The current version of the government insured Reverse Mortgage is much more restrictive than in the past with regards to how much equity is available to homeowners. The latest changes that were enacted last October were directed at saving the government money from loan losses on property sales. The real underlying problem has been longevity and how to forecast it while still offering a generous program to meet the needs of retirees and seniors. After all, these two groups need a flexible means of tapping into their piggy banks to supplement retirement and they aren’t likely to be eligible for much from their local banks and credit unions that require full income qualification.
In my opinion, the real problem revolves around recourse. The current HECM Reverse Mortgage is a non-recourse loan. This simply means that the property stands on its own and the estate and the heirs are not adversely affected by any losses on the property at the end of life. The losses are absorbed by the government established insurance fund. This feature remains very attractive, but given the longevity issue and the fact that it extends to the second to die, this feature has pushed losses too high for the government to sustain the program in its previous current form.
Given there is still a very strong need for the HECM Reverse as a safe and efficient means of tapping into home equity, it may be time for the government to get a bit more innovative with the program. Today, we can only offer one non-recourse version with specified terms and insurance requirements that the government has determined as a requirement to support the program. I am not suggesting this be changed, but I am saying that the time may have come to allow the markets to offer more choice with various recourse options of the same program in an effort to lower the losses for the government which would in turn lower the costs and naturally expand the equity access for consumers. There could be the current full non-recourse option side by side with four different partial recourse offerings in 25% increments of recourse. This would mean that you, your estate, and/or your heirs would have the option to sign on to a recourse option that would serve as a contingent liability for you and your family, but it would also limit losses to the government insurance fund and open up additional access and lower cost to you from the reverse program to serve your family’s needs today.
Smart innovation and a little more choice may be what is needed to establish a new level of loss transparency for the government and truly open this HECM Reverse program up to the masses in the realm of longevity.
George H. Omilan
President-CEO - NMLS# 873983
Jefferson Mortgage Group LLC
Mortgage Specialists - Virginia, Maryland, Florida & Pennsylvania
Other Programs: Alt-A Investor loans-80% Full doc & 75% No Income-No Employment, FHA & VA with Lower Score Options, Fixed & Variable Jumbos-Traditional & Private Label Reverse, Self-Employed Bank Statement & Asset Dissipation Programs. Full range of Non QM Loans for expanded qualification.
Questions/Comments encouraged.