Mortgagee Letter 2017-12
Effective October 2, 2017
Mortgage Insurance and Principal Limit Factors (think max. loan amount) changes
HUD “sprang” this one on the industry, as no one was expecting it. And HUD has made some very significant changes in the HECM program.
First, they have changed the mortgage insurance premiums. Reverse mortgages require an upfront (paid at the time of closing) or Initial Mortgage Insurance Premium (IMIP) and an annual mortgage insurance premium. Prior to October 2, 2017, the IMIP was 0.50% or one-half of one percent if the borrower took 60% or less of their maximum claim amount. If they took over 60% of their maximum claim amount the IMIP was 2.5%. This percentage is based on the value of the home. Beginning October 2, 2017, the IMIP is 2% of the maximum claim amount. This is going to hurt the borrower’s that take minimum initial equity from their home initially, as they will pay 1.5% more IMIP. Conversely, the borrower purchasing a home, for example, it will actually lower their IMIP.
The annual MIP rate is changed to one-half of one percent (0.50%) of the outstanding mortgage balance. The previous MIP rate was 1.25% annually. So a reduction across the board. Good or bad? Yes. Good for the borrower that took their maximum claim amount, had a higher existing first mortgage to pay off or purchased a home, this is good news as they will pay less MIP. The bad news is for people that were utilizing a line of credit. A line-of-credit growth rate is the sum of the current interest rate plus the MIP. With that reduced by .75%, that will negatively impact the growth rate of the line of credit.
The second major change in this mortgagee letter is the change to the Principal Limit Factors (PLF). PLF’s are basically the percentage of equity a borrower is allowed to tap into, expressed as a percentage. HUD “tighten the belt” with this move. They are decreasing the principal limit factors, thus giving homeowners access to LESS equity in their home. An estimated 10% to 20% less, depending upon the value of your home and your age.
Contact me with any further questions you may have.