Washington Encourages The Use Of Reverse Mortgages

The topic of reverse mortgages seems to be making the news almost daily lately. If you haven't heard about them yet from your local newspaper or widely broadcast television commercials featuring the actors Robert Wagner and James Garner, then it won't be long before you do become aware of this innovative mortgage product aimed at seniors age 62 and older.

Reverse Mortgages allow senior homeowners to tap into their home equity to receive supplemental income on a tax-free basis. The income they receive is not taxable and does not have to be repaid until the homeowner permanently leaves their home. Social Security and Medicare benefits are not affected. Additionally, the senior's estate or heirs will not be responsible for repaying any shortfall if the loan balance exceeds the value of the home at the time the senior leaves the home permanently.

Unlike traditional or forward mortgages there are no monthly payments to be made, no credit qualifications and no income qualifications. The main requirements are that the youngest person on the title be at least 62 years old, the home is used as the primary residence, the home be either mortgage free or have a low balance on the current mortgage, and that the home is not a mobile home, a cooperative or on rented land.

Many experts, including the Federal Reserve Chairman, Ben Bernanke, see a crisis looming because many seniors don't have enough savings or insurance to pay for extended-care needs. Instead, they often turn to Medicaid, which pays primarily for nursing home stays, but not care given in the home. With Medicaid costs already putting a huge strain on state and federal budgets, experts are predicting disaster as 78 million baby boomers become senior citizens in the upcoming years.

In his statement to the Economics Club of Washington on Wednesday, October 4, 2006, Fed Chairman Bernanke stated: "Unless Social Security and Medicare are revamped, the massive burden from retiring baby boomers will place major strains on the nation's budget and the economy. Reform of our unsustainable entitlement programs should be a priority." Financially shoring up Social Security and Medicare will involve difficult choices by lawmakers and other policymakers, Bernanke said.

We are clearly seeing a shift in public policy that is starting to focus on reverse mortgages as a funding source to address the long term needs of this burgeoning segment of the population. On July 25, 2006 the House passed H.R. 5121, the Expanding American Homeownership Act of 2006, which will remove the current cap that has limited the number of reverse mortgage loans that the Federal Housing Administration (FHA) could insure. The bill will also set a single nationwide loan limit for reverse mortgages, instead of designating different loan limits for each county across the nation. A Senate version with similar provisions is under consideration.

Page 1 of 2 :: First | Last :: Prev | 1 2 | Next