As a result of the housing downturn and the slow economic recovery, more seniors have turned to the Home Equity Conversion Mortgage (HECM) program (reverse mortgage), backed by the Federal Housing Administration (FHA) as an economic lifeline, but an independent audit has revealed the program is $2.9 billion in the red. As originationnews informs MHProNews, 57,500 seniors cannot afford taxes and insurance and are technically in default, a problem which can lead to foreclosure, despite $534 million from the FHA insurance fund in May 2011 to shore up the program. Several large lenders, including JPMorgan Chase and Wells Fargo no longer offer reverse mortgages because of the street rep of foreclosing on seniors. With some borrowers abandoning their homes because of the need for major repairs, HUD wants to restructure the loans, requiring lenders to do a financial assessment of the borrower’s needs, including their ability to pay taxes and insurance going forward. HUD Secretary Shaun Donovan wants to push its HECM Saver program: Instead of a lump sum payout, the borrower essentially gets a home equity line of credit. In fiscal 2012 FHA lenders originated 48,000 standard fixed-rate HECMs but only 3,800 HECM Savers. As the Baby Boomers age, the number of these loans will undoubtedly rise, more so if the economy remains sluggish.
