Congress is about to do it again: Kick grandma in the gut.
And President Barack Obama needs to say, “Stop!”
America’s grandmas and grandpas are still reeling from the first congressional gut-kick during appropriation season last year. If it happens again this year, as some say it could, taxpayers and millions of older Americans will pay.
Last year the U.S. Department of Housing and Urban Development (HUD) asked Congress for $900 million to shore the FHA reverse mortgage (or HECM) insurance fund. Out of bailout fatigue, Congress refused. As a result, HUD slashed the cash grandma could take out of her home via a reverse mortgage by 10 percent. The reverse mortgage industry estimates that more than 30 percent of qualified grandmas and grandpas could not use their own cash to stay at home because of last October’s cuts. Many lost their homes for they could not use a reverse mortgage to save their homes from foreclosure, compounding the foreclosure problem for older Americans.
This appropriations season, HUD is asking for a smaller support of $250 million. Some high officials at HUD are saying Congress is going to refuse again. HUD has said it may be forced to cut the cash advance again as well as raise monthly premiums by 150 percent, a move that some analysts say could shrink the 20-year-old reverse mortgage industry by more than 40 percent.
Since 1989, the HECM program, the backbone of the nation’s more than $60 billion reverse mortgage industry, has helped more than half a million older Americans maintain their financial freedom and dignity in old age. It has poured more than $60 billion of private money into our economy and saved taxpayers billions more in entitlements, rendered unnecessary because grandma could pay her own way through cash from her home.
It has allowed millions of adult children to devote their dwindling incomes to support their own families instead of squeezing their budgets to help their older parents. HECM has created a new mortgage industry and thousands of jobs and hundreds of small businesses across America. Among the world’s reverse mortgage programs, it is considered the “Gold Standard.”
For almost 21 years, HECM has been a success, until the financial tsunami that began in 2007. Even during the crisis, HECMs proved their value, helping scores of seniors save their homes from foreclosure, in addition to putting extra cash in their pockets. It supplied cash to many who saw their stocks and bonds portfolios decimated, giving them staying power for a rebound in their fortunes.
HUD need support for HECM because home values have gone south (Nothing grandma did). The old HECM math and guesses are out the window. The numbers folks at OMB (Office of Management and Budget) are using different numbers and guesses to do the new HECM math, which they say show the program losing money.
OMB’s HECM math and guesses are the sources of the problem to many industry leaders and analysts, including Jeffrey M. Lewis, Chairman of Generation Mortgage Company and chairman of the Coalition for Independent Seniors (CFIS), a new group that is working with NRMLA (National Reverse Mortgage Lenders Association) to halt more HECM cash advance cuts and premium increases this fall.
The biggest frustration with OMB’s HECM math and guesses is that they are under lock and key in an administration that has championed transparency in government. There is no chance to look at them or to debate them. Given their enormous consequences for millions of grandmas and grandpas across America, the opacity is deeply troubling to leaders such as Lewis.
“What we know is that other publicly available assumptions such as FHFA [former OFHEO], such as Case-Schiller, such as Global Insights, that are not necessarily rosy relative to historic rates of housing price appreciation, do not show the program losing money,” Lewis said.
The principle behind most federal programs, which Congress is invoking to justify its refusal to authorize the HECM support, is that programs should be “self-supporting.” In normal times, it is a good principle, and Congress should defend it, otherwise we are in trouble.
The issue is that while “self-supporting” should be the rule in normal times, it should not be in abnormal times. If Congress and The White House had held firmly to this principle, the massive bailouts that has saved our financial system and our economy from total collapse could not have taken place, and our economy’s prospects would have been more desperate today.
In crisis, why should there be an exception to the principle of “self-supporting” for Wall Street and other private entities and no exception for the HECM program that could help millions of older Americans tap their own home equity?
How can older Americans “age strong and live long” without cash? How can we cut our massive public debt by taking actions that will push older Americans into entitlement programs and away from using their own funds? Isn’t it smarter and cheaper to spend a $1 of public funds to get older Americans to spend $99 of their own money?
In proclaiming the annual Older Americans Month last month, President Obama made the following pledge:
“My Administration is committed to ensuring older Americans can age strong and live long. By strengthening Medicare and Medicaid, while protecting Social Security, we help ensure all Americans can age with dignity.”
Well, Mr. President, let me share with you the warning of Stephen Moses, one of our nation’s leading authorities on long-term care reform:
“…when the bottom falls out of the federal entitlement programs, people will have nowhere else to turn but to their home equity. Reverse mortgages will be the next LTC “safety net” for middle class and affluent families when they lose their access to Medicaid ….”
Mr. President, we know that the bond market is breathing down your neck; we know that your administration (and future administrations) will be fiscally handcuffed and campaign promises will be restated; and we know that your pledge to older Americans last month is heartfelt – after all, you were raised by grandma Toot and grandpa Stanley.
And that is why, Mr. President, you should tell Congress to approve HUD’s HECM support request because it is all about cutting our mounting national debt, generating economic growth (HECM spending create jobs in communities across America), strengthening the middle class, and weaving a new and stronger safety net.
America’s grandmas and grandpas need your voice, now!
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