Home Equity Conversion Mortgages
June 8, 2006
Real Estate Finance Committee
Federal Issues CommitteeThe following is for study only and has not been approved by the Real Estate Finance Committee, Federal Issues Committee or the Board of Directors.Issue:
Should C.A.R., in conjunction with NAR, “SUPPORT” a new FHA Home Equity ConversionMortgage (HECM) for purchase product?Action:
Action requested at this time because of proposed legislation in Congress.Options:
1. Take a “SUPPORT” position.
2. Take an “OPPOSE” position.
3. Take a “NEUTRAL” position.
4. Take a “NOT REAL ESTATE RELATED” position.Status/Summary:
On April 4, 2006, California Representatives Gary Miller and Maxine Watersintroduced H.R. 5121, the Expanding American Homeownership Act. The bill is a Federal Housing Administration (FHA) reform package intended to increase FHA’s market share. Included in the bill is a provision intended to make it easier for homebuyers who are eligible for HECM (also known as a reverse mortgage) to gain access to the equity in their home.Background:
Currently, seniors who want to move, but need additional cash flow topay their living expenses, must purchase a new home and take out a HECM in two distinct transactions resulting in two sets of loan fees and charges. With a HECM for purchase individuals can purchase a new home without exhausting cash reserves or taking on new monthly payments. They can complete the sale of their former home and purchase of their new home in one transaction, while continuing to receive tax-free income on their equity.Status/Outlook:
H.R. 5121 was marked up out of the House Financial Services Committee on May 24, 2006. The bill has broad bipartisan support and HUD Secretary Jackson has stated his intent to lobby Congress to pass this legislation.Opposing View:
Some may argue that, while costlier, separating the two transactions of home buying and taking a reverse mortgage helps to simplify an already complicated transaction. Adding additional paperwork may confuse many elderly home buyers who are not familiar with the home buying process.NAR Policy: At the 2006 May Business Meetings, NAR took the following policy, “that NAR support a new FHA Home Equity Conversion Mortgage(HECM) for Purchase Product.”C.A.R. Policy: C.A.R. does not currently have policy on this issue.Question:
Should C.A.R., in conjunction with NAR, “SUPPORT” a new FHA Home Equity Conversion Mortgage (HECM) for purchase product?
