Last week’s article (see
Second Article) proposed capping cash draws in the early
years of a HECM reverse mortgage in order to discourage
participation by seniors looking for the largest possible
cash-draw. The purpose of the HECM program is to help senior
homeowners finance their retirement, not to deplete all the
equity in their homes at the outset of retirement. These
cash-out borrowers also impose the largest drains on the
FHA’s reserve fund.
The second challenge facing HUD/FHA is to attract more of
the seniors for whom the HECM program was intended. There
are millions of them whose lives would be enriched with
HECMs who haven’t taken them. The reason they haven’t is
that they are either unaware of the program’s existence, or
they are aware of it but their impressions of the program
are based on poor information:
HUD/FHA do support HECM counseling, which is required on
every transaction. However,
the only seniors who are counseled are those who have
selected a lender, which means that they are among the few
that have overcome the misinformation hurdles listed above.
Since misinformation
discourages seniors from ever contacting a lender,
counseling is not a remedy. What is required is an
educational program.
While HECMs are a bit complicated, seniors need not be
rocket scientists to understand everything that they need to
know to make a rational decision on whether or not they want
one. Because HUD’s web site is heavily trafficked and has
credibility, it should be the focal point of the
internet-based part of the educational effort. I propose a
three-pronged approach.
Yes, you guessed it, my colleagues and I have developed all
of these, and am prepared to license them for HUD’s use on
its site at no charge.
Not all seniors use the internet, so other thrusts are needed. Live seminars around the country, publicized through newspapers and other hard copy media, could draw seniors who would not otherwise have any way of finding out about HECMs. The thoughts to follow are very tentative and sketchy, designed to stimulate further thought and discussion.