DENVER, CO – This week, it was announced that the lending limit for federally-backed reverse mortgages will be increased in 2022 to $970,800, the sixth year in a row that the limit has been bumped up.
On Tuesday, borrowers got a one-two punch of good news when the Federal Housing Administration (FHA) announced that they have raised the lending limit for the Home Equity Conversion Mortgage (HECM) program and the Federal Housing Finance Agency (FHFA) announced that conforming loan limits would be increasing on mortgages acquired by the Federal National Mortgage Association (FNMA, or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (FHLMC, or “Freddie Mac”).
The new maximum claim amount (MCA) for FHA-insured HECMs is an increase of nearly $150,000 over the previous 2021 high of $822,375, and is similar to the lending limit increase announced by FHFA.
In the majority of the United States, the maximum conforming loan limit for one-unit properties in 2022 will be $647,200, a jump from $548,250 in 2021. However, in regions with higher-than-average home values, FHFA has bumped the limit to $970,800, a significant increase from 2021’s $822,375.
“Median home values generally increased in high-cost areas in 2021, which increased their conforming loan limits (CLL),” FHFA said in its announcement. “The new ceiling loan limit for one-unit properties will be $970,800, which is 150% of $647,200.”
The main reason for the increase in 2022’s lending limits, experts say, is due to accelerated home price appreciation (HPA); FHFA’s recent third quarter 2021 Housing Price Index (HPI) report shows that home prices in the country went up by an average of 18.5 percent year-over-year from 2020 to 2021; therefore, the FHFA noted that lending limits will be increased by the same percentage.
The Housing and Economic Recovery Act (HERA) of 2008 notes that the baseline conforming loan limit must be adjusted every year in order to reflect changes in the average U.S. home price.
However, there are potential impacts as the HECM lending limit appears to be heading towards breaking the $1 million barrier, experts say. This includes possibly limiting the ability of borrowers of higher-value homes to utilize proprietary reverse mortgages – also known as “jumbo loans” – which are typically designed to provide a reverse mortgage option for homes valued up to $4 million.
The higher loan limits could also result in an increase in HECM-to-HECM refinances in 2022, experts say, which was already the case in 2021 due to accelerating HPA and historically low interest rates on loans. Data indicates that HECM-to-HECM refinances accounted for over 46 percent of all reverse mortgages in 2021, up from just over 25 percent in 2020.
However, when FHA increased its lending limits is 2021 to $822,375, then-Commissioner Dana Wade expressed concern over limits closing in on the $1 million mark, saying that the FHA may not be “achieving its mission.”
“FHA has seen consistent increases in loan limits during the past few years, putting it in a position to serve a segment of borrowers that may be better served by the conventional [non-agency] market,” she said. “FHA’s mission is to support low-to-moderate income borrowers, so why does the law permit FHA to insure mortgages up to $822,375? This is a question for Congress and the taxpayers who stand behind FHA to answer.”
But rapidly-increasing home prices nationwide have since shown, some experts say, that the higher lending limits may help to lower barriers for low-to-moderate-income borrowers and first-time homebuyers to enter the marketplace. In addition, experts say that the federal government should continue to raise lending limits annually in accordance with continued rising home prices, or the market could face negative consequences.
The reverse mortgage industry appeared to be encouraged by Tuesday’s announcement, with National Reverse Mortgage Lenders Association (NRMLA) President Steve Irwin saying it was a “welcome adjustment.”
“The adjustment to the HECM national lending limits will better enable senior homeowners to strategically tap accumulated home equity as part of their retirement planning,” he said. “It is important to note that the single-national loan limit for HECM (as opposed to the area-by-area limits) is something that exists because of NRMLA’s advocacy efforts. NRMLA successfully persuaded Congress, and key HUD officials, that the area limits used for forward mortgages did not really make sense for HECMs.”