[Update from HUD spokesperson added.]
During his testimony in front of the House Financial Services Subcommittee on Housing and Community Opportunity, David H. Stevens, Assistant Secretary of Housing for the Federal Housing Administration voiced his strong support of the administration’s reverse mortgage program on Thursday.
“The need for this type of program is greater now than it’s ever been, due to increasing medical costs, declining employment/incomes, and less “savings” in various types of pension funds/retirement accounts,” said Stevens.
This comes as the OMB requested an appropriation of $250 million to support the Home Equity Conversion Mortgage (HECM) in its FY 2011 budget.
Referencing a survey conducted by AARP in 2006, Stevens told the committee the product has provided seniors with much-needed financial relief and was primarily used to pay for long term health care, enable home repairs, and provide piece of mind that housing expenses could be met.
In addition, Stevens said the program plays an important role in allowing seniors to age in place. “Keeping seniors in their homes and communities, close to familiar support networks, puts less pressure on our nation’s overextended nursing home infrastructure and the public resources that support it.”
According to his testimony, FHA’s analysis showed that to maintain the viability of the program for FY 2011, an increase in the annual mortgage insurance premium from 0.50% to 1.25% and a further reduction in the principal limit factors (PLFs) of approximately one to five percent depending on the age of the borrower is necessary, on top of the 10% reduction in PLFs that was implemented at the beginning of FY2010.
If the $250 million appropriation is not provided, the PLFs will be cut even more. “Without the budget request, we would be forced to reduce the PLFs by an additional 21% in FY2011. This would significantly reduce the amount of funds that would be available to seniors (more than 30%), which is on average a $23,000 to $27,000 impact,” said Stevens.
He added, “Any additional steep cut to the PLFs will result in serious decline in program level as HECMs would no longer be viable to many seniors who need to access their home equity while staying in their homes. ”
HUD confirmed with RMD that without the $250 million appropriation, the PLFs would be lowered an additional 11% from the prior 10% in FY 2010.
Update 2: HUD contacted RMD to say its previous statement was incorrect, its spokesperson told RMD that:
The additional 21% PLF reduction would be on top of the 10% reduction on October 1, 2009. In other words, HUD would have to reduce the PLFs by an additional 21% from where they are today.