Government Reverse Mortgages May Face Cut in Proceeds

House appropriators have instructed the Federal Housing Administration to cut the proceeds seniors receive when taking out a FHA-insured reverse mortgage in fiscal year 2010, which starts Oct. 1. The Obama administration originally asked the appropriators to provide FHA with an $800 million credit subsidiary to cover possible losses coming from declining house prices. However, HUD secretary Shaun Donovan told Congress he was willing to make changes to the FHA Home Equity Conversion Mortgage program to offset some of the losses, but he did not want to increase the mortgage insurance premiums. The House Appropriations Committee approved a Department of Housing and Urban Development appropriations bill on July 17 that instructs HUD to reduce the principal amount a senior can receive on a HECM. The principal limit is based on the borrower's age and the expected interest accrual over the life of the loan. The committee's action "reduces what seniors will get, which is problematic at a time when there is great need," said Peter Bell, president of the National Reverse Mortgage Lenders Association. "We might find that some people that want a reverse mortgage won't be able to get enough money to pay off their existing mortgage. They will be forced to sell the house and move."