I believe that it is time to take a step back to digest and review the recent changes that have occurred and to also focus upon impending changes that will be implemented shortly. This review is meaningless unless we over-lay the new HUD maxim-“risk management”. Accordingly, it is important to become aware of the aphorism “how one views something will determine what one sees”. And so it is with reverse mortgages. The focus of helping our elders seems to have taken a back seat to efficient long term management (at least until the next administration comes along) to keep the program strong.
It seems to me, that no matter how well intended this view is, the proverbial eye has been taken off the ball. We have recently seen with the mortgage debacle how governmental policy became a key ingredient for disaster and at the same time, the vindication for more governmental oversight.
The key insight that one takes from the mortgage debacle that can be applied to reverse mortgages is that governmental action to one part of the program can adversely affect and lead to perverse consequences with/to another part of the program. We saw how the governmental demand in the prior two administrations (Clinton & Bush) for more homeownership led to pressure on Fannie & Freddie and FHA to partake in the exotic programs that were created in response to this pressure. “The fact that the government itself either bought these bad loans or required them to be made shows that the most plausible explanation for the large number of subprime loans in our economy is not a lack of regulation at the mortgage origination level, but government created demand for these loans” (Wall Street Journal-Lack of Candor and the AIG bailout page A15 Saturday Nov 28 2009).
The testing feature of counseling (HUD prefers to call it an “assessment”) will in my opinion inappropriately eliminate from consideration those individuals that are otherwise eligible but have some cognitive impairment. Cognitive impairment is not an all or nothing thing. Rather it insidiously strikes our elders in a gradual and intermittent way. It should be pointed out that even with mild dementia, the individual can live independently with minimal support. Clearly I see perverse consequences emanating from this testing requirement. See prior article.
Removing the HECM program from the GIF to the MMIF fund will require that there be a constant monitoring of the viability of the program. This was not necessary when the HECM program was part of the General Insurance Fund. While it has been widely reported that a subsidy of almost 800million is needed for the 2010 fiscal year, questions have been raised whether a subsidy is really needed or not. Using erroneous assumptions in calculations will only have perverse consequences to a program doing a lot of good. Let’s not forget that the program made seven billion dollars since 1992.
The preference for underwriters to determine the appropriate use of a power of attorney is dangerous especially when the document is done under the auspices of a law office. A cavalier preference toward guardianship proceedings is a perverse consequence that will delay the closing and costs thousands of dollars in legal fees. Many families will not be able to afford such a legal proceeding.
Once the spot condo approval form is eliminated, it will be harder for lenders to consider approving condo projects on their own. Many have suggested that they will no longer do HECMs on condominium projects. It is rumored that the co-op mortgagee letter is over 100 pages. It is probably totally inscrutable and do not have much faith in being able to do HECM’s on co-ops. A huge population of seniors who are otherwise eligible, will not be able to obtain a reverse mortgage. This was not a consequence that was intended.
Eliminating the FHA approval process, while counting on the wholesale lenders to choose who they work with will put an undue burden on said companies. Competition being what it is, they will not want to exclude anyone for fear of that originating company going to another lender. Many see this process as adding to the number of undesirables working with our elders. Another perverse consequence.
The fear is that when our elders are at a greater need for funds, those funds will be truncated while the program will welcome fewer and fewer eligible seniors. Accordingly it seems to me that HUD has taken its eye off the ball. Risk management cannot mean elder banishment. It seems that this is the direction the program is taking.
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