Effective January 1, 2020, FHA increased the Maximum Claim Amount (MCA) from $726,525 to $765,600.
What does this mean? If your home was valued above $726,565 in 2019, and you applied for an FHA insured Home Equity Conversion Mortgage (HECM), the lender could not use any value above $726,525 in the calculation to determine the amount of the loan. This MCA essentially caps the value of the home for calculation purposes.
Let’s say your home is worth $760,000. Last year, the lender would have used a maximum value of $726,525, and would not have counted any value above that - $33,475 in determining the amount to loan you. However, now, in 2020, the lender is allowed to use the full value of your home in the calculation in determining the amount of the reverse mortgage.
HUD calculates the MCA at 150 percent of the conforming loan limits on mortgages to be acquired by Fannie Mae and Freddie Mac, which was announced by the Federal Housing Finance Agency (FHFA) late last year to be $510,400 for the calendar year 2020—up from $484,350 in 2019.
This is a very positive development for the reverse mortgage industry because just last fall, FHA officials had hinted that the HECM program should get rid of one national lending limit and return to county lending limits. For example, in the Denver-Metro area, the county lending limits are $575,000. That’s $190,000 less than the national lending limit. Depending upon your age, in the scenario above, with a $760,000 home value, these new limits would reduce the reverse mortgage loan amount by $75,000 - $115,000.
But since HUD came out with these new amounts, it looks like HECM reverse mortgages will be spared this fate, at least for this year.
This is also good news for people looking to refinance their current HECM loan to lower the rate and mortgage insurance premiums because we can use this higher limit. If you ended up taking out a reverse mortgage back in 2016, the MCA was $625,500. If your home was worth $675,000 at the time, at just 3% yearly appreciation, it would be worth very close to the current MCA of $765,600 today. By refinancing today, you may be able to access substantially more equity than was available just four years earlier.
All told, this is a positive sign for an industry that has seen its share of negative changes over the years. It may be a good time to take advantage of this beneficial change.