Reverse Mortgages Aren't Catching On

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Hattie,
To date there has not been one dollar of taxpayer's money which has been spent to offset losses from the HECM program. The program has not received any federal subsidies to date.
Even if the program is granted a subsidy this year, that money can only be used to offset losses from those loans that are insured by FHA in the twelve month period that starts October 1, 2010 and how much those net losses will be, will not be known for years to come. The truth is that there is a possibility none of that subsidy may be spent on reverse mortgage losses and so will never leave the U.S. Treasury.
I very much agree with the comments of Jeff Lewis about reverse mortgages. I am far less enthusiastic about his ideas related to investments. However, if the facts are right, his points are well taken. The problem is with the crystal ball; mine is cloudy and cracked, while his seems smooth and clear.
With the advent of a second option for government insured reverse mortgages (not covered in the article), using reverse mortgages for financial planning should gain steam. The idea is not to encourage risk taking but rather replacing recourse debt (credit cards, business debts, etc.) and providing needed funds for retirement and estate planning at little upfront mortgage costs. We hope to see this second option available before year end.
The second option is basically the same products offered with less available proceeds but with no upfront FHA mortgage insurance premiums (now 2% of the lower of the appraised value of the home or the current lending limit of $625,500). Some believe that at least one product in the second option could be available with no upfront costs. Time and market conditions will tell.

James E. Veale, CPA, MBT of CA 8:37PM August 09, 2010

I thought that the Reverse Mortgage Program (HECM) had been self-sustaining for about 18 of the last 20 years. If that is correct, it is only in this CURRENT mortgage environment that taxpayers are subsidizing reverse mortgages. If a senior got a lump sum payout eight years ago and then died last year, yes, chances are their loan would be underwater. The FHA insurance fund that the senior borrowers pay into has historically covered that circumstance. But now, when much of the country is underwater and seniors die every day, it is too much for the fund alone right now. But that is not an excuse for "throwing the baby out with the bathwater" which seems to be the mood now.
This terrible market IS temporary. Market stability will return as will the solvency of the HECM mortgages. The reverse mortgage product was developed after DECADES of study about the plight of seniors who would be house rich and cash poor and who would need money for indenpendent living after their earning years passed. The equity runup and the "creative" products of the last decade were not envisioned, nor was the dramatic drop in values we have now.
Put this product in perspective and recognize its common good as well. How much does it cost YOUR PARENTS to live at home after retirement, can they afford it on their own? Do you and siblings contribute to their expenses while also raising kids and trying to fund your own retirement? What will the value of your home be when the senior couple next door can no longer paint the house or afford to have someone else do it? Or worse yet, what will the value of your home be if these seniors refinanced with a traditional mortgage a few years ago to fix up the house and now they are losing the house to foreclosure? The product requires extensice education and consumer safeguards, but reverse mortgages provide flexibility for us all.

hattie of IL 8:23AM July 31, 2010