The 'New Congress' Fiddles Away Valuable Time… As The 275,000 Insurable Limit For Home Equity Conversion Mortgages (Reverse Mortgages)
By Dale Rogers
While the 'New Congress' puts a full court press on the first 100 hours of control, almost three weeks have been spent on a "non-binding" resolution loaded with political positioning and posturing for future replays. High fives all around for that. The minimum wage plan has not passed after much conversation and no action. If this implosion continues in both houses nothing will be accomplished. Election run up time in a lame duck presidency gives cause for Congressmen and Senators to show up in roller blade gear. With helmets, elbow pads, kneepads and thick gloves all around in full dress in preparation for all the sharp elbows and cross body blocks to fight for positions that are nearest to TV cameras for the evening news cycle. This gives the appearance of a lot of motion but in the end no real action. Lip service abounds. With moistened fingers heisted in the prevailing winds to gage the most recent polls, positions change like a fresh pair of socks while the public remains not amused. When Congressmen and Senators job performances are rated below ambulance chasers, something is afoot. The old bromide of "reaching across the aisle" again has proven to be a joke. Once again the minority in the Senate can bring things to a slow grind. Still looking for some forward thinking leadership. How long has it been since the last one?
While the 'New Congress' fiddles away valuable time Thursday the 15th of February 2007 the limit will stop future originations of Reverse Mortgages under the federally insured Home Equity Conversion Mortgage. This has been a very successful program. It has been refined over many years to what it is today. Previous private sector programs in many cases were ripping seniors off with high fees. While Congress may put a temporary lift on the 275,000 units per year of Reverse Mortgage cases that will be a Band-Aid at best. If members of the legislative body can stop with the elbows and knees to the groin to pass this Senior Based Program that would show some leadership. Like many entitlement based programs it costs taxpayer's money. This program, however, unlike FHA insurance on the 203(b) residential program with high foreclosure rates, is carrying itself. This program HECM (Home Equity Conversion Mortgage) utilizes the PROMISE of the full faith and credit of the U.S. Government to render what amounts to a very safe investment for institutional investors. This Mortgage Program HECM comes with a low Loan-To-Value ratio thereby building in a high degree of safety for lenders. Factors such as the value based on an appraisal, the current interest rates, the borrower's age and the amount of equity the borrower has in the house have all been refined to give the seniors a great program while not costing the government an arm and a leg. This is all predicated on low probability of DEFLATION.
Many seniors are being forced out of their homes due to rising property taxes and insurance costs and upkeep while remaining "property poor". Their home is worth a lot due to good appreciation over time and has low or no debt. In many cases many seniors are not able to pay a large mortgage payment with lower retirement incomes. So the run of the mill Home Equity Loan or HELOC is not the answer-it requires monthly payments. HECM, on the other hand, is a viable alternative for seniors. This mortgage device allows a 62-year or older seniors to pay off any small mortgage, pay off small outstanding credit cards and other installments and catch up on deferred maintenance of their home such as roofs and heating and air conditioning. This can be a lump sum cash payment, an equity line of credit or a monthly check with automatic deposits or a combination of all of these options. There will never be any monthly payments for the seniors. Rising property taxes and insurance as well as other maintenance issues are forcing many seniors to sell and force them to settle for something less desirable in their twilight years.
All family members are invited to participate in the information aspects of the HECM program so that the beneficiary and the family are all on board with the program. Credit histories past or present do not come into play in the underwriting of the loan, as the recipient never has to pay any type of monthly payment. When the participant leaves the home and will not be returning for whatever reason, then a settlement is effected by selling the home and the loan is paid off and any remainder goes to the borrower or the borrower's estate. Not one penny beyond that will be owed beyond the home's sale price less closing costs. Actuaries who ply their trade for life insurance companies have calculated life spans and such to a balance for all involved the Government, Institutional Lender and the borrower participant. HECM is selling this balanced program. Tweaks are expected as the program matures as with any evolving mortgage product.
With the HECM program seniors are able to stay in their homes and live out their years while keeping up on deferred maintenance, rising property taxes and insurance without looking for a handout. It's a program that has been proven over time to make sense and in many cases has brought great comfort and piece of mind to this aging population segment.
A Band Aide is not an answer. A long-term comprehensive plan can be put into play without taking on the cloak of an entitlement program. This makes sense for all parties and genuinely helps seniors. If the number would be moved to the 500,000 units per year range with built in increases say over a ten year period this would bring a decided stability to the program and to the seniors engaged in fighting to keep their homes.
Everyone has representation in the House of Representatives and the Senate. Seniors vote and vote in very high numbers. Many seniors who have been forced to sell are facing a very soft market in many areas and would receive a further reduction of equity at the closing table while facing being uprooted and starting over with something they really don't like.
It's important to urge the House of Representatives to pass this HECM number limitation to a level that allows more senior homeowners to participate. 500,000 units per year would be a good start. Raising the loan limit closer to the Fannie Mae limits would help seniors even more. The rubber is now hitting the road. While the 'New Congress' fiddles seniors are being left in the dust. Motion does not equal action. Watch the sharp elbows and knees to the groin. Congress is in session. Let's pray (am I allowed to say that?) they can come out from under the ether and pass this important continuation of the HECM. Let's pray some more.
About the Author
Dale Rogers is a bad credit mortgage expert who contrubutes to the Broken Credit Blog website. Broken Credit Blog is a free site online assisting the public with information on credit repair, responsible mortgage lending, and refinancing.
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