$800 Million Needed to Cover Possible Reverse Mortgage Losses of the FHA
HUD (Housing & Urban Development Department) has requested nearly $800 million for reverse mortgage, in its budget for the year 2010.
The HECM (Home Equity Conversion Reverse Mortgage) program allows senior home owners to tap their home equity amounts as regular monthly income streams or as a line of credit. This amount does not have to be paid back while they still live in the same homes.
The only problem of HECMs is the unpredictable housing prices which can fluctuate erratically.
When a senior citizen takes a line of credit as reverse mortgage to the tune of $300,000 and the value of the home falls, then the FHA will have to bear the losses. It is for meeting these anticipated losses that the FHA’s budget calls for nearly $800m.
If prices of homes fall, then the insurance fund of the FHA can be hit hard by losses arising out of the reverse mortgages. But the reverse mortgage program itself is still seen as being very solid.
Shaun Donovan, the secretary of the HUD emphasized the focus on transparency and responsibility in the budget. The budget places restrictions to curb mortgage abuse and increases the counseling requirements for homeowners facing foreclosure.
Donovan further added that the HUD was consolidating or cutting programs that do not work, while investing in programs that do work. The HUD has also requested for $37m for an initiative to prevent unscrupulous lending practices, $4m for employing additional staff, $13m for anti-discrimination efforts, and $20m to boost fraud detection methods.
The HUD budget proposal says that the additional funding would support the efforts of consumer protection advocates, and support traditional fair housing centers.
There has been recent criticism of the HUD about insufficient staffing to investigate some discriminatory mortgage lending practices. The NFHA (National Fair Housing Alliance) processes allegations of discrimination in mortgage lending - on the grounds of color, race, disability, national origin, sex, religion, etc. The HUD budget to pursue such discrimination cases may reverse this trend observed by the NFHA last year.
