AdministratorOctober 14, 2020 at 6:43 am
In your article about the HECM line of credit, you state “the available line of credit will grow and compound with no limit.” Accordingly, I have seen credit line examples on sites and in books which show potential credit lines many times greater than the value of the home.
Elsewhere, I read about the HUD calculation which “most states do require” which puts a maximum on the deed of trust of “150% of the maximum claim amount or appraised value, whichever is less.”
In the CFPB Reverse Mortgage Discussion Guide, I see the following in reference to the credit line growth feature:
whatever you don’t use in your credit line will keep growing, allowing you to borrow up to a maximum amount stated in your mortgage.
Presumably this refers to this same 150% calculation I mentioned above, right?
How do I reconcile “no limit” in your article with “maximum amount stated in your mortgage” in the CFPB booklet? Surely I cannot borrow hundreds and hundreds of thousands when my house when sold would only pay off a small fraction of the loan balance?
What am I missing? Thanks for your assistance!
AdministratorOctober 14, 2020 at 7:01 am
This is a question I received via email (posted with permission) and here’s how I responded:
Don’t worry about the 150% trust deed issue you mentioned. That relates to how the HECM is recorded on title. Whenever you take out a mortgage, the lender records the loan amount on title. In the case of the HECM, 150% of the principal limit is recorded on title. This has no impact on how much you can borrow – it just relates to how the loan is recorded on the title of your home.
There is no limit on how large the line of credit can grow and you can borrow up to the amount available. And because the HECM is a non-recourse loan, you and/or your estate are not on the hook for the shortage if your home isn’t worth enough to cover the entire loan balance at some point in the future. FHA covers the shortage through the Mutual Mortgage Insurance Fund.