Reverse Mortgages Could Save Government Billions,
Suggests Industry Leader
Estimates reverse mortgages could play a role in
saving $5 to billion per year in Medicaid
By Michael G. Branson, All
Dec. 26, 2012 -
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
The premise is based on current Medicaid
qualifications and the fact that home equity is not considered in
“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 says you don’t count your house toward whether you qualify,”
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
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 (R-Tenn.) 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
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 helps
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
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 bail out 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.