During his testimony in front of the House Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies, David Stevens, Assistant Secretary of Housing for the Federal Housing Administration urged members to fulfill the $250 million appropriation request for HUD’s FY 2011 budget.
After performing considerable analysis to reduce the risk to the taxpayer and maintain the viability of the reverse mortgage program, Stevens said HUD has proposed 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 for FY 2011. In addition, HUD is requesting a $250 million appropriation to offset projected losses and lessen the principal limit reduction.
“Without the budget request, we would be forced to reduce the PLFs by an additional 21% in FY2011,” said Stevens. “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.”
He stressed to the committee that any additional steep cuts to the PLF will result in serious decline in program levels as the HECM program would no longer be viable to many seniors.
“It is important to note that 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.
Forecasts suggest that future house prices will grow more slowly than in the past, and the reverse mortgage program costs are very sensitive to future house prices. As such, HUD has assembled a working group with the Department to see what other kinds of broader program changes could be made going forward to make the program more viable even under stressful economic times.
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