The Home Equity Conversion Mortgage (HECM) insurance program, created in 1987 under the National Housing Act, is designed to provide elderly homeowners with a financial vehicle to tap the equity in their homes without selling or moving. The loan became known as a reverse mortgage because the lender makes payments to the homeowner, which is the reverse of the payment pattern of traditional mortgages. Reverse mortgages are intended to help house-rich but cash-poor seniors access additional income to meet expenses and to help elderly, middle-income homeowners convert their home equity into liquid assets. The Federal Housing Administration (FHA) insures HECM loans originated by FHA-approved lenders to protect the lenders against loss if amounts withdrawn exceed ultimate equity when the property is sold. The FHA insurance also protects borrowers with a guarantee to make any payments lenders fail to make to the borrower. A new report, No Place Like Home: A Report to Congress on FHA's Home Equity Conversion Mortgage Program, provides an evaluation of the HECM program. This report is the last in a series of mandatory reports to Congress on the demonstration phase of the HECM program, which became a permanent HUD program in 1998. The report finds that the demonstration phase of HECM has been a general success, with loan volumes growing, borrowers reporting high levels of satisfaction with the program, premium collections projected to exceed insurance claims by more than $500 per loan, and a trend toward lower average costs paid by borrowers to originate a HECM loan. Nevertheless, the report indicates that several factors could increase HECM loan volumes. Future HECM volumes could grow if overall loan costs continue to decline, FHA loan limits are increased, and the public's awareness of the program is raised. The combination of lower costs, higher loan limits, and increased awareness might encourage more older homeowners to apply.
No Place Like Home: A Report to Congress on FHA's Home Equity Conversion Mortgage Program is available free from HUD USER. Use the order form.
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