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Reverse Mortgages Need to Catch Up: American Banker

In light of potential losses to the Federal Housing Administration’s insurance fund due in large part to its reverse mortgage portfolio, the administration’s participation in the program needs to change, writes an American Banker article by University of Maryland teaching fellow Clifford Rossi.

During a time when lawmakers are targeting and eliminating a number of mortgage products that were formerly available in the market that have since been deemed “unsuitable,” the FHA should consider its participation in reverse mortgages, Rossi argues.

“It is time that policymakers reconsider the social value in subsidizing a mortgage program that appears inconsistent with the direction of mortgage policy for the vast majority of the population,” Rossi writes.

A shift toward younger borrowers taking out lump sums steers away from the program’s mission, and during an economic time when taxpayers are  susceptible to losses via FHA, the article argues.

“In recent years, a number of troubling trends in borrower preferences, product evolution and market composition exposed taxpayers to losses and seniors to potentially higher costs and a bewildering array of options that can adversely affect their financial condition years later.”

While more attention has been granted to mortgage products most responsible for the housing crisis, Rossi writes, the time is now for FHA to pay attention to reverse mortgages and consider reversing course.

Read the American Banker article.

Written by Elizabeth Ecker