If you are a senior citizen with considerable home equity and currently live in the home, then you can take part in the Home Equity Conversion Mortgage (HECM) offered by the Federal Housing Administration (FHA). HECM is a government-backed mortgage program targeted to the senior citizens in the country. HECM program offers you the chance to pull out equity in your home. You can get the cash on a lump sum basis or on a regular monthly basis. In order to get approved for this government-backed reverse mortgage program, you have to fulfill certain criteria. The home under consideration should be your primary residence and you should not default on federal debts. Your credit history, expenses, assets and income will be verified before making you the offer. It will also be checked whether you pay hazard and flood insurance premiums and property taxes on time or not. Before opting for such a program, you need to however ensure that this program is right for you. Before finalizing a deal, you should consult a HECM counselor on different aspects of this program such as the eligibility criteria, various other similar types of options and the financial implications of such an offer.
HECM program is a purely government-supported program. At a time, when the the country is passing through severe budgetary crisis, question has cropped up whether this kind of federally backed program is justified or not. There are some legislators who are against this program. Again, there are some strong reasons in support of this program. Here we discuss about these reasons -
HECM program offers the senior homeowners the chance to convert the illiquid housing wealth into liquid funds. This funds can be utilized for a variety of reasons. In addition to this, this offers the senior citizens the chance of continued occupancy. Alternatives to this program are the reverse mortgage programs offered by the private parties. Here, it is to be noted that majority of the reverse mortgage programs offered by the private parties has disappeared from the market, especially after the financial crisis.
One strong argument in support of the HECM program is that this program generates positive externalities. This somewhat reduces the burden of various social welfare programs aimed at the senior citizens in the country. Given the positive externalities of the program, many economists are in support of this program.
The government-sponsored HECM program should serve as a model for privately sponsored programs. Taking cues from this programs, private players can remodel their offers. Many private reverse mortgage programs existed in the market before the financial crisis. These private reverse mortgage programs had to be closed because of the financial crisis. However, again in future, taking cues from the federally backed HECM program, private reverse mortgage program may reappear.
Suggesting arguments in support of government-backed HECM program is not similar to arguing against private reverse mortgage programs. In an ideal situation, both the federally backed HECM program and the private reverse mortgage program should exist simultaneously.