In a guest column in The Joplin Globe, retired banker Konrad Heid described the HECM program as the FHA devising "a new way to get older Americans into financial trouble," triggering a strong defense from NRMLA President Peter Bell
In the article, "Reverse mortgages don't make sense," Heid describes the borrower's obligations as a trap for borrowers who will be forced into decisions about how their home is maintained and will struggle with rising costs for taxes, insurance and upkeep. The end result is forcing the borrowers' into foreclosure.
He suggests to just sell the home because in taking a reverse mortgage you have in essence sold with, without any of the gain.
In a response guest article published on July 18, NRMLA President Peter Bell expressed dismay about the misinformation and inaccuracies presented by Heid.
The following is Bell's full response as ran in The Joplin Globe on Sunday:
The Joplin Globe, July 18, 2011
As the president of the National Reverse Mortgage Lenders Association (NRMLA), I was dismayed at reading a guest column (Globe, July 10) that propagated misinformation about reverse mortgages. The column was light on facts, and in some cases, contained flat-out erroneous information. I think it would be helpful to explain why it is vital to have reverse mortgages available to the seniors who need them.
Congress created the FHA Home Equity Conversion Mortgage program, commonly known as a reverse mortgage, in 1987 at the request of senior advocacy organizations that were worried about the growing number of seniors who were house rich but cash poor. These seniors were in financial distress and unable to pay for medicines, groceries, or even their existing mortgage payments. After successful testing in a number of states, the program became available to seniors nationwide.
Because seniors often do not have the income to qualify for traditional home equity lines of credit, they are unable to access the wealth they had accumulated in their homes without selling the property and relocating. Reverse mortgage critics often tell seniors to sell their home and relocate. But why should they not have the opportunity to stay in their home? It is common for seniors to have trouble finding affordable housing without moving far from their support network. Reverse mortgages are designed to help people manage their personal finances, while affording a senior who wishes to age in their home the chance to do so.
A reverse mortgage enables older homeowners (62-plus) to convert part of the equity in their homes into tax-free cash without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, a lender makes payments to you. The homeowner does have a few important obligations with a reverse mortgage, including paying property taxes and insurance as well as maintaining normal and customary upkeep of the property.
The funds you are eligible to receive depends on your age (or the age of the youngest spouse in the case of couples), the appraised home value, interest rates, and in the case of the government program, the lending limit. In general, the older you are and the more valuable your home, the more money you can get.
You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or a combination of these. The most popular option — chosen by more than 60 percent of borrowers — is the line of credit, which allows you to draw on the loan proceeds at any time.
The reverse mortgage industry, in concert with the U.S. Department of Housing & Urban Development, is continuously focused on evaluating and improving the program for consumers. In the last year alone, an enhanced counseling protocol has been introduced, exam testing for all counselors is now required, and a new product that slashes up-front fees, the HECM Saver, was established. We are offering seniors more options and more protection than ever before.
Without the reverse mortgage, many seniors would find themselves forced out of their homes due to foreclosure or merely from a shortfall in cash each month. Home equity is an important component of wealth for American seniors, and it should be part of the funding longevity equation.