FHA and The Department of HUD have been authorized by congress to improve the HECM Reverse Mortgage Program. The legislation passed by both the House and the Senate authorizes HUD to improve the program, based on past assessments, so that it better serves the needs of the borrower.
In my opinion, there is always room for safeguards to be added to the current Reverse program to protect the consumer. However, when we look at the proposed changes below, as noted in a recent July publication by NRMLA, we must ask if the proposed changes may become too restrictive and end up self defeating.
Below is a summary of expected changes being considered as noted by NRMLA with some further clarification:
In my opinion, there is always room for safeguards to be added to the current Reverse program to protect the consumer. However, when we look at the proposed changes below, as noted in a recent July publication by NRMLA, we must ask if the proposed changes may become too restrictive and end up self defeating.
Below is a summary of expected changes being considered as noted by NRMLA with some further clarification:
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Applicant financial assessments: Determine if HECM Reverse Mortgage applicants have the capability of meeting the responsibilities of the loan including tax and insurance payment obligations.
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Escrow reserve: Mandate the set-aside of funds for property tax and insurance payments to ensure borrowers can meet those obligations required to maintain eligibility for the Reverse Mortgage.
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Proceed Restrictions: Restrict the amount of proceeds that can be drawn initially from a Reverse Mortgage in order to prolong the useful life of the asset.
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Spouse Protection: Program guidelines that include all borrower spouses on loans regardless of the spouse’s age. This provides protection for either spouse against losing the home upon passing of the other. Under current program guides you must be 62 years or older to be on the loan. If you are not on the loan and the primary spouse dies, then you do not have any protection.
There are two distinct areas that have created horrific headlines illustrating consumers being taken advantage of as a result from Reverse Mortgages.
The first relates to the reckless evangelists promoting Reverse Mortgages to aid consumers in cashing out all of their equity. From there, many consumers are enticed by investment professionals to purchase commercial annuities or other investment products. There are several levels of current disclosure that warn consumers of this risk. Once the equity has been converted into quick investments that don’t pan out, the consumer becomes the victim. Should I assume that the 94 pages of disclosure and information I provided my last Reverse applicant maybe wasn’t enough? We can not assume the roll of guardian. People have to make their own decisions at some point.
The second area of concern is spouse protection. This is an area where I think changes would be very constructive. Currently, if a spouse is not old enough to meet program eligibility they can not be on the loan and they are removed from title to the property as a requirement of the Reverse Mortgage. When the primary borrower dies, the surviving spouse has no protection that would allow them to continue with the Reverse Mortgage and they suddenly have a crisis. The property must be sold or turned into the servicer and the surviving spouse is left to fend for themselves at an elderly age when they simply are not that resourceful. This is the most uncompassionate element of the current program. I call it the Widow Maker. It’s the government letting you know that you really are alone and now that you just lost your spouse its time to get out of the house. I don’t know why this punitive feature was a requirement for this program from the beginning so I am not able to comment further other than change would be welcome.
Proposed program changes may become self defeating when we set out to protect the consumer and end up restricting their equity access to a point that it no longer helps them. Aging consumers have long sought relief in the form of home equity access from the Reverse Mortgage program. How many years of taxes and escrow should we mandate in a set aside? How do we appropriately restrict proceeds to the consumer while still allowing them the decision making independence of an adult? How do we balance core program solvency with critical spouse protection? For the current HECM Reverse Mortgage program to remain solvent and have longevity, balance will be needed to improve the current program without destroying its purpose and flexibility.
As we move forward, given the expected number of seniors over the next two decades, the changes enacted here will have significant impact. It is understood that HUD must keep tabs on the financial health of the Reverse Mortgage program as a whole when enacting changes. However, regardless of the changes we should not lose sight of the mission of “helping aging Americans maintain and remain in their homes”.
The first relates to the reckless evangelists promoting Reverse Mortgages to aid consumers in cashing out all of their equity. From there, many consumers are enticed by investment professionals to purchase commercial annuities or other investment products. There are several levels of current disclosure that warn consumers of this risk. Once the equity has been converted into quick investments that don’t pan out, the consumer becomes the victim. Should I assume that the 94 pages of disclosure and information I provided my last Reverse applicant maybe wasn’t enough? We can not assume the roll of guardian. People have to make their own decisions at some point.
The second area of concern is spouse protection. This is an area where I think changes would be very constructive. Currently, if a spouse is not old enough to meet program eligibility they can not be on the loan and they are removed from title to the property as a requirement of the Reverse Mortgage. When the primary borrower dies, the surviving spouse has no protection that would allow them to continue with the Reverse Mortgage and they suddenly have a crisis. The property must be sold or turned into the servicer and the surviving spouse is left to fend for themselves at an elderly age when they simply are not that resourceful. This is the most uncompassionate element of the current program. I call it the Widow Maker. It’s the government letting you know that you really are alone and now that you just lost your spouse its time to get out of the house. I don’t know why this punitive feature was a requirement for this program from the beginning so I am not able to comment further other than change would be welcome.
Proposed program changes may become self defeating when we set out to protect the consumer and end up restricting their equity access to a point that it no longer helps them. Aging consumers have long sought relief in the form of home equity access from the Reverse Mortgage program. How many years of taxes and escrow should we mandate in a set aside? How do we appropriately restrict proceeds to the consumer while still allowing them the decision making independence of an adult? How do we balance core program solvency with critical spouse protection? For the current HECM Reverse Mortgage program to remain solvent and have longevity, balance will be needed to improve the current program without destroying its purpose and flexibility.
As we move forward, given the expected number of seniors over the next two decades, the changes enacted here will have significant impact. It is understood that HUD must keep tabs on the financial health of the Reverse Mortgage program as a whole when enacting changes. However, regardless of the changes we should not lose sight of the mission of “helping aging Americans maintain and remain in their homes”.
Blogging from the front line.
George H. Omilan
President-CEO
NMLS# 873983
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