Article on the Importance of the Home Equity Conversion Mortgage

Ben Jakubowicz recently published an Article entitled, What the HECM Is a Reverse Mortgage: The Importance of the Home Equity Conversion Mortgage in an Aging America, 54 U. Louisville L. Rev. 183 (2016). Provided below is a summary of the Article:

In short, the HECM program in its current state does not adequately protect the interests of senior homeowners. Before addressing the cost and default issues, it is first necessary to acquire a thorough understanding of the HECM framework. Section I provides a brief overview of the demographics of the baby boomer generation and surveys today’s lending environment. Next, Section I explains the HECM guidelines before analyzing the direct correlation between costs and default rates.

Section II examines why reverse mortgage borrowers default on their loans and considers the effectiveness of recent legislative enactments aimed at reducing default. Section II goes on to explain the lender’s role in the process and ultimately illuminates the conclusion that many of the most problematic aspects of the reverse mortgage program are beyond the reach of the legislature. Section III recognizes that those infirmities are best remedied by removing the profit motive from the HECM market, and discusses the benefits of implementing government-sponsored entities at the mortgage originator level.

Most importantly, this author seeks to reinforce the notion that there must be a pro-active approach to maintaining the HECM program so as to ensure its affordability and sustainability as the American population ages.