Senator Kirk Amendment Confronts Reverse Mortgages

Senate Banking Committee Moves Amendment in FHA Reform

WASHINGTON, D.C.–(ENEWSPF)–July 31, 2013.  U.S. Senator Mark Kirk (R-Ill.) today applauded the Senate Banking, Housing and Urban Affairs Committee’s approval of Federal Housing Administration (FHA) solvency legislation that includes his amendment to protect seniors who take out reverse mortgage loans. The amendment, which Senator Kirk offered with Senators Bob Corker (R-Tenn.), Pat Toomey (R-Pa.) and David Vitter (R-La.), strengthens the FHA Solvency Act, a bill that reforms the FHA to put the agency on more stable financial ground.

“Far too many seniors face financial ruin from reverse mortgage loans they can’t afford, and this fix will reduce seniors’ risk of foreclosure, bankruptcy and passing undue debt to their children,” Senator Kirk said.

Senator Kirk’s amendment would address safety and solvency issues in the FHA reverse mortgage program, known as the Home Equity Conversion Mortgage (HECM) program. Last year, more than 58,000 reverse mortgages – nearly 1 in 10 – defaulted. The FHA insures the majority of these loans through the HECM program, and the high default rate of reverse mortgages has contributed heavily to the FHA’s dire fiscal situation. The Banking Committee approved the FHA reform bill by a vote of 21-1.


Senator Kirk’s amendment would tighten the underwriting standards for federally insured HECM loans by making certain eligibility provisions mandatory. It also would prohibit the Department of Housing and Urban Development (HUD) from reinstating a type of reverse mortgage, the HECM standard fixed-rate full draw mortgage, that until recently allowed homeowners to draw upfront a significantly greater portion of available funds than they need. These important reforms will reduce the risk of borrowers taking out reverse mortgage loans that put them at too great a risk of becoming delinquent on taxes, falling behind on homeowners insurance payments or ultimately losing their home to foreclosure.

Furthermore, the amendment would strengthen the taxpayer protections in the underlying bill by establishing steps HUD must take to ensure the solvency of the HECM program. The Secretary of HUD would be required to provide quarterly reports to Congress on programs within HECM and take actions to correct inefficiencies in any of these programs. These provisions protect taxpayers from being on the hook for billions of dollars in potential losses. The text of the amendment is available here.

During the economic crisis, many retired seniors facing financial difficulties turned to reverse mortgage loans, which allow homeowners aged 62 and over to unlock the equity built up in their home now, and defer payment until they die, sell their home or move out. These complex loans come with risks, such as high upfront fees, compounding interest and circumstances that can result in a loan total exceeding the value of the home.

Senator Kirk recently wrote an op-ed that was published in the Daily Herald in which he laid out his concerns with reverse mortgages and proposed reforms to protect seniors and taxpayers and enhance the soundness of reverse mortgages. The op-ed can be found here.



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