Unlike Roosevelt’s “Forgotten Man” Reverse Mortgage Borrowers Are Just Being Forgotten

One only has to survey the dismal economic landscape. The view from this vantage point is replete with the detritus from a failing economy. For example, during the experimental years of the New Deal, the focus was on the “Forgotten Man”. As the term evolved,  President Roosevelt promised to work for those at the “bottom of the economic pyramid.” The focus was placed upon those that were most apt to feel the brutal brunt force of the severe economic malaise.

Even today, government on all levels, fights back by reaching into its provincial bag of warn out tricks. In the name of belt tightening government commits the same dastardly deeds. While it appears that the belt may be temporarily tightened one notch, when no one is looking the belt is loosened again. Then while the Forgotten Man is losing pensions, homes, investments, nest eggs and self respect, the government increases its fees for just about everything and creates new taxes. Never before has “taking blood from a stone” been more evident.

And it is quite apparent that our elders are in dire need of a source of funds. The cohort that the reverse mortgage is charged to assist are those homeowners that are 62 and older. While the Baby Boomers are just be coming of age to take advantage of the program, the focus of the article is to the previous generation, the Matures. This cohort is facing dire economic consequences.

This group is being forgotten again as a tidal wave of new industry thought is drowning out previous established thinking and standards. While the New Deal laboratory tinkered with novel concepts with mixed results, perhaps the time is ripe to experiment again so the “forgotten man” can be protected.

Before I begin this analysis, let’s go back to those prescient words contained in 12 USC §1715z-20(a) (The National Housing Act):
The purpose of the reverse mortgage program is to meet the special needs of elderly homeowners by REDUCING (emphasis is mine) the effect of the economic hardship caused by the increasing costs of meeting health, housing and subsistence needs at a time of reduced income.

At no time do those words mean more than they do today. Those who dreamed the American dream were horrified as their dream turned into a nightmare as their pensions, investments, and home values dissolved like a pill in water.

It is clear to see that reverse mortgages are needed more than ever. And everything must be done to preserve benefit amounts, protection and the original focus of the program.

From  March of 2000 through March of 2009 there have been numerous tinkering with counseling requirements. The root of the intent has always been to impart unbiased information to our elders. Now this tinkering is about to take a wrong and devious turn. Soon counselors will have the power to deny counseling certificates if seniors cannot answer a series of questions correctly. This is a dangerous deviation that will harm those that the government is trying to protect. Is this not beginning to sound like the early days of the fatuous Minnesota reverse mortgage bill-under the guise of protecting seniors the rules hurt them? (The Minnesota legislation was rightly vetoed by the governor).

Now let’s talk about a reverse mortgage experiment that could work well. The following will insure that interest rates remain low; benefit amounts stay high; and investor interest continues to grow.

I would respectfully suggest that strong governmental support become the linchpin of the program; that the CMT index remain as part of the reverse mortgage index mix and that each state institute separate testing and licensing for reverse mortgage originators.

Accordingly, I would urge that the lending limit remain at its current limit at least through 2010. I would then suggest that the margins be capped at 2.5%. Next I would reverse Fannie’s determination that the CMT index be discontinued. Personally, I believe that the 1 month LIBOR contains the seeds of destruction. It is a most volatile and unstable index. Should the economies of Eastern Europe implode, then this index will take off like a rocket. And finally and most importantly, I would TARP the reverse mortgage program. “Impossible”, you say. “Can’t be done”, you say. “What drugs are you taking”, you say.

 Let me introduce you to the Obama Administration’s MAKING HOME AFFORDABLE PROGRAM.  FANNIE & FREDDIE ARE AN INTERGRAL part of this program. Under this program the loan servicer will be paid for each successful modification. Under this program the investor will also get paid for each modification when a borrower is in imminent danger of defaulting.
Under this program a borrower who continues to make payments under the plan will have their principal reduced up to $5000.

Future features of the program:
Payments will be made to lenders and investors to offset losses from home price declines.
Payments will be made to servicers and to borrowers to facilitate short sales or deeds in lieu of foreclosure.
Additional incentives will be made to extinguish junior liens on homes w/ first liens that have been modified.
FHA & VA will establish similar modification program.

AND THE REVERSE MORTGAGE PROGRAM CAN”T MAKE SURE THAT SENIORS CONTINUE TO GET THE MOST AMOUNT OF MONEY WHILE PRESERVING AS MUCH EQUITY IN THE HOME.

Who is kidding who.

Also read Reverse Mortgage Storms Part 1 and Part2

Comments

[Mike Gruley]

Dennis,

I think you may have misquoted the National Housing Act.

I believe it read, "The purpose of the reverse mortgage program is to meet the special needs of elderly homeowners...only if it helps raise campaign contributions, creates photo ops, and feathers the nests of big businesses and non-profit consumer advocacy groups"

There are limits to what government is willing to do, especially when they have "other interests."

I think they call it prioritizing...but I could be wrong.

[James E. Veale, CPA, MBT]

Dennis,

There are too many good things to comment on so I will focus on two. I also have difficulty with seeing the CMT being dropped. I believe that the real losers in that proposition are seniors. LIBOR is a fairly recent arriver on the financial market scene. It can and is manipulated as the reporting lenders are given choices of what numbers to report. So within a limited range, LIBOR interest rates can be and are shifted one direction or another.

I strongly support state testing of originators leading to licensing and enforcement. I recently had the experience that the legislators do listen to the squeaky wheel. In the California Civil Code there is a paragraph we are required to give all borrowers. Unfortunately when that law came about in 2006 it used the words “additional income” to describe proceeds. I have gone to an influential Assembly Judiciary Committee member and Senate Finance Committee member to protest the inappropriate use of this term to describe loan proceeds. In the latest version of the Senate Bill here in California it has been proposed that the term be deleted and more appropriate language replace it.

As part of this campaign I have been and will be seeking rigorous testing requirements for California originators. The best among the California originators will embrace it. It is important that we as an industry take the next step toward standardization and making our origination core a model for other industries rather than allowing anyone “who can take an order” into the origination ranks. While it is true some people have more difficult times with examinations than others, it is also said that at the zenith of the California real estate industry one out of every ten California adult had a current real estate license; yes, that includes 18 year olds. “Those who want it can do it.”

I have missed seeing your blogs recently.