Congress Needs to Protect Our Seniors by Protecting Reverse Mortgage Programs

Congress Needs to Protect Our Seniors by Protecting Reverse Mortgage Programs

The Home Equity Conversion Mortgage (HECM) program is facing a $250 million shortfall in the fiscal year 2011, primarily due to a change in the mortgage insurance fund. In 2009, the program had a $198 million shortfall; at that time, the cause was largely due to a decrease in home values. These shortfalls directly impact the people that they are meant to protect, potentially decreasing the amount of money that seniors can borrow.

According to former Federal Housing Administration (FHA) Commissioner Brian Montgomery, the program is more than just a banking product. It "helps solve a social need," protecting and saving the hundreds of thousands of seniors who use Reverse Mortgage programs to remain in their homes when they are faced with the rising costs of living, medical bills or when their pensions cease to exist because companies are going out of business. Seniors may be forced to move onto waiting lists for rent controlled apartments that they never get into or may be forced to move in with family members, feeling more and more like a burden on their loved ones and society as the days go by.

With the reverse mortgage, a senior can borrow against the value built up in their home and use the money to make ends meet, to cover medical costs or even for vacations and trips. They have worked hard to pay on their home, now it is time for their home to work hard for them.

Despite some of the negative press that the banking industry has received over the past few years, the Reverse Mortgage Program is one with a number of rules in place to protect potential borrowers as well as to limit who can even apply for one. The most important of these restrictions is the age limit which is set at 62 years at the time of application. The value of the home is also considered when writing the loan itself; however, income levels are not always the major focus. The program also has a built in safety feature that says that the senior must go to a counseling session before the loan is completed and that the counseling must be done by an independent, third party, financial counselor. This type of rule is in place to protect both sides of the industry: the borrower and the lender.

Congress should be encouraged to help shore up this program, which is facing tough times with this latest projected shortfall. Every shortfall in the program means less money for the seniors who really need it and may mean fewer of the people who really need help from the reverse mortgage will actually get it. It may also mean more negative media attention, which in turn may keep some seniors, already leery of the banking industry as a whole, from applying for a financial product that they think of as poorly managed. The people who need it most should be reassured that they are engaging in a secure process and it should not be put at risk because of a budgeting error. Congress must support the HECM.

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