Hi lovebeer84-ga,
Before being able to place dollar value on an MECM, certain
eligibility requirements must first be met:
1. You, and any other owners of your home, must be age 62 or over
2. at least one owner must live in your home as a principal residence
3. your home must be a single-family residence in a 1- to 4-unit
dwelling, or part of a HUD-approved condominium or planned unit
development (PUD)
4. some manufactured housing is eligible, but mobile homes and
cooperatives are not
5. your home must meet HUD's minimum property standards, but you can
use the HECM to pay for any required repairs
6. you must discuss the HECM program with a HUD-approved counseling
agency
http://www.aarp.org/revmort/contents/eligibility.html
Assuming that all of these criteria are met, we know that you are
eligible for an HECM reverse mortgage. The next step is to obtain the
value of the home, which can be done through some sort of certified
appraisal. The critical, and somwhat controversial, part of the
procedure now occurs. each county in the country has a maximum
mortgage limit based on internal data from the FHA for the previous
year for home values in the area (these values are adjusted
annuallly). This maximum ranges from $144,336 to $237,500, with the
higher values being given to counties in the larger metropolitan
areas.
You can find out your county's maximum mortgage limit here:
https://entp.hud.gov/idapp/html/hicostlook.cfm
There are also options that allow the borrower to choose how to
receive the proceeds from an HECM:
(1) a lump sum payment)
(2) fixed monthly payments (for 10 years, or for as long as the
borrower occupies the home)
(3) a line of credit
(4) a combination of monthly payments and a line of credit.
Interest rate is also a factor: "The interest rate charged on a HECM
is adjusted monthly or annually the borrower chooses. However, these
adjustments dont alter the monthly payments that borrowers can
receive (if they have chosen the monthly payment option). Instead, the
adjustment affects the total interest that is charged on the loan,
which is added to the loan balance while the loan is outstanding and
is paid when the loan becomes due."
Lastly, "The fee that a lender can charge a borrower for obtaining a
HECM is limited. This origination fee cant exceed $2,000 or 2 percent
of the maximum claim amount (the FHA loan limit), whichever is
greater." Of course this is also a factor in the final proceeds
received by the borrower.
http://www.reversemortgage.org/hecm.htm
So from the above information, the maximum value of the HECM is the
smaller of the home's value and the maximum mortgage limit. Rather
than an equation that produces a magic number, the determination of an
HECM's value is the result of the conditions (eligibility, county,
home value, lender fees, interest rates) as is described above. Of
course, this could be phrased in terms of some sort of procedural
algorithm that described the process mathematically :)
There have been rumblings about the inequity of using this procedure
the size of the reverse mortgage. An example of this is outline in the
following blurb from President of the Central Pacific Mortgage
Company:
"A HECM can be used by seniors who are "house rich" but "cash poor" to
convert the equity in their home into monthly cash payments. FHA loan
limits for "forward" or traditional mortgages vary by county,
depending upon housing costs in the area. Presently, the maximum loan
limit for an FHA-insured loan in a high cost area is 87 percent of the
Fannie Mae/Freddie Mac conforming limit. In this way, the FHA program
is focused on serving primarily low- and moderate-income families who
would not qualify for conventional financing and private mortgage
insurance. This approach for calculating loan limits, however, does
not make sense for HECMs. Because the county-by-county FHA loan limits
also apply to reverse mortgages, some unintended inequities result.
For example, under current law, a senior living in Des Moines with a
home worth $175,000 can get a reverse mortgage for only $144,336 (the
FHA loan limit in Des Moines) while a senior living in Los Angeles
with a home worth $175,000 can get a reverse mortgage for the full
$175,000 because the loan limit in Los Angeles is $237,500. There
should be no disparate treatment of seniors in this fashion. There is
no rationale for having county-by-county FHA loan limits for reverse
mortgages, because this is a program that serves seniors who already
own their homes and there is only a budding conventional market for
reverse mortgages."
http://www.mbaa.org/industry/docs/02/courson_0424.pdf
Nevertheless, this is the current law and so all are bound by it...
If you have nay problems understanding the above information please
feel free to post a clarification and I will respond in a timely
manner.
Cheers!
answerguru-ga |