In a move that could create a horrible public backlash, the Federal Housing Administration, which runs the largest reverse-mortgage program in the country, has decided to begin foreclosing on homeowners who have failed to pay their property taxes. Reverse mortgages are for seniors who are at least 62 years old and allows seniors to remain in their home without making a mortgage payment until they move or pass away. And while there is an existing rule that allows the reverse mortgage company to foreclose if the debtor does not pay their taxes, the FHA has not been enforcing that rule. But because the FHA is facing a $798 million budget shortfall for its reverse mortgage program it may have no other choice but to file foreclosure on seniors who have fallen behind on their property tax payments or hazard insurance premiums.
The FHA is essentially under the budgetary gun to do so: Its reverse-mortgage program ran into a $798 million estimated budget shortfall in the last fiscal year -- its first loss ever -- in part because of widespread declines in the value of homes that secure its insured loans. It has cut maximum borrowing amounts available to seniors by 10 percent already and is looking for other ways to bring the program back into profitability in an era of low home-appreciation rates. The agency has asked Congress for a $250 million subsidy, but so far it has not been funded.
Many critics of the new enforcement of the rule argue that many of the seniors are simply overlooking their required tax payments and insurance premiums because they are not receiving notices from the mortgage company. Many are recommending that the FHA take a "curative" approach to this property tax issue instead of filing foreclosure. One suggestion that may get some support is that seniors with delinquent property taxes be put into a repayment program and given time to catch up before a foreclosure filing becomes imminent.