Reverse Mortgage Loan Blog

Housing and Urban Development Secretary Shaun Donovan said he was open to raising premiums or restricting eligibility for Federal Housing Administration reverse mortgages to avoid a $798 million taxpayer subsidy for the program.

“We do have options for changing the HECM program,” Donovan told a Senate appropriations committee Thursday, referring to the FHA’s Home Equity Conversion Mortgage.

When it unveiled its 2010 budget request last month, the Department of Housing and Urban Development asked for a $798 million credit subsidy for the FHA’s reverse mortgage program for the first time.

Questioned by Sen. Patty Murray, D-Wash., Thursday, Donovan conceded that HUD had other options to avoid the subsidy, such as raising borrower premiums or the program’s loan-to-value limit. Those changes would affect participation in the program, Donovan said. He agreed to discuss the options with Murray after the hearing.

The FHA’s reverse-mortgage program allows borrowers 62 years of age and older to convert equity in their home into monthly payments or a line of credit. The borrower pays back the loan when the property is sold with the proceeds of the sale. Where the sale proceeds fall short, the FHA steps in to pay the difference.

HUD cited falling home prices as the culprit prompting the request for the taxpayer subsidy. Donovan, in a call with reporters last month, said he was hesitant to raise premiums on seniors, many of whom have seen their savings ravaged by the financial crisis.

The agency projects that it will insure at least $30 billion in reverse mortgages under the program in 2010.

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