As the Dow tops 9,000 for the first time since January.
Senior Homeowners are met with a mixed bag of news. The Dow Industrials
rose meaning many are seeing a return of some of the value of their
retirement accounts. Home sales rose and some markets have shown that
the values are leveling and even beginning an ever so slight
increase. But amid the good news for seniors also came the recent
news of a possible change in the Home Equity Conversion Mortgage (HECM
or "Heck-um") loan which is insured by FHA.
Now for the bad news for seniors. It seems that the HUD
Development Secretary Shaun Donavan had previously told a Senate
committee that he was open to restricting the eligibility or raising
the premiums on the reverse mortgage program in order to not have to
request the taxpayer subsidy for the program in the amount of $798
Million which was previously requested. On July 17th, the House
Appropriations Committee approved a Bill which instructs HUD to reduce
the proceeds to senior borrowers under the HUD HECM (reverse mortgage)
program.
Newsday reported that
Representative Tom Latham, R-Iowa had told them that he had identified
nearly $800 Million of budget savings by slightly lowering the amounts given to senior homeowners under the HUD reverse mortgage
program. He stated that lowering the amount given to senior homeowners
under the HUD program would eliminate the need for the additional $798
Million subsidy. The question now is, how much is "slightly"?
Senior Homeowners who are now relying on the HECM
reverse mortgage program to pay off existing mortgages are often right
at the limit or even short of the amount needed to pay those mortgages
in full due to rising interest rates reduced home values. Since
the major factors which determine how much money borrowers will receive
in their reverse mortgage are 1) the borrower(s) age/ages; 2) the
property value of HUD lending limit, whichever is less; and 3) interest
rates, rising interest rates and falling values have already hurt many
seniors as far as how much money they can receive.
And the reverse mortgage rates
have not really even started to rise yet, just a component of the final
rate, the margin that is added to the index is what has been constantly
rising for the past two years. The actual index upon which the rate is
determined (mostly the London Interbank Offered Rate or LIBOR) has not
even begun to rise yet but many economists predict that interest rates
will begin rising in the near future.
When the rates do rise, borrowers receive less money in their reverse
mortgage loans. If this Bill passes and the amount borrowers are
to receive before any increases to the interest rates drops, senior
homeowners may find themselves with too little eligibility to pay off
their existing loans even more often than they do now. The Dow is up
(for now at least), that is clear for all to see.
How
many foreclosures are still out there but are just not being acted upon
due to various moratoriums or lender capacity is hard to quantify so no
one can really say where that will go or how it will affect future
housing values. We can only hope that Congress takes no actions during
these times which would further make it difficult for senior homeowners
trying to get by.
by: Michael Branson (CEO All Reverse Mortgage Company)
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