
HECM limits increased because U.S. home prices rose 12.4% over the last 4 quarters (12.21% seasonally adjusted). This adjusted increase was applied to the 2022 FHFA conforming limit and rounded to the nearest $50. The resulting figure for 2023 ($726,200) is what HUD generally uses to determine the HECM limit (150% of this figure).
Home appreciation has created a great opportunity for older homeowners to leverage their home equity for retirement security. Keep in mind, if this growth figure turns negative, the best thing a homeowner can do is get a reverse mortgage now before it happens.
If property values decline, the best thing a homeowner can do is get a reverse mortgage now before it happens.
The HECM becomes a very convenient insurance policy against home value declines, as the HECM line of credit grows over time regardless of future home values.
SOLUTIONS for 2023
Understanding Reverse 2023 is already available on Amazon in paperback, hardcover, and eBook. Bulk orders are available for preorder on our Website with delivery to begin January 3rd. While Understanding Reverse was never meant to be persuasive, this book increases borrower confidence and increases sales. This 9th edition includes 62 significant changes, including updated language, new HECM limits, expanded PLF tables, and a new chapter titled, “What are the Consumer Protections?”
Since we launched our 3 smaller RESOURCE GUIDES, we’ve seen more lenders and loan originators use our Homeowner Guide, Financial Planning Guide, and Home Buying Guide for targeted marketing to consumers and referral partners. These marketing pieces strip out unnecessary regulatory language and highlight just what that audience needs to know. These Books are affordable and tailored to different audiences, but only available through this website or your company’s marketing department.
Last, our mobile app, RapidREVERSE®. If you don’t currently subscribe to the RapidReverse calculator, feel free to watch this DEMO of the product. Both iOS and Android versions of our mobile app have been updated to reflect the new HECM limit. If you have automatic updates, then you won’t need to do anything. If you don’t, or if you’re one of the few subscribers with subscription issues, just update from the App store or Google play, and it should recognize your subscription. Should you experience any issues, please email me.
Thanks again for all you do changing the lives of older homeowners. Let me know how we can help you and your clients succeed in 2023.