Cliff Auerswald explains how the 2008 housing collapse led HUD to restrict reverse mortgage lump-sum payments. Borrowers were taking payouts that exceeded their home's value, risking taxpayer subsidies and leaving them broke later. Now the rules force seniors to spread withdrawals across their lifetime to cover long-term care and healthcare costs.
When reverse mortgages were having troubles financially after the 2008 housing collapse, as you can imagine, a lot of people may have taken reverse mortgages. They may have ended up borrowing more than even the home was worth. HUD had to take a serious look underneath the hood and figure out how to guarantee that this program is not going to take subsidy from taxpayers. What they had to do is several things. One was to change the way that they allow for people to take single lump sum disbursements, and it's really to protect the program and also the people. Sometimes take all your money and you do something wrong with it, and now you have nothing else to tap into, and now you also have this reverse mortgage accumulating interest on your home, so your home equity over time is going down as well. So you look at a reverse mortgage for one thing, but the fourth leg of retirement, you've got long-term care, you know, healthcare, inflation, all of these things that are burdensome to those on fixed incomes. We want to make sure that when we're completing a reverse mortgage for somebody, that the funds that you're taking will last your lifetime.
