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Because the rule changes were designed to reduce FHA’s losses, and the agency’s announcement of the changes also said that principal limits were being changed, everyone (including me) assumed that they had being reduced. To see how much they had been reduced, I compared the new limits with the old ones and discovered to my surprise that the new ones were higher. On adjustable-rate HECMs, seniors can now draw more than they could before; they just can’t draw it all in the first year.

The bad news is that the HECM program is now even more complicated than it was. While it is not clear whether or not the new rules will succeed in discouraging early cash draws, it is very clear that these rules have made it more difficult for seniors to sort out their cash draw and options for mortgage insurance, or MI. Here are some illustrations:

—If mandatory draws are 10 percent of the principal limit, pocket draws can be up to 50 percent. MI is 0.5 percent.

—If mandatory draws are 50 percent of the principal limit, pocket draws can be up to 10 percent. MI is 0.5 percent.

—If mandatory draws are 55 percent of the principal limit, pocket draws can be up to 5 percent with MI of 0.5 percent, or up to 10 percent with 2.5 percent MI. The borrower has a choice.

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