Shaun Donovan
The Wall Street Journal reported last Friday that HUD Secretary Shaun Donovan stated in front of a Congressional hearing on Thursday that the Government could raise insurance premiums to on Reverse Mortgages to offset the nearly $800 Million FHA losses resulting from the current housing market. It would be the first time taxpayer’s funds have gone into the reverse mortgage programs in its 20 year history. As with most Government initiatives, the thought process is one in which the Government failed to recognize a problem that it was creating, allowed it to escalate, and then came back to the people demanding funds in the form of taxes, to fix the problem. (The last comment represents my personal view as opposed to Secretary Donovan’s).
Fortunately Donovan recognized a simple flaw in the theory, being that if premiums are raised on reverse mortgages, then they will become less valuable and affordable to seniors. This is a situation where increasing fees only lowers participation. And furthermore, it may create circumstances making reverse mortgages inaccessible to the seniors who need it most.
We can all only hope that Government Officials stay out of making changes to programs to fix their mistakes at the cost of the people.
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“It would be the first time taxpayer’s funds have gone into the reverse mortgage programs in its 20 year history.”
This is nonsense, of course. The creation of the program, like FHA, and other “guarantee” programs, put taxpayer funds at risk from the beginning, and now that risk is being realized without any provision having been made for absorbing it.
The federal government’s “cash accounting” disguises this fact, until the losses materialize, then the program’s promoters profess that they are “shocked, shocked” that yet another government guarantee program has blown up. Taxpayer dollars “go in” to these programs from their inception, but the failure to account for this unrecognized capital consumption simply means that future taxpayers will get fleeced because of the unwillingness of present and past taxpayers to pony up the capital when the program was set up. In the case of HECM, the “future” is now.
Perhaps the needed capital should be extracted from those who have benefited from the program: borrowers, originators, and investors.