Policy Report Finds Reverse Mortgage Rollercoaster

A report on reverse mortgages released Wednesday finds reverse mortgages “aren’t for everyone.”

Delving into the Federal Housing Administration’s participation in the reverse mortgage market, the report, published by the National Center for Policy Analysis concludes reverse mortgages can be a useful tool, but should have limited government participation.

“Reverse mortgages advertised on TV sound like a super deal for seniors, but they are complicated and expensive,” said author and NCPA Senior Fellow Pamela Villarreal. “The anticipation of monthly income from a reverse mortgage is often overshadowed by misunderstandings over how these agreements work.” 

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The report outlines recent changes made by FHA including a suspension of the fixed rate Standard reverse mortgage toward the Saver product and adjustable rate option. It also charts endorsements over time and cites surveys conducted on reverse mortgage advertising.  

The NCPA, which is an advocacy group that works to promote private, free-market alternatives to government regulation and control, points strongly to the default rate associated with reverse mortgages as a reason for its position of less government participation. 

“With a much higher default rate than traditional mortgages, reverse mortgages and their inherent risks should be left up to the market, not the Federal Housing Administration,” the report states. “If lenders cannot and will not bear the risk, the reverse mortgage market should not exist in the first place.”

View the report.

Written by Elizabeth Ecker

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  • Either we’re not doing a good enough job of describing exactly what this product actually does or OTHERS are making too big a deal of it. If 70K reverses were done last year and there are 313.9 million people in the US starting Jan 2013 all I can say is no #$@t they aren’t for everyone. They are perfect for the right situation and we uncover a new one every day, don’t we? Oh, the stories.

    • wealthone,

      70,000 reverse mortgages last year would be worth celebrating. Unfortunately there were less than 55,000 HECM endorsements last year.

  • Am I reading this report right? Sure a reverse mortgage is not for everyone but the desire or need for a reverse mortgage could fit the ticket for most. One has to see how it could benefit the senior.

    There are so many reasons why a reverse mortgage would fit a need or want that I don’t have enough room to list them all.

    As far as limited government participation, I agree whole heartedly, get the government interference out of the picture from a regulation and control standpoint. The FHA need will always be required.

    As far as the elimination of the fixed rate product, it should have no effect other than a physiological
    one on the part of some loan officers!

    This one really gets to me, the one where the report talks about risk and the default rate on reverse mortgages being greater than traditional lending. What statistics are they looking at, is this for real what they said?

    This report is sad, this goes to show you the knowledge level of organizations like the NCPA and many others. These are the people that give our industry a bad name unjustifiably!

    John A. Smaldone

  • One reason this loan is considered “expensive” is the FHA insurance charged at closing. Isn’t that FHA’s job? And doesn’t the FHA insurance cover the default? Isn’t that what they are insuring?

    • Ms. von Klitzing,

      Yes and no. It all depends on the type of default.

      FHA insurance does not cover any defaults other than failure to pay off the balance due on the loan. It does not pay for property tax or insurance defaults on active HECMs which are not in assignment to the extent that those defaults cannot be paid off by any remaining proceeds available through the existing HECM; the note owner must pay for all such defaults. In the case of notes issued through GNMA HMBSs, GNMA guarantees the default which in turn requires that the issuer indemnifies GNMA for all such costs.

      FHA only insures the note. So that if the note owner is not paid in full on the balance due, FHA insures any loss on the note itself.

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