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Why the Federal Government Isn’t Promoting HECMs.

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Last month the Montana Department of Commerce redoubled its efforts to remind older Montanans of the state’s Reverse Annuity Mortgage (RAM) program. Similar to the Home Equity Conversion Mortgage or HECM Montana’s program was passed into law by the Montana Legislature in 1989. However, unlike HECM Montana’s Reverse Annuity Mortgage is only available to Montana homeowners who are 68 years or older and who fall within the program’s income limits. 
Montana is not the only state offering a reverse mortgage program. Massachusetts, Minnesota, and Connecticut have similar programs although with differing rules and qualifications.  

State-Promoted Reverse Mortgages

Why would these states promote their reverse mortgage programs to eligible residents? While these programs help seniors improve their quality of life in retirement these states have another motive beyond pure altruism. These programs help reduce dependency on government-funded needs-based programs which account for a significant portion of a state’s budget.
Then there are the single-purpose reverse mortgages offered by local governments and nonprofits which restrict the use of the loan proceeds for specified repairs or improvements.

Why the Government Doesn’t Promote HECMs

All this led me to ask, “So why doesn’t the federal government promote the Home Equity Conversion Mortgage”? Since the program was created partly to help reduce dependence on assistance programs like Medicaid shouldn’t they promote this FHA-insured loan more aggressively with public service announcements and ad campaigns? Not necessarily. 
There are several reasons the federal government doesn’t actively promote HECMs. 
First is the complexity of the loan. The counterintuitive nature of a reverse mortgage and its structure are difficult for homeowners and even professionals to understand. This complexity is a hurdle the federal government is unlikely to want to tackle. 
Another reason is the unique risks of a HECM loan such as outliving the loan’s proceeds, exhausting a lifetime expectancy set aside account with higher property taxes and homeowners insurance, and the inability of an eligible non-borrowing spouse to continue to access loan proceeds.
And sadly, despite being a government-insured loan public perceptions, lingering negative stigmas, and misconceptions make promoting the loan untenable. 
But perhaps most importantly promoting the HECM falls outside the federal government’s role and responsibilities. The federal government through the Federal Housing Administration is the insurer of the loan, not the lender. As such, the government’s chief focus is on risk management, not promotion. 
In conclusion, the federal government’s approach to promoting HECMs is measured and focused on education and consumer protection rather than aggressive marketing. This strategy reflects the program’s complexity, potential risks, and the need to safeguard the financial well-being of seniors. By ensuring that potential borrowers are well-informed and protected, the government aims to make HECMs a viable option for those who truly need them, without encouraging unnecessary financial risks.
 
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Shannon Hicks

Editor in Chief: HECMWorld.com
 
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
 
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
 
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.

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3 Comments

  1. It should be obvious that the FHA subsidized housing programs are much more profitable for Democrat donors than the HECCM program. Anyone that tracks loan volume compared to the President’s political party will see that the program grows under Republicans and shrinks under Democrats.

    • Don,

      Nonsense! The lowest total for HECM endorsements for any fiscal year since fiscal 2003 is fiscal 2019. Donald John Trump was President in that fiscal year. In fact what caused that problem was the 10/2/2017 changes which the Donald John Trump Administration pushed through and which is plaguing our industry today. The highest HECM endorsement total since fiscal 2011 was fiscal 2022 when Joseph Robinette Biden was President.

      Second, on September 30, 2023 (when Joseph Robinette Biden was President), the HECM program had a rather large surplus in the HECM portion of the MMIF. According to HUD, it was over $11 billion when the required minimum was just $1.3 billion. Over $8.6 billion is due from the US Treasury which in government speak means it is a cash equivalent. Strange but when reporting on HUD’s estimated value of the HECM portfolio of $2.4 billion, HUD’s independent actuaries concluded that the amount was more likely $6.8 billion for a total surplus of $15.4 billion.

      Your numbers are not coming from reliable sources. Please get your information from the HUD website where all of the relevant data is posted. What your politics are, they are, but please stop distorting facts to make your candidate look like something he is not.

      Trump with his reduced PLFs and Biden with his overspending and resulting higher interest rates have BOTH damaged our industry and held back thousands of seniors from getting the financial help they need. We need to stop the blame game and lobby for better results for senior homeowners especially when it comes to PLFs.

  2. Now back to the video.

    Shannon, you are on point.

    We need to stop trying to make HUD do what they are not supposed to do. They surely can talk about the good state that the HECM program is currently in and they have done that.

    Yet on the other hand, I wish HUD would turn the 10/2/2017 changes on their proverbial head. BUT will they? There is only so much that lenders and originators can do and right now HECMs are NOT yielding sufficient proceeds for the program to grow. Instead fiscal 2024 will end up being the worst fiscal year for HECM endorsements since October 1, 2003. It is so bad that those of us who follow HECM, case number assignments (not long ago derided as a rather meaningless way of predicting HECM endorsement volume) saw the problem not turning around this fiscal year as early as January 2024. Even worse there is no sign that things will turn around in 2025 unless either HUD makes substantial changes to the program or interest rates go substantially lower.


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