I Federal Housing Administration (FHA) announced this week that the Home Equity Conversion Mortgage (HECM) limit for 2025 will be $1,209,750. But conservative real estate analysts who regularly cover developments in the space are divided on whether the increase will make a material difference to business trends in the new year.
The HECM limit is different compared to the FHA limits that govern Title II home loan transfer programs. In the back space, there is a single, national limit, as opposed to the regional limits that exist on the front side, which is more representative of local property values.
But the elderly hold the majority of the nation’s housing wealth. The latest data estimates that US homeowners are sitting at a record level of about $35 trillion in home equity. And older homeowners, who have been paying off their mortgages for a long time, are part of a select group who own their homes outright.
This group “represents about 40% of American homeowners and includes anyone who is wealthy enough to not need a mortgage at all, as well as people who have lived in their home long enough to pay off most of their mortgage or get rid of it entirely,” according to the report. in a recent Wall Street Journal report.
This means that people with higher value homes and more flexibility in mortgage payments can see direct benefits from a higher HECM limit, according to John Lunde, HECM president. Reverse Market Insight (RMI).
“Given the muted housing prices in 2024 compared to the past few years, this increase seems reasonable to me,” said Lunde. HousingWireReverse Mortgage Daily (RMD). “Any increase in the limit makes the HECM more suitable for higher priced homes.”
But the difference can’t be told, he added.
I don’t think it’s much different in terms of volume in 2025 but I also don’t believe it’s intended to be that way,” said Lunde. “Annual loan limit revisions are simply consistent with what’s happening in home prices across the country.”
But Michael McCully, a partner in the New View Advisorstakes a more critical view of the increased limit. McCully referenced RMD in a recent blog post from his company regarding the financial status of the HECM program within the Mutual Mortgage Insurance (MMI) Fund. The post mentioned the increased limit, also called maximum claim amount (MCA).
“The origin of HECM remains weak because, and this should be emphasized, the previous MIP (mortgage insurance premium) reduces the volume of HECM significantly,” explains the post. “HECM borrowers must pay a 2% MIP up front on the MCA, which can exceed $20,000. This upfront payment is not a starting point for many potential borrowers.”
McCully noted that there were 26,501 new HECM loan originations in fiscal year 2024, a decrease from last year’s figure of nearly 33,000. “At this rate, the number of outstanding HECMs will continue to decline,” the post read.
Changing the annual mortgage insurance premium could help turn things around, New View claims. It recommends keeping the ongoing MIP at 0.50% per annum and reducing the previous MIP to 1% of the maximum claim amount.
New View Advisors said this would allow individual loans to be “immediately [make] the need for money without charging an excessive MIP up front that gets worse (as a percentage of the loan balance) as interest rates and MCA increase.
“With this rate hike and MCA rising, HECM program volume will continue to suffer, perhaps even fatally,” the company said.
Look for more on the RMD in the new HECM limit and MMI report soon.
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