'Pivotal' year ahead for reverse mortgages

Federal program faces $250 million shortfall

Former FHA Commissioner Brian Montgomery, who oversaw the nation’s most popular reverse mortgage product for nearly five years, sees a "pivotal" year ahead for the industry that allows seniors to tap the equity in their homes.

"This is a service that helps solve a social need," said Montgomery, now a partner in a Washington, D.C.-based consulting firm. "Because of cash shortfalls in the program, the amount seniors can borrow will be reduced for the second time. In the big picture, the number we’re talking about amounts to a rounding error in the federal budget."

In 1989, the Federal Housing Administration agreed to insure the Home Equity Conversion Mortgage (HECM) program. It gradually garnered market share because it not only allowed owners over 62 to stay in their homes for as long as they wished, but it also protected the owner in the event the lender went out of business.