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