Reverse mortgages have been through many changes in their short, 57-year (depending on who you ask) lifespan.
As the story goes, a small, local bank wrote the first reverse mortgage in 1961 to a woman in Portland, Maine. The bank owner wanted to help the wife of his high school football coach stay in her home after her husband passed away.
From there, the product took off and continues to help more older Americans remain in their homes as they age.
Bringing it to the Senate
It wasn’t until 1969 that the reverse mortgage concept was brought to the Senate Committee on Aging. Yung Ping Chen, a professor from UCLA, was the one to share his support of the product that would allow homeowners to tap into their equity to stay in their homes as they aged. The committee was intrigued by the idea.
The first proposal, approved by the Senate, was in 1983 and was brought by former Senator John Heinz. This proposal made the reverse mortgage product insured by the Federal Housing Administration (FHA).
Then, in 1984, American Homestead presented the Century Plan, which was somewhat of a baseline for reverse mortgages insured by the government.
In 1987, a bill was passed by Congress called the Home Equity Conversion Mortgage Demonstration. It was the pilot program that insures reverse mortgages.
Following the pilot program, President Ronald Reagan signed the reverse mortgage bill into law in 1988, and HUD gained the right to insure reverse mortgages through FHA. The first FHA-insured Home Equity Conversion Mortgage (HECM) was issued to a woman in Kansas in 1989.
The first set of regulations came in 1994 when Congress required lenders to disclose the total annual loan costs to borrowers at the beginning of the application process. Then, in 1996, the program changed to allow residences with up to four units to apply for a reverse mortgage as long as the borrower occupies one unit as their primary residence.
The HECM program was officially deemed permanent in 1998 with the HUD Appropriations Act. Some safeguards were also implemented at this time, such as full disclosure fees, to protect borrowers from unnecessary charges.
The millennium brings changes
As the new millennium kicked in, HUD announced that there would be an increase in origination fees for reverse mortgages. It was changed to either 2% of the maximum claim amount or $2,000.
In 2001, HUD partnered with AARP to start testing and training approved reverse mortgage counselors and establish HECM counseling policies and procedures. The following significant change to the HECM program came in 2004 when FHA added rules about refinancing HECMs. Then, in 2005, HECM refinances were made legal.
The establishment of a loan limit came in 2006. At this time, the limit was $417,000. Then, the first group of Baby Boomers started turning 62 in 2008, when someone could apply for a reverse mortgage. In 2009, the HECM for Purchase was introduced, and Congress increased the HECM loan limit to the current limit of $1,149,825.
2010 to present
Between 2010 and today, several changes were made to improve the HECM product; the recession left many people skeptical of how and if a HECM could protect them as they age. Among the changes:
- FHA increased the mortgage insurance premium from 0.25% to 1.25% per year in 2010
- FHA also lowered the interest rate floor from 5.5% to 5% in 2010
- HUD released new HECM policies in 2013 to make the reverse mortgage product safer and stronger
- In 2014, HUD started to finalize the guidelines for the financial assessment
- A formal financial assessment was implemented in 2015
- 2015 was also when non-borrowing spouse protections went into effect, and a more detailed financial assessment was put into place
- A Brief History of the HECM Program Testimony of Peter H. Bell (.PDF Document)