Reverse mortgages were designed to help senior homeowners age in place. While they accomplish that goal for thousands of people today, there’s also a big picture benefit to the reverse mortgage program as a whole: It saves government money on entitlement programs such as Supplemental Security Income and Medicaid.
In fact, by some estimates, reverse mortgages could save as much as $5 billion a year—or more—in Medicaid spending.
“In this evolving trend toward fiscal responsibility, it isn’t just that we help seniors,” says John Mitchell, owner and founder of Austin, Texas-based Reverse Mortgage USA.
Mitchell published a study last year outlining the benefits of reverse mortgages from the standpoint of fiscal spending.
The premise is based on current Medicaid qualifications and the fact that home equity is not considered in eligibility criteria.
“What the study says is reverse mortgages can save $5 billion a year in Medicaid because there’s a flaw in the system now that ways says you don’t count your house toward whether you qualify,” Mitchell says.
A similar case was made in 2011 in a Congressional hearing on Medicare and long term care planning.
“Medicaid’s home equity exemption prevents people from using reverse mortgages to finance home care,” said Stephen Moses, who is president of the Center for Long-Term Care Reform, in testimony before a House Oversight and Government Reform Subcommittee on Health Care. “Well intentioned public policy has turned into a perverse incentive discouraging responsible LTC planning,” he said.
By Moses’ estimate, reverse mortgages could play a role in saving as much as $30 billion per year on Medicaid.
“[Medicaid’s] most expensive ‘dual eligible’ recipients could be reduced by 20%,” he said in the hearing. “Reverse mortgages to fund long-term care would thrive and generate new jobs and tax revenue. The private long-term care insurance market would expand creating even more jobs and revenue.”
By providing ongoing cash flow, a reverse mortgage can also help to prevent an individual or couple from taking Supplemental Security Income (SSI) and can allow them to live independently of yet another government-backed program.
With the current market for reverse mortgages at less than 70,000 loans per year, there is greater potential for this government saving.
Currently, only around 2% of those who could qualify for reverse mortgages are taking out the loans, according to industry data. As the first baby boomers began to turn 62 in 2006 and with 10,000 baby boomers turning 65 each day, the burden on government programs designed to help seniors is increasing, yet reverse mortgages can help alleviate some of that pressure.
While the Federal Housing Administration, which insures reverse mortgages through its Home Equity Conversion Mortgage (HECM) program has recently come under fire from Congress on its ability to maintain its insurance fund, bolstering the reverse mortgage program could actually serve to save in spending elsewhere.
While this type of loan can help on an individual level, it also serves to help the budget shortfall that is so prevalent today in Washington. Yet, we look at the objections of individuals like Senator Bob Corker and we are left scratching our heads. Senator Corker refuses to vote for a full audit of the Federal Reserve and the Tennessean Newspaper recently reported that it may be due to the fact that many of his contributors received bailout money from the Feds.
The Tennessean goes on to report that Senator Corker also voted for the Bail Out of Wall Street, he voted to raise the debt limit and he voted for the Cash for Clunkers program (the Cash for Clunkers program was itself a $3 billion program that recipients did not fund in any way and does not save taxpayers a dime as does the HECM program).
We call on members of the Senate such as Senator Corker to stop trying to now show that they are “fiscal conservatives” by going after the programs for seniors that studies show actually help the American Taxpayer as well.
It may be easy for the Senator and others to focus on these programs since most people are not aware of their importance or just how much they do benefit the country as well as the senior borrowers who use them, but we encourage the Senate to review all the facts before they force HUD to make changes that would hurt senior borrowers.
While we cannot readily determine what the HECM program has accounted for in revenue/expenses in the past, it is reasonable to assume that losses would begin to rise when the borrowers started selling/passing in greater numbers on those loans that were put in place before the real estate crash.
Many values across the nation are still half of what they once were, which makes the crash in the values in the real estate market as much to blame as anything for the current losses in the program (which by the way, the real estate market was artificially inflated due to a number of moves made by Congress and the Senate so Mr. Corker and his colleagues in government share more of the blame for the current losses than anyone).
It is true that more borrowers are defaulting on the taxes and insurance in the early years of the loans with higher utilization of the benefit amounts, but then that should be an area that HUD can look more closely at to put procedures in place to ensure sufficient funds are set-aside for the future payment of taxes and insurance that could be released for the borrower’s use after a certain period of time that borrowers show they can manage their tax and insurance obligations when initial draws exceed set levels.
There is no reason to threaten a program that by all accounts saves the American taxpayer year in and year out due to one year’s results that aren’t as good, but still not as bad as if the program were not available. It is not the time to seriously cut back on programs like the HECM just as home values are beginning to recover and values are beginning to rise again in many parts of the country.
We urge Senator Corker and other members of the Senate to stop voting for huge bailout programs and special interest programs that don’t save the taxpayers money and stop looking for ways to put the burden on our senior citizens yet one more time.
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