Remember the reverse mortgage? Well, the loan that allows seniors to take a loan against the value of their home in monthly payments is great for those on a fixed income, but not so great for the lender if the value of the property declines.
This is being brought to light as the FHA is on the hook this year for the 800 million dollars it is having to pay up for guarantees they have made.
Ouch.
The Home Equity Conversion Mortgage program offers FHA-insured reverse mortgages to seniors, aged 62 years or older, who want access to the equity in their homes via monthly streams of income or a line of credit to be repaid when they no longer occupy the homes.
The problem inherent in the program, however, is the unpredictability in housing prices.
If a senior pursues a reverse mortgage line of credit on a home at $300,000 but the value later drops to $250,000, FHA must assume any losses. HUD does not seem to have forgotten the drawback, since the budget calls for nearly $800m to cover anticipated future losses via HousingWire
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