I have been told that there is power in words. I do not quite know where this power comes from. I must admit that I’m feeling like the proverbial 98 pound weakling. I want to find the right words that will convey the urgency of this message.
Power, for those that have it, is a wonderful thing. The powerful can take sanctuary behind their elected or appointed office: They can pretend a problem does not exist; or create a problem when there was none; or conveniently convince themselves that they have “solved” another problem, when they have just confused a situation; and they can even become invisible at any time- hiding behind inscrutable laws, policies or regulations.
The powerless also have an indelible feeling of ghostliness. The difference is that they can shout at the top of their lungs about the unfairness, unreasonableness and unjust affect of this unbridled use of power, yet forever remain unheard and ignored. I have just described older Americans who own their own homes and are in danger of being effectively shut out from the reverse mortgage program.
The goal here is to get the attention of two Leviathan governmental agencies. I know that this will be difficult. Our elders are being wronged and it is time to call attention to this pending disaster.
The governmental agencies are Fannie Mae and the Department of Housing and Urban Development (HUD). They are the equivalent of a Goliath. I am just a David. But, today the weapons of choice are words. That is a good thing. Words when spoken plainly and from the heart retain a magical quality that sometimes can pierce any defense. If I can find the right words that convey the plaintive misery that is about to befall our elder homeowners, then perhaps these words will be heard.
Governmental policy is usually heartless and soulless. The vast emptiness lies in its organizational structure, not with its people. Yet people, who have a heart and a soul work at these agencies. It is too them that I speak.
While many in this country are suffering financially, seniors are probably suffering the most. Seniors have the least amount of time to recover from financial mistakes; have increasing health issues along with concomitant costs; and no longer can find sustainable work in an economy gone awry. They are walking around with bags full of unpaid bills and with only a pocketful of money. They dreamed that their lives in retirement would mirror those “happily ever after” endings, that characterized Hollywood movies of their day.
There is a program that is making a difference, a huge difference in the lives of those who are 62 and older and who are homeowners. This program is called the Home Equity Conversion Mortgage. Today this program provides a bountiful amount of money.(Largely due to the American Recovery and Reinvestment Act signed into law of February of this year) Tomorrow the amount of funds realized will become diminished. Could these funds become as scarce as water in a desert? Probably not. However the minimized funds will no longer offer our elders protection from the financial storms of life.
Both of these giants decree that this is how it should be. Each is taking action to make it happen. They each point to certain facts which bolster their conclusions. Each remains blind to the financial crisis that will ensue.
Since coming under receivership, Fannie Mae appears to be determined to scuttle the reverse mortgage program. Since the reverse mortgage program represents a very small fraction of their loan portfolio, just let it alone. By purposely increasing the margins, which for most of the program’s 20 years has been virtually unchangeable, it is their goal to get other investors to purchase this paper. So at a time when conventional mortgage rates have spiraled downward (and now have recently edged upward), reverse mortgage rates have only soared.
Let’s go behind these bare facts:
1. Investors do not like uncertainty. Investors do not like the fact that homes are still depreciating in value. That being said, it is my understanding that some investors at least or taking a look at this industry. That certainly is good news.
2. These higher margins mean that eligible seniors will receive less money. Think of the sea-saw. When one side goes up, the other side goes down. When the margins go up, the benefit amounts go down. In a matter of a few months the margins have more than doubled. And there is no end in sight.
3. Then add to this the specter of higher bond yields along with higher indices when (if) inflation takes hold. (There are differing opinions when and how bad the inflation will be. On the one hand, spending is down, capacity utilization is at only 65% and there is no wage inflation. On the other hand, there is pressure on the dollar as oil prices increase and investors are looking for higher returns. Pundits are all over the place on the inflation issue).
Fannie has just announced that as of September 1, 2009, they will no longer purchase reverse mortgages w/ a CMT index. The remaining index, LIBOR will be stable as long as geopolitical issues do not flair up and world banking stabilizes. Two very big ifs. If things do not go according to plan, this move could have the twofold effect of “exponentially” raising the expected rate and the note rate. Again this will mean a substantially less benefit amount, while the equity decreases at an accelerated pace.
HUD, over the years has made a “fortune” on reverse mortgage insurance premiums that is charged on each reverse mortgage loan. Recently, however declining market values have taken its toll on the MIP. HUD’s MIP fund is now in the red. To combat this predicament HUD is considering raising the MIP in conjunction with lowering the Principal Limit factor. Although the current HUD secretary seemed to discount raising the MIP, I could see other draconian actions occurring. I won’t be terribly surprised if the program ultimately becomes means tested. (This would contrvene 12 USC §1715z-20(a) of the National Housing Act).
Again let’s go behind these bare facts:
1. HUD has recently requested 800 million from the government to cover existing loses. While the current administration has primarily used funds to assist business, many believe that some of these funds should go toward keeping the reverse mortgage program functional. The end result would be that our seniors would benefit.
2. However, it is not unheard of for government to tighten its belt on the backs of seniors. For example, some counties in New York are no longer allowing reconsideration of a Medicaid application denial. County budget constraints are forcing a different kind of attitude to be taken. Similarly, for the reasons noted herein, it appears that Fannie & HUD are complicit in their shared disregard for the welfare of senior reverse mortgage borrowers.
It is folly to lower the benefits to an incommensurate amount. It is the reverse mortgage program that is keeping seniors off the government dole. That is also why it makes an inordinate amount of sense to keep the maximum claim amount at its current level and to keep the benefit amounts as high as possible.
Once upon a time the reverse mortgage program was solid enough; strong enough to grow and expand, in spite of the many frontal assaults heaped its way. HUD created a program that truly withstood the test of time. Fannie embraced the program because they saw its utility. Then things changed. A confluence of forces caused the concern for our elders to become secondary. Both Fannie & HUD turned inward, and saw things from a detached perspective. Fannie was never comfortable being the sole investor in a mortgage program. HUD likes to tinker with the program. The long awaited counseling mortgagee letter will illustrate the point that sometimes tinkering should stop.
Today things are very different. In addition to everything else, we now have a reverse mortgage condominium policy that appears to take the burden off HUD while placing the burden on lenders. To date there has been eerie silence on this issue. I hope I am wrong and Mortgagee Letter 2009-19 does make it easier and better for lenders to deal with condominiums.
And so I urge these two giants to take a fresh approach to the problem. Continuing the myopic approach where a bit of an issue is confronted without looking at its full effect, does not serve seniors well. Eligible senior homeowners deserve better. It is as if Washington is suffering from its own form of dementia. They remember our elders on Election Day. Then they are conveniently forgotten the rest of the year.
indeed a very good way to pay for care. more people should be considering it.
Posted by: amit | June 25, 2009 at 04:33 PM