Reverse Mortgage Appropriation Woes

By now you have probably heard of the $250 million appropriation the Obama administration requested from congress in order to justify the expected losses from the FHA reverse mortgage program in fiscal 2011. A congressional sub-committee assigned a new number recently of $100 million less based on revised annual projections and the severe downturn in 2009 reverse mortgage volume. Even though the program is again, sure to get some kind of a principle loan amount reduction, at this time it’s not quite certain what exactly will happen to the program except that it won’t be as good to seniors as it was, just like last year’s principle loan amount reduction. I remember last year’s cut and how it was projected to reduce volume by 5%  but low and behold, here we are down 30%! Now I am sure housing values had something to do with that and how much, I really don’t know. Let’s say the majority of the decrease in volume was from the decline in housing values nationwide and peg the number at, oh I don’t know, 25%. What that means is that the market worked all by itself without any turning of the screws by the fed. It means the principle loan amount reduction was not necessary and the housing crisis corrected the steep growth curve of reverse mortgage volume all by itself, rendering a much lower amount in losses for the program.

But even with this knowledge, here we are talking another reduction. The thought of another principle loan amount reduction is not only ridiculous because seniors won’t get enough money to make the program viable but it is already been proven to be flawed by the subcommittee that is now revising the number of potential losses downward. Remember how far off they were on last year’s prediction, well here we go again.

Look below at the median home price in the US and in my area, Arizona, continuing to slide downward. Are program revisions really necessary at this time? I certainly don’t think so. Is $150 million a realistic number and if it is why not use the other $49 billion still in the TARP account?

Michael Manfredi is a Reverse Mortgage Specialist
Reverse Mortgage Concepts

Phoenix, AZ 85020
(602) 456-0009
(888) 697-5556