History of Reverse Mortgage and Home Equity Conversion Mortgage(HECM)

The Home Equity Conversion Mortgage (HECM) program has a significant history tied to the evolution of reverse mortgages in the United States:

Early Beginnings:

• • The concept of reverse mortgages was first introduced in the 1960s, but these were private arrangements with little standardization or oversight. This lack of oversight caused many of the myths that still exist today, but has since been resolved with regulatory oversight and strict requirements to protect consumers.

Legislative Foundation:

• • In 1987, the U.S. Congress passed the Housing and Community Development Act, which included provisions for the FHA to begin insuring reverse mortgages. This laid the groundwork for what would become the HECM program.

Program Launch:

• • The HECM program officially started in 1989 under the administration of the Department of Housing and Urban Development (HUD). The FHA’s involvement was crucial as it provided insurance to lenders against the risk of borrowers outliving the loan amount or defaulting due to other reasons like property depreciation or maintenance issues.

Growth & Changes:

• • 1990s: The program saw slow but steady growth. Adjustments were made to the program to increase its viability, including changes in how payments could be received (lump sum, term, tenure, or line of credit).
  • 2000s: The popularity of HECMs grew significantly. In 2008, the Housing and Economic Recovery Act expanded the program by raising the maximum claim amount and introducing new payment options like the adjustable-rate HECM with a line of credit that could grow over time.
  • 2010s – Financial Crisis Aftermath: 
    • Regulatory Adjustments: In response to the financial crisis, the program faced several changes aimed at sustainability. In 2013, HUD implemented the “HECM Saver” option, which offered a lower upfront premium for smaller loan amounts.
    • Financial Assessment: In 2015, a financial assessment was introduced to ensure borrowers could afford ongoing property charges like taxes and insurance, aiming to reduce defaults and preserve the mutual mortgage insurance fund.

Recent Developments:

• • Limit Adjustments: Over time, the maximum claim amount for HECMs has been adjusted in line with changes in housing prices and legislation.
  • Program Stability: Efforts have continued to balance between making reverse mortgages accessible to seniors while ensuring the financial stability of the program. This includes periodic adjustments to premium structures, loan limits, and underwriting criteria.

Current Status:

• • The HECM program remains a key part of HUD’s offerings for senior homeowners, providing them with a way to convert home equity into cash without having to sell their home or take on additional monthly mortgage payments. However, the program’s specifics, like loan limits and insurance premiums, are periodically reviewed and adjusted based on economic conditions, housing market trends, and legislative directives.

Reverse mortgages can be a useful financial tool for eligible seniors looking to supplement income, pay for healthcare, or cover living expenses, but they also come with complexities that should be thoroughly understood before proceeding.

Learn more about eligibility requirements for a reverse mortgage, situations where a reverse mortgage is best used, and common myths around reverse mortgage that we debunk with facts