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HUD PROPOSES MAJOR EXPANSION OF REVERSE MORTGAGE PROGRAM TO HELP MORE SENIOR CITIZEN HOMEOWNERS

WASHINGTON -- The Department of Housing and Urban Development proposed legislation today to dramatically expand a reverse mortgage insurance program, clearing the way for hundreds of thousands of loans to elderly homeowners in the years ahead.

HUD Secretary Henry Cisneros said the legislation, submitted to Congress today, is called The Older Americans Home Security Act of 1996. It would allow the Federal Housing Administration's reverse mortgage program to continue beyond its scheduled expiration in the year 2000. The bill would also remove the cap that limits the program to insuring 50,000 reverse mortgages.

In addition, Cisneros said HUD will launch a major effort to make more older Americans aware of the reverse mortgage program and to provide counseling to help people determine if they would benefit from a reverse mortgage.

While a traditional mortgage requires a homeowner to make monthly payments to a lender, HUD's reverse mortgage program allows a homeowner age 62 and older to borrow against the value of his or her home. The homeowner receives payments from a lender on a monthly basis, in a lump sum, or as a line of credit. The lender recovers its loan plus interest when the home is sold.

FHA provides insurance on loans made by private lenders to elderly homeowners under the reverse mortgage program.

"Reverse mortgages reward older Americans who've worked hard all their lives and want to stay in their homes," Cisneros said. "The cash provided by these innovative loans makes a crucial difference in the lives of elderly homeowners who are house-rich but cash-poor."

Joseph S. Perkins, President-elect of the American Association of Retired Persons, said AARP supports HUD's legislation to expand its reverse mortgage program.

"By allowing older people to stay in their homes, reverse mortgages add immeasurably to the quality of their lives," Perkins said.

More than 12 million homeowners age 62 and older would be eligible to participate in HUD's expanded reverse mortgage program, and the number eligible would grow as the Baby Boom generation ages.

To qualify for a reverse mortgage, older homeowners must have paid off their home mortgages or have only a small mortgage balance remaining.

A study by Cornell University estimated that over 620,000 poor elderly homeowners could raise their incomes above the poverty level with reverse mortgages. The study found that 87 percent of poor elderly homeowners have paid off their mortgages.

HUD's reverse mortgage program was capped at 50,000 loans and approved to run only until the year 2000 because it began as a demonstration program in 1989. More than 16,000 reverse mortgages have been issued so far under HUD's program.

The program's temporary nature, the loan cap, a shortage of counselors and limited outreach efforts to publicize reverse mortgages combined to hold down lender and borrower participation.

"The demonstration phase for HUD's reverse mortgage program is over," Cisneros said. "Our program is a success and we need to move ahead to extend its benefits to many more older Americans."

About 125 lenders issue HUD's reverse mortgages everywhere in the United States except South Dakota (where statutory barriers exist) and Texas (where the State Constitution prohibits reverse mortgages).

Cisneros said the consumer outreach and counseling programs will be launched with $200,000 in HUD funds. He said HUD will ask Congress for permission in fiscal 1997 to shift $1 million in recaptured funds from other HUD programs to reverse mortgage counseling and outreach. HUD will use the funds to:

• Expand counseling and education programs to help older homeowners decide if reverse mortgages would benefit them and to protect them from those who would take advantage of the elderly. Telephone counseling will be offered to older people living in areas where there are shortages of counselors.
• Produce brochures, public service announcements for the broadcast and print media, and videotapes explaining how the reverse mortgage program works. The brochures and videos will be distributed to lenders, senior citizen groups and individuals. Information will also be placed on the Internet.
• Provide information about FHA reverse mortgage insurance on a toll-free telephone line and mail callers additional material. The toll-free line is 1-800-217-6970.

In addition, AARP will continue to do outreach to inform older Americans about reverse mortgages. HUD will work with other senior citizen organizations as well to also disseminate information to their members.

Among Americans 65 and older, 79.1 percent are homeowners -- the highest rate in history and up from 77.1 percent in 1992. A total of 83 percent of senior citizen homeowners have paid off their home mortgages.

HUD's reverse mortgage program is part of the Administration's National Homeownership Strategy. The strategy is designed to raise the national homeownership rate to an all-time high of 67.5 percent by the year 2000.

Since 1993 the number of American homeowners has increased by more than 3 million families.

Content Archived: January 20, 2009