A U.S. housing agency said Friday it needs a $1.7 billion bailout from the Treasury to cover projected losses in a mortgage programs for seniors.
At issue are reverse mortgage programs, which allow seniors to borrow against their homes for everyday living expenses.
Federal Housing Administration Commissioner Carole Galante told Congress in a letter that her agency will withdraw the money from the Treasury before the fiscal year ends Monday. Congressional approval is not required. The cash infusion is the first in the agency’s 79-year history.
The agency, which insures 40 million home mortgages, is struggling with $5 billion in losses on its reverse mortgage program.
Reverse mortgage borrowers, who must be 62 or older, can take lump-sum or monthly payments. They still must pay property taxes and insurance. Sale proceeds from a home go to the lender when the borrower dies or moves out.
The FHA suffered big losses when many borrowers took large payments up-front and later ran into financial problems, often due to falling home values during the financial crisis.
Mixed reviews on reverse mortgages
David ‘Wealthy Barber’ Chilton is not a fan of reverse mortgages. He has said they defy common sense, and can rack up debt if interest rates rise. He has more to say here.
A reverse mortgage can present challenges for a sound retirement, outlined here.
But in recent years, Canadians have taken out record numbers of reverse mortgages. Reverse mortgages can pay for home renovations, medical bills or even vacations. To learn how to help clients decide if a reverse mortgage is right for them, read more here.