I started this series by explaining the basics of one of the most popular reverse mortgages in the country, the HECM or Home Equity Conversion Mortgage.
It does have certain advantages and disadvantages. The most popular advantage has to be that it's insured by the FHA. However it was probably what the HECM couldn't do that most likely inspired Fannie Mae to come up with their own brand of reverse mortgage "The Home Keeper". Just as with the anything, the Home Keeper also has certain pros and cons.
So there we were, with two very different kinds of Reverse Mortgages. One offered by the Feds and the other offered by a private corporation heavily regulated by the Feds. This being America, the land of opportunity, it was only a matter of time before someone got to thinking as to why the Feds (and Fannie) were the only ones having all the fun. But what could a private lender offer that the others hadn't already covered?
Living in the San Francisco Bay Area all I have to do is look outside my window for the answer. Jumbo's!
What's a Jumbo?
If you recall, the HECM is a FHA program. That means the maximum loan limit is determined by the county in which the home is located. That might range anywhere from $200,160 to $362,790. The Fannie Mae product is also limited by what we call the conforming limit. This is set forth by the O.F.H.E.O. (the regulators of both Fannie Mae and Freddie Mac). Currently the conforming limit is set at $417,000, anything above that figure is considered a Jumbo.
Who sets that limit and how do they figure it?
Hang on, here's where it gets really technical. The OFHEO uses the percentage increase in the average house price from October to October in the Monthly Interest Rate Survey of the Federal Housing Finance Board (FHFB) to adjust the maximum limits for the subsequent year.
Want to read that report? Here's the latest 78 page .pdf from OFHEO. If you want to see where they pulled that data here is the Monthly Interest Rate Survey for September, (it's all of 1 page!) from the FHFB.
If the average home price this October is higher than that of last October, the maximum conforming limits will be adjusted upward by the percentage increase in price. Simple right?
"But what if..."
Now, those sharp readers amongst us have already asked the obvious question. "What if the price doesn't go up? What if it goes down?"
They have a rule for that. Remember all real estate is cyclical. What goes up shall come down. Should the annual average stay the same or be less than the previous year they'll put a freeze on it, (defer it) for 1 year. In case you missed it, last year the limit did not increase. Can you say "deferral"?
That deferral from last year's decrease would be netted against any increase this year in determining the 2008 limits. If a decrease in average price this year is followed by another decrease next year (which it has), the maximum loan limits will decline in 2008 by at least this year's percentage decrease in average prices. Go ahead and read that slowly all over again.
Are you completely confused yet?
You should be. If you are not completely and utterly confused and this makes perfect sense to you - you're hired! When can you start? Will the corner office be ok?
To confuse you more, there are various talks going on at this moment to raise the limit contrary to the data and formula that has been used in the past. Our "Governator" Arnold Schwarzenegger just asked Congress for an exception to the rule, just for us Californians of course. He asked for us to be included in with Hawaii and Alaska, the only two states that are presently above the $417,000 limit. That limit ceiling is 50% higher than those other 48 states!
The Moral of the story:
Whatever happens, a Reverse Mortgage is confusing at best. Which of the three product categories (HECM, Home Saver, or Jumbo) and the five different distribution of loan proceeds (Lump Sum, Line of Credit, Term Monthly Payment, Tenured Monthly Payment, combination Payment) is best for you?
Are you sure? That's why it is vitally crucial to use a Reverse Mortgage Professional. They have the tools and the knowledge to decipher the information and point you to the best Reverse Mortgage solution to fit your needs.
If you are considering a Reverse Mortgage, give me a call. Together we can sort it out.
(925) 288-9977 Ext. 104
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