HUD: Reverse Mortgages Provide Solution to Retirees’ Housing Needs

Baby Boomers and senior homeowners have the potential to reshape the nation’s housing market. But as a growing share of this demographic carries mortgage debt into retirement, they will need to seek additional solutions to improve their financial situations. For many, this could mean tapping into home equity through a reverse mortgage, according to a new report from the Department of Housing and Urban Development.

The broader housing market has shown positive signs of recovery in the years following the financial crisis, but several challenges remain, especially for older homeowners nearing retirement, according to a report recently issued by HUD’s Office of Policy Development and Research.

A rising percentage of older homeowners are carrying mortgage debt as they approach and enter retirement. Among owners aged 65 and older, 40% had mortgages in 2014, according to the Joint Center for Housing Studies of Harvard University.

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The implications of carrying housing debt into retirement years are severe. Not only may these homeowners have to postpone retirement or make difficult decisions regarding lifestyle spending on food, medical care and other expenses, but carrying debt also weakens their ability to draw on home equity to supplement their income as they age.

Refinancing options and reverse mortgages, HUD writes, may be appropriate for some older homeowners with mortgage debt, and financial counseling and assistance programs can provide help to those facing financial hardship.

“Older homeowners might draw on their home’s equity to fund modifications that allow them to age in place, help pay for their children’s or grandchildren’s education, or pay medical expenses—and as long as they have the resources to make loan payments, they can reasonably carry mortgage debt,” HUD writes.

The Home Equity Conversion Mortgage (HECM) enables homeowners age 62 and older to convert their home equity into tangible funds that can be used to pay a variety of living expenses, including paying off existing mortgage debt.

But although HECMs have undergone substantial changes in recent years that have made them safer products for borrowers, not many eligible homeowners are aware of these new updates, let alone know how a reverse mortgage could supplement their retirement.

“The HECM program currently serves a relatively small number of older homeowners, but many more households could potentially benefit from the program,” HUD writes. “Although FHA endorsed fewer than 1 million HECM loans between 1989 and 2015, HECM may be an effective option for some seniors looking to access their home equity.”

Read the HUD Office of Policy Development and Research report.

Written by Jason Oliva

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  • Taking out a HECM for the purpose Jason is focusing on in his article is a major reason for seniors of today to take advantage of it. To pay off a mortgage debt and substitute it with a reverse mortgage is the same as having additional new founded income coming in each month!

    I have a reverse mortgage, paid off a $185,000 existing lean, had enough left over to pay other debts off, did some needed remodeling on my home and had still had enough left over to add to the rainy day fund.

    However, the main reason my wife and I took out the HECM a few years back was to satisfy our existing mortgage debt in order for us to have additional cash coming in each month by not having anymore mortgage payments for the rest of our lives! Sometime we forget this was one of the main purpose for the establishment of the reverse mortgage!

    John A. Smaldone
    http://www.hanover-financial.com

  • The volume of endorsements today are in large part due to the poor policy decisions of HUD back in 2009.

    In early 2009 when OMB estimated that the HECM would be in the hole by almost $800 million for the book of business HUD would generate in fiscal 2010, HUD stood firm and rejected that estimate. Thus the battle between Obama’s OMB and HUD began.

    Fiscal year after fiscal year HUD tinkered with aspects of the HECM program to try to reign in the losses, the ill health of the HECM portion of the MMI Fund was infecting the overall MMI Fund.

    HUD had to admit that fixed rate Standards were a plague to the MMI Fund, killing further origination of fixed rate Standards on 3/31/2013. Yet that was so late that at the end of that fiscal year not only was HUD forced to take $1.7 billion from the US Treasury to support the HECM program but HUD eliminated all Standards on 9/29/2013 as well. On top of that as of 9/30/2013, HUD had taken $6.547 billion in funds from other MMI Fund programs to prop up the HECM program of which $5.776 billion is still unreimbursed to this day. By 9/30/2013, ongoing MIP was over 150% of its original 0.5% annual rate which had been unchanged for over 2 decades.

    Yet lenders had a hand in bringing down our endorsement level as well; they insisted on and got HUD created financial assessment. Lenders wanted some power over the origination process since they knew before closing some borrowers could not afford ongoing taxes and insurance; they also did not want to endure reputation risk for originating and the later foreclosing on these same loans. Yet they were concerned about discrimination and loss in business if each lender tried to develop their own style of financial assessment. HUD finally capitulated and a little over a year ago now, HUD style financial assessment for HECMs was implemented.

    So at the end of the day a great deal of loss in HECM endorsements is due to HUD standing its ground against Obama’s OMB and other Obama agencies over its HECM principal limit factor formula when in fact that was a lost cause due to the immense loss in home values from the Great Housing Depression of 2008. Then again lenders demanded and after years of saying no, HUD finally gave us financial assessment. The result of both HUD’s stubbornness and its finally capitulating to the demands of lenders, our current endorsement numbers rather than producing cheers from originators are far more likely to produce groans of displeasure.

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