Loan Modification

FHA Commissioner Cites Reverse Mortgage Loan Program in Request for $250 Million

By Karen Lawson

During recent testimony before a House Appropriations Subcommittee, FHA Commissioner David H Stevens noted that without additional funding, loan limits for home equity conversion loans (HECM), also called reverse mortgage loans, would be reduced.

As FHA continues to walk a policy tightrope between reducing risks and serving homebuyers and homeowners depending on its mortgage loan programs, the agency’s latest request for funding cites the HECM loans as a potential casualty if appropriate funding is not provided during the 2011 fiscal year. In particular, Commissioner Stevens notes that loan limits would be reduced for HECM mortgage loans, a situation that could make reverse mortgages less accessible for seniors depending on converting their home equity into cash through a HECM loan.

FHA Insured Reverse Mortgage Loans: Who, Why, and What

FHA guarantees reverse mortgage loans, which are available to eligible homeowners age 62 and above. Refinancing to a reverse mortgage provides a way for homeowners to pay off their existing mortgage and draw against home equity for providing an income stream. This can be a valuable financial tool for seniors with limited income as it eliminate monthly mortgage payments and provides additional cash.

FHA insured reverse mortgage loans can be paid out in a lump sum, or through monthly withdrawals, or a combination of a lump sum and monthly amounts. No payments are due on a reverse mortgage until homeowners sell or otherwise vacate their home.

Home Equity Conversion: An Important Financial Option for Seniors

Homeowners depending on pensions, social security and their investments for living expenses are struggling more than ever as the result of diminishing returns on savings and losses in investments and retirement accounts stemming from the current economy. Other factors including higher health care costs and reductions in income are cited by Commissioner Stevens as adding to the need for FHA reverse mortgage loans. If FHA does not receive adequate funding for 2011, the agency expects to cut maximum loan amounts for its reverse mortgage loan program by approximately 21%. This could prohibit as many as 30% of eligible homeowners from accessing funds with a reverse mortgage.

Senior Homeowners Have Earned Access to Home Equity

Reverse mortgage loans are not an entitlement program, but they do provide much needed cash flow to people who have worked most of their lives and paid their mortgage loans. A reverse mortgage loan can mean the difference between selling or keeping a home that that’s been bought and paid for over decades. Let’s hope that Congress will consider the needs of America’s seniors when voting on budget appropriations for HUD and FHA.

Full post as published by FHA Mortgage Guide on April 27, 2010 (boomark / email).