A reverse mortgage loan can be a viable financial tool for seniors in certain situations, particularly if they are looking for additional cash flow and/or to age in place in their own homes. Seniors should keep in mind, though, that assessing a reverse mortgage at face value based on what the industry says about it may not be the right call based on previous instances of regulatory intervention. This is according to an official with the Better Business Bureau (BBB) in a guest column published at the Daily Memphian newspaper.
However, some of the information presented by the BBB official is objectively out-of-date and does not take more recent reverse mortgage product developments and regulations into account when making the assertions in the article, based on a review by RMD.
“The [reverse mortgage loan] proceeds can be used for any purpose, including home improvements, financing a more comfortable retirement, or paying off an existing mortgage or medical bills,” writes Randy Hutchinson, president and CEO of the BBB of the Mid-South serving parts of Tennessee, Mississippi and Arkansas. “The amount you can borrow depends on your age and the equity in your home. There are no credit requirements, but for a federally-backed loan, you have to meet with a housing counselor to discuss whether a reverse mortgage is the right product for you and to assess your ability to pay taxes, insurance, and maintenance costs over the life of the loan.”
Hutchinson goes on to detail that a report on the reverse mortgage program released in 2012 by the Consumer Financial Protection Bureau (CFPB) found that 10% of reverse mortgages were in default due to nonpayment issues related to taxes and insurance.
Important context missing from caution, HECM action by Obama and Trump
However, an important piece of contextual information missing from this fact is that the June 2012 report Hutchinson refers to came in the infancy of the CFPB, and before several years of consistent new regulation to the Home Equity Conversion Mortgage (HECM) program by the Federal Housing Administration (FHA) and multiple presidential administrations from both major political parties.
Not only did the Barack Obama administration see the signing of the Reverse Mortgage Stabilization Act of 2013 which authorizes the Secretary of the U.S. Department of Housing and Urban Development (HUD) to establish additional requirements to improve the fiscal safety and soundness of the HECM program, but the Donald Trump administration increased premiums and tightened lending limits on reverse mortgages due to concerns about the strength of the program and taxpayer losses to the Mutual Mortgage Insurance Fund (MMIF).
That move was followed in 2018 by the institution of a collateral risk assessment, which sometimes results in the requirement of a second property appraisal. These changes largely resulted in demonstrable atrophy of the reverse mortgage industry, though Trump administration officials contended at the time and in years following that the changes showed signs of having their intended effects on the health of the HECM program as recently as early 2021.
Program actions by Biden thus far
The incumbent Joe Biden administration has also been active in its stewardship of the HECM program over the past year, largely in its efforts to respond to the economic upheaval caused by the COVID-19 coronavirus pandemic. The day after his inauguration, President Biden extended a moratorium on foreclosures on borrowers engaged in FHA-insured mortgage programs, and announced four primary new protections for eligible non-borrowing spouses (NBS) in a reverse mortgage transaction.
“The HECM program must continue to evolve to keep it viable for everyone,” said HUD Principal Deputy Assistant Secretary for the Office of Housing and FHA Lopa P. Kolluri at an industry trade association event earlier this month. “As we’ve seen in the past, changes like the addition of the collateral risk assessment and associated requirements for second appraisals to support collateral evaluations can make a measurable difference in the program’s financial performance. Stable financial performance of the HECM portfolio puts us in a position to take quicker actions on how we manage policy and operational components of this program.”
The column also only gives cursory mention to the reverse mortgage counseling requirement, which is conducted to ensure that borrowers fully understand the mechanics of their loan and the obligations that accompany it. That’s not to say that the information presented is incorrect, but the overlooking of key developments that have taken place since the cited incidents may not lead to the clearest perspective on what the reverse mortgage industry and the federal government have been doing to improve the health of the HECM program.
Read the Daily Memphian column.