Last week, the US Senate Special Committee on Aging introduced an $800 million HUD bill to resolve some of the growing concerns over the FHA home loans created specifically for Seniors older than 62 years of age.  These FHA loans are also known as reverse mortgages, but the real concerns are that these loans may be leaving senior citizens and American taxpayers liable for millions of bad mortgages that may not perform. Clearly the fact that FHA insures these reverse mortgage loans adds to the concern for liability and stick Americans with more mortgage related debt.

Peter Bell, president of that National Reverse Mortgage Lenders Association testified that “a reverse mortgage must occupy the primary lien position on a property. All other home loans must be satisfied with reverse mortgage proceeds. If some of the proceeds available from the reverse mortgage are diverted to a tax and insurance escrow, in some cases, there would not be enough money left to satisfy the liens. In such cases, the homeowner would not be able to obtain the reverse mortgage – and probably be forced to give up the home.  “Instead of simply imposing an escrow, HUD (in partnership with a NRMLA Task Force on tax and insurance issues) is looking at utilizing the financial assessment tool to determine if the lender and counselor should work with the borrower to establish an escrow, amend the draw-down schedule, limit payment options, disallow a lump sum payment or take other steps appropriate to help protect borrowers from tax and insurance defaults. One obstacle here is that the Home Equity Conversion Mortgage statute requires all five payment options available under the program to be offered to all borrowers, restricting HUD and lenders’ ability to take appropriate action.”