The Federal Housing Administration’s reverse mortgage program is one example of the burden FHA is presenting to the U.S. economy, writes the Wall Street Journal in a column this week. The losses, outlined in a November actuarial review of the agency’s insurance fund, stem from a downturn in home prices and miscalculations on FHA’s part, the column asserts.
Spare a thought for Shaun Donovan, who must be tired of crafting nuanced explanations of how his agency costs taxpayers billions of dollars. The latest example came this month when the Housing and Urban Development Secretary told the Senate that the Federal Housing Administration’s once-modest reverse-mortgage program is the latest drain on taxpayers thanks to gross mismanagement.
Or as Mr. Donovan delicately put it to Tennessee Senator Bob Corker, the FHA’s reverse-mortgage business is an “important” issue that the agency needs “to make changes on.” You don’t say.
HUD’s independent actuary estimated last month that the FHA will lose $2.8 billion this fiscal year on reverse mortgages, and in the worst case $28.3 billion, with the losses stretching through 2019. The feds have no idea how big the pool of red ink might be.
For those who haven’t seen former Senator Fred Thompson’s TV ads, reverse mortgages are a type of home-equity loan for Americans age 62 and older who have mostly or fully paid off their mortgage. If the borrower can pay real-estate taxes, insurance and other fees, he can borrow against the home and stay in it until death. Then the lender demands repayment with interest.
The problem is that taxpayers, via the FHA, insure lenders against the funds they advance plus accrued interest, and borrowers can also borrow to pay the fees. FHA did fewer than 50,000 reverse-mortgage deals a year until 2006, when the housing mania went galactic. By 2007, the agency was insuring more than 100,000 reverse mortgages, and by 2009 the average FHA-backed reverse mortgage reached $262,763, often paid in a lump sum….
Read the full article at WSJ.com.
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