Open Letter to the WSJ Editors

December 15, 2012

To the Editor,

Re: “Mortgages in Reverse” editorial of December 15-16, 2012

Your editorial suggesting that FHA-insured reverse mortgages (called the Home Equity Conversion Mortgage or “HECM”) should be eliminated is akin to throwing out the baby with the bath water. The conditions that once allowed for a thriving private reverse mortgage market no longer exist. Given the state of the moribund, overregulated private market, mortgage liquidity remains firmly entrenched with government agencies like the FHA.

The government created the problem of over-leverage in the housing sector and, like it or not, will have to help de-lever it. FHA has already twice reduced the loan-to-value ratios of HECMs, raised mortgage insurance premiums, and introduced low-cost alternatives. Furthermore, the independent actuarial estimates you cite, which have been all over the map from one year to the next, include many older, higher risk loans. The HECM as currently structured does not add nearly the same level of risk. It remains to be seen if these FHA initiatives will produce the desired effect. But the elimination of an entire industry, which you advocate, would be disastrous for lenders and customers alike.

If neither the government nor the private sector can be trusted to manage reverse mortgage risk, where does that leave the senior homeowner who wants to age in place but cannot afford a conventional mortgage loan? They want to pay for life’s necessities without having to leave their home. They do not want to “blow through their life savings before they die” as you so derisively put it. The fact is that the HECM is often the best financial tool to help these seniors.


Joseph J. Kelly
Michael K. McCully
New View Advisors LLC
New York, NY

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