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The Mortgage Professor: Should Government Support HECMs?

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By Jack Guttentag

reverse_mortgage_seniors(MCT)—The Home Equity Conversion Mortgage (HECM) program is a government-supported reverse mortgage program for elderly homeowners. The program allows seniors to take a mortgage on their home under which they can draw funds in a variety of ways — upfront, monthly or intermittently as they choose — with no repayment obligation so long as they reside in their home.

The HECM program would not exist without federal government support.

The lenders who advance funds to the seniors are guaranteed repayment by the FHA while virtually all of the HECMs that are written are securitized, with the securities guaranteed by GNMA. In an environment of severe budgetary stringency, a question arises as to whether this program is worthy of government support?

Some legislators think not and several House Republicans have introduced legislation that would kill the program.

The case for support has five arguments. The first is that the HECM is unique in converting illiquid housing wealth into spendable funds while allowing continued occupancy by the owner. The only close substitute is other reverse mortgage programs, but the private programs that emerged after the HECM program and were modeled after it, disappeared with the financial crisis. This resulted from the collapse of private secondary mortgage markets, upon which the private reverse mortgage programs depended.

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