Will reverse mortgages die on Capitol Hill?
March 9th, 2011
- Reverse Mortgages and Changes in HAMP
- What If Your Pension Ends?
- Bush Plan Impact
- Will HUD be forced to dump reverse mortgages?
- FHA Reform Sails Through Senate, 83-9
Congress is on the warpath. It’s wants to get rid of allegedly failed and excessive housing programs and already two programs have bitten the dust with initial votes. The question, of course, is could the same fate await reverse mortgages?
The House Financial Services Committee has already votes to pass H.R. 830, The FHA Refinance Program Termination Act and H.R. 836, the Emergency Mortgage Relief Program Termination Act.
The first bill gets rid of HUD’s short-refi program. This is not a big deal as only 44 FHA loans have been originated under this concept.
The second bill, H.R. 836, provides temporary help for people who typically have lost their jobs. As the Committee explains:
“The Emergency Homeowner Relief Program provides loans to unemployed borrowers for a period of 12 months, with a possible 12 month extension. These loans increase the amount of the borrower’s indebtedness, so a borrower who is unable to pay back either the original amount of principal or the additional loans made under the program will be worse off in the long run. Those borrowers derive no benefit from the program, and the government will suffer losses from their eventual defaults.
“The Obama Administration, in its FY 2012 budget proposal, estimates the program to have an almost 98 percent subsidy rate. This means for every $1 spent, the government will lose 98 cents. Also, HUD regulations set up a process where the bridge loan can be forgiven over a five-year period. This is not a loan program, but another government grant program.”
The idea that emergency help for unemployed borrowers makes them “worse off” is nonsense. What it really means is that while someone is looking for a job they do not lose their home. It’s just a guess, but such individuals are probably elated to have government help.
The oddity of these actions is that the first one is financially unimpressive while the second is simply abusive; it kicks people who are already down. Given such thinking, you have to wonder when the clever cost-cutters on Capitol Hill will turn their attention to reverse mortgages pros and cons.
The FHA Home Equity Conversion Program (HECM) dominates the reverse mortgage marketplace. Few lenders in the private sector want to fool with such loans — the Bank of America and Wells Fargo have recently left the business. Moreover, the reverse mortgage effort has been plagued with problems: Some 13,000 HECMs were in default without HUD’s knowledge last year — another 7,000 they knew about.
It would be a surprise if some enterprising elected official did not seek to end the HUD reverse loan effort or to press for foreclosures for those who have not paid their property taxes and insurance. You can just see the proud headline: “Deficit Reduced As More Elderly Forced To Live in Parks.”