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NEW PROPOSAL TO RAISE FHA LOAN LIMITS WOULD BENEFIT SENIOR CITIZENS AND ALLOW MORE TO KEEP THEIR HOMES
WASHINGTON - Many senior citizens around the nation would be able to qualify for much larger reverse mortgages - amounting to tens of thousands of dollars in extra cash for some individuals - if Congress approves President Clinton's proposal to raise the limit on mortgages insured by the Federal Housing Administration.
"This legislation amounts to a homeowner protection act for older Americans," Housing and Urban Development Secretary Andrew Cuomo said. "It would dramatically benefit senior citizens by allowing many to stay in their homes, instead of being forced to sell the homes to get cash."
Reverse mortgages enable homeowners 62 and older to borrow thousands of dollars against the value of their homes, without selling the homes. Repayment is delayed until the borrower moves out or dies.
An FHA program insures reverse mortgages, to encourage lenders to make them available to older Americans. However, the amount senior citizens can borrow from an FHA-insured reverse mortgage is now capped by FHA loan limits that range from $86,317 in most areas up to $170,362 in areas with the highest housing costs.
President Clinton has asked Congress to create a single nationwide FHA loan limit of $227,150. By law, FHA cannot calculate the value of homes receiving a reverse mortgages above the value of the local FHA loan limit. As a result, an elderly widow whose home has grown in value to $200,000 after 40 years now has to calculate the home's value as only $86,317 in most parts of the country when determining what she can borrow against with a reverse mortgage.
If the widow is entitled to a reverse mortgage of 50 percent of the home's value, she can now borrow only about $43,000 - instead of $100,000, which is the true 50 percent value of the home. Raising the FHA loan limit would lift the cap on reverse mortgages to enable the widow to receive the higher loan.
The U.S. Conference of Mayors, the Mortgage Bankers Association, the National Association of Homebuilders, the National Association of Realtors and America's Community Bankers are among the groups that have called on HUD to raise the FHA loan limit and to take other actions to increase homeownership by all segments of the population.
Content Archived: January 20, 2009