Wednesday, January 15, 2014
The Center for Retirement Research at Boston College released a January 2014 Issue Brief (IB14-1) on the changes to the government's reverse mortgage program. Alicia H. Munnell & Steven A. Sass wrote The Government's Redesigned Reverse Mortgage Program. What is particularly helpful about this Issue Brief is they offer an overview of the reverse mortgage program as well as a discussion of the changes. The changes, described in the Brief as the "three key reforms" are: (1) changing from the two prior to just one home equity conversion mortgage (known as HECM), (2) lowering initial borrowing within the 1st year and (3) as of January 1, 2014 determining the proposed "borrower’s ability to pay property taxes and homeowner’s insurance premiums."
The authors conclude that these are all improvements in the program. Moving to one HECM rather than the two previously offered makes the program more understandable. Limits on borrowing in the first year lowers the chances of defaulting borrowers and the assessment reduces the changes of homeowners losing their homes due to unpaid taxes and insurance.
The authors view reverse mortgages as taking on a bigger role:
Accessing home equity will become increasingly important in a world where retirement needs are expanding – people are living longer and face rapidly rising health care costs – and the retirement system is contracting – Social Security replacement rates are declining and employer-provided pensions have shifted from defined benefit plans to 401(k)s where balances are modest. Reverse mortgages offer a mechanism for tapping home equity for those who want to stay in their home.
The Brief runs 7 pages and I think it will be a great resources for our students to help them better understand HECMs.