The FHA and Reverse Mortgages
The FHA (Federal Housing Administration) was established in 1934. The organization was created to help borrowers during the bankrupt housing market of the Great Depression.
Today the FHA protects the interests of lenders and borrowers alike. The organization supports lenders by insuring bank loans, which guarantees lenders that loans will be repaid in the event of borrower default. Providing insurance on bank loans also supports borrowers because consumers are guaranteed loan funds even if the financial institution from which they borrowed folds before the end of an agreement.
The FHA federally insures HECM reverse mortgages (Home Equity Conversion Mortgages), the most popular type of reverse mortgage loans. Much like the federal government insures student loans, the federal government, guarantees these reverse equity mortgages, thus alleviating the risks for lenders and borrowers. The federal government regulates HECM reverse mortgages, capping fees and interest rates.
In the past, the agency’s reverse mortgage loan limits have been significantly lower than those of Freddie Mac and Fannie Mae. Recent reverse mortgage loan increases have changed those limits. The FHA has lost some hold on the housing market, due to slides in the market and increasing home prices. Still, many say the FHA are the safest bet because of their strict underwriting policies.
The limits set by the FHA differ for each county. HUD’s (U.S. Department of Housing and Urban Development) website lists the FHA limitations for all counties. In Missouri, the mortgage limits were between $271,000 and $521,000 depending on how large the home (one to four families). The limit can be increased to $625,000 if the borrower lives in a high-cost housing area. The limits are between 125% and 175% of any given property’s county median price value.
While the government is pounding away at laws to protect seniors and set up limit regulations, the FHA has the final say on each county’s current limits. You can find the FHA reverse mortgage maximum loan limit for your area by visiting HUD’s website.