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The Ups and Downs of Reverse Mortgages

Mortgage RiskAccording to a report by USA Today, some elderly homeowners are feeling the “aftershock” of the Great Recession, in the form of foreclosures arising from securing a reverse mortgage in order to tap into their home equity. However, is the reality as stark as USA Today's portrayal? One industry insider has come forward to offer a counterpoint in the form of an op-ed.

USA Today's initial report stated that urban African-American homeowners have been hit especially hard when it comes to reverse mortgage foreclosures, especially in areas such as Chicago, Baltimore, Miami, Detroit, Philadelphia, and Jacksonville, Florida. USA Today’s research states that, in ZIP codes where most residents make less than $40,000, reverse mortgage foreclosure rates were six times higher in black neighborhoods than in white ones.

In his op-ed, Peter Bell, CEO of the National Reverse Mortgage Lenders Association (NRMLA), notes that reverse mortgages rarely result in displacement, and that “a foreclosure is often the natural resolution of a reverse mortgage after the borrower passes away.”

“As with all major financial decisions, a reverse mortgage should be part of an overall strategic plan, with input from knowledgeable professionals, and family members who may be impacted,” Bell said. He added that reverse mortgages, as with all forms of property ownership, mean the borrower is responsible for paying taxes.

“Lenders never want to make loans that will default,” Bell said. “We’ll continue working with federal regulators and counseling agencies to ensure borrowers and lenders understand the important responsibilities each has in a reverse mortgage transaction.”

The benefits of a reverse mortgage, Bell noted, include the ability for older homeowners to tap into their home’s equity without having to sell, move, or take on a monthly payment.

“Many older homeowners have little to no savings and rely primarily on Social Security,” Bell said. “Furthermore, they may be ineligible for home equity loans and cash-out refinancing because of insufficient income to cover monthly payments or poor credit profiles.”

Brian Montgomery, FHA Commissioner and Acting Deputy Secretary of the Department of Housing and Urban Development (HUD), recently addressed the state of the home equity conversion mortgage (HECM) program, speaking at a National Reverse Mortgage Lenders Association Eastern Regional Meeting in New York.

“The principal limit factor (PLF) and mortgage insurance premium (MIP) changes in 2017, combined with second appraisal, allow us to better manage program risk with revenue,” Montgomery said. “These changes will help assure the viability of the HECM program going forward. Most recent financial estimates are encouraging, showing that the effect on the MMI fund is improving.”

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.

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