Reverse Mortgages Rescue Those Hampered by HAMP Program Limits 

Aside from its central purpose of enabling people 62 or older to pull equity from their homes for various retirement uses, a reverse mortgage also may be a financial lifeline for seniors struggling to make their forward mortgage payments – those ineligible for help under the federal government’s HAMP, Home Affordable Modification Program.

That program, for borrowers with government-insured loans – such as those owned by Fannie Mae and Freddie Mac – calls for modifications of loan terms for those mortgagors whose PITI (principal, interest, tax and insurance) payments exceed 31 percent of their household debt-to-income (DTI), also known as “front-end ratio.”

So far, fewer than 200,000 borrowers have been granted permanent loan modifications under HAMP and the program is now expected to help far fewer than the up to 4 million struggling borrowers initially envisioned. In response, a new HAMP proposal put forth last week would provide refinancing to several million households through government-backed mortgages with lower payments.

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But, as Meg Burns, director, FHA Office of Single Family Program Development, explains to RMD, “There are a lot of consumers whose front-end ratio” might not reach 31 percent, “and it is still difficult for them to make their mortgage payments. They don’t qualify for HAMP.” She estimates that some 30 percent of consumers seen by HUD’s approved counseling organizations are in that situation.

A reverse mortgage is certainly advisable for seniors in need of financial support generally, according to Burns, who notes that “it has been suggested by AARP as a solution for seniors in trouble. We often get calls from people in the lending community about it. If somebody is in trouble or even in the foreclosure process; they could use it.”

Also, “if there is a senior who has a forward mortgage that they are unable to pay there is a potential that a reverse mortgage could be used to pay off the existing lien. That’s the beauty: there is no mortgage payment,” says Burns.

Written by Neil Morse

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  • That sounds good in theory. I have had many seniors come to me after they were denied a HAMP modification. They all owed more than their homes were worth and Fannie Mae and Freddie Mac are extremely reluctant to offer principle reductions to qualify these senior homeowners for a reverse mortgage. In the 10 loans I have submitted to Fannie Mae and Freddie Mac for principle reduction one was approved from Freddie Mac. I was working with one homeowner who whose home was uninsurable due to the condition of the roof. I fought with Chase and Freddie Mac for six months on this issue. I corresponded with senior executives from both companies and their solution was to place forced insurance on the home and put the homeowner in a principle forbearance loan modification. The roof now has a hole in it and the homeowners don’t have the money to repair it but the seniors living conditions were not a concern to Freddie Mac and Chase. Fannie Mae is no better. I had senior homeowner that was placed in a loan modification from Fannie Mae and defaulted. Her home went to sheriff’s sale, in Michigan we have a six month right of redemption, and we tried to negotiate a principle reduction. Given this homeowners circumstances the principle reduction and reverse mortgage was the best long term solution. Fannie Mae would not allow a principle reduction because she had defaulted on the original modification. I sent them detailed financial statements and letters of explanation, backed by her physician, explaining why she had defaulted and showing that the only way she could afford to stay in the home long term was to eliminate her mortgage payment. The answer I received in response to my plea to help this homeowner bordered on being vindictive. Given all of the rhetoric from the government about protecting the seniors their best efforts would be to clean up their own house, namely Fannie Mae and Freddie Mac.

  • If “that is the beauty” as Ms. Burns states why can't a Reverse Mortgage be used to help seniors with existing FHA mortgages that are in trouble and behind in payments?

  • I still can't get over the fact that our government is pouring billions into loan modifications yet at the same time they're pulling back from the reverse mortgage, raising fees and lowering benefits for seniors.

  • I still can’t get over the fact that our government is pouring billions into loan modifications yet at the same time they’re pulling back from the reverse mortgage, raising fees and lowering benefits for seniors.

  • This Administration has little accountability to the American people. It promised home programs that would save millions of homes. Yet it has not only failed but it financially attacks the one program for senior homeowners that provides real hope, HECMs.

    During the troubled middle and latter years of the Clinton Administration, Presidential Advisor Lloyd Cutler led that Administration in creating responsible and substantive programs. It is obvious that Chief of Staff Rahm Emanuel is not doing the same.

    This Administration needs a rash dose of reality.

  • This Administration has little accountability to the American people. It promised home programs that would save millions of homes. Yet it has not only failed but it financially attacks the one program for senior homeowners that provides real hope, HECMs.rnrnDuring the troubled middle and latter years of the Clinton Administration, Presidential Advisor Lloyd Cutler led that Administration in creating responsible and substantive programs. It is obvious that Chief of Staff Rahm Emanuel is not doing the same. rnrnThis Administration needs a rash dose of reality.

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