Will Trump End Reverse Mortgages?

Will Trump End Reverse Mortgages?Reverse mortgages are in trouble. In fact, it’s fair to say that reverse mortgages may well be gone under the Trump Administration.

“For most older people, the use of home equity in retirement is not a question of if, but when and how,” said Jay Greenberg, CEO of NCOA Services, a subsidiary of the National Counseling on Aging. “We need to do a better job of educating consumers about the products available and how best to use their homes as a strategic asset as they age.”

But what if there is not enough time for education?

The reality is that lenders love FHA-insured reverse mortgages — what are known as “Home Equity Conversation Mortgages” or HECMs. There are fees and charges to be earned with their origination and if something goes wrong HUD will cover the loss.

Seniors are less thrilled. There were 48,902 HECMs originated in FY 2016 versus 114,692 in FY 2009 according to the National Reverse Mortgage Lenders Association.

Reverse Mortgages & Losses

It’s estimated that the HECM reserve portfolio was at negative $7.7 billion in FY 2016, down $14.5 billion from a positive $6.8 valuation in FY 2015.

The Trump Administration’s super-lean 2018 budget seeks reductions for just about everything not operated by the Pentagon. In the search for spending cuts it’s difficult to see why the new Administration will view the reverse mortgage program kindly. If it had fewer claims and smaller losses then maybe, but not as things stand.

If ending the FHA reverse mortgage program seems far-fetched then consider this: there are worse ideas floating around Washington. For instance, there are trial balloons suggesting an end to the mortgage interest deduction. Would the real estate industry give up reverse mortgages if it could keep the much more important mortgage interest deduction?

The tragedy is that the HECM program has — for a number of property owners over age 62 who wish to age in place — value. The idea is not bad but the numbers simply don’t work. If the numbers did work the program reserves would not be saddled with billions of dollars in potential losses.

Reverse Mortgages & The Future

Can the HECM program continue? If yes, who will pay for the losses?

To make the program solvent premiums will have to go up, lenders will have to accept some of the losses, or both. Such options will effectively kill the program because higher fees will mean fewer originations and lenders will not want to be exposed to losses of unknown size.

The reality is that the reverse mortgage program is in trouble. Seniors are turning away from HECMs and — faced with massive losses — the same will ultimately be true with the federal government. For HECMs the future is now — and now doesn’t look very good.

(Photo courtesy of Ben Cliff)

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3 Comments on "Will Trump End Reverse Mortgages?"

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  1. Steve says:

    This may be the most important reverse mortgage article in years. What is our industry doing about this? Maybe we can get the author to speak at our next convention.

  2. The heirs are NOT responsible for the debt — reverse loans are non-recourse financing.

  3. holtsys says:

    Reverse Mortgages have not been truly disclosed to the senior market. There are huge pitfalls to the program that are hidden because they show it to be less favorable than the actors portray it to be on TV. One of those pitfalls is that your heirs inherit the debt.

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