HUD extends higher loan limit for reverse mortgages

The Federal Housing Administration’s loan limit on typical “forward” mortgages is set to drop in October but not so for reverse mortgages.

The Department of Housing and Urban Development will extend the $625,500 maximum loan amount for a reverse or Home Equity Conversion Mortgage through December 31, 2011.

HECMs allow the borrower, who must be at least 62 years old, to convert a portion of the equity in the home for cash. Lenders do not require repayment until the borrower no longer uses the home as a principal residence, often in the event of death.

The limit is 150 percent above the cap set by Freddie Mac. It is the maximum loan amount FHA will insure.

HUD sent the letter out late last week, alerting lenders to the pending drop for forward mortgages to $625,500 from $729,750 in the most expensive neighborhoods. In areas where 115 percent of the median house price exceeds the current conforming loan limit, it will go unchanged in October. Congress pushed the limits for FHA, Fannie Mae and Freddie Mac up in 2008 to keep the mortgage market liquid through the financial crisis.

One bill was introduced in the House of Representatives and another in the Senate to extend all of the conforming loan limits for another two years, though these bills have yet to reach committee.