Witness Testimony of Hon. Michael L. Michaud, a Representative in Congress from the State of Maine
Good morning Chairwoman Herseth-Sandlin, Ranking Member Boozman. Thank you for allowing me to testify before the Economic Opportunity subcommittee on H.R. 2475, the Veteran Home Equity Conversation Mortgage Act of 2007.
I introduced H.R. 2475 with Congresswomen Brown-Waite of Florida to provide another tool to our aging veterans to help them live out their lives in comfort and security. Our legislation would allow the VA to offer home equity conversion mortgages to eligible elderly veteran homeowners, age 62 or older.
A home equity conversion mortgage enables older homeowners to convert the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Instead of making monthly payments to a lender, as with a regular mortgage, a home equity conversion mortgage converts the equity in an individual’s home to cash. In other words, the lender makes payments to you.
With the rate of American homeownership at an all-time high, home equity conversion mortgages have become a mainstream and highly successful financial planning tool for elderly homeowners.
The Federal Housing Administration (FHA) endorsed 8,041 reverse mortgages during the month of April, compared to 6,536 a year earlier. Seven months into the current federal fiscal year, FHA has endorsed 61,101 loans, compared to 39,674 during the same period last year, a 54 percent increase.
The intention of H.R. 2475 is to allow the VA to offer reverse mortgages in the same way that FHA currently does. Like the FHA program, those interested in obtaining this type of mortgage must receive significant counseling. The veteran must demonstrate a full understanding of the benefits and risks as well as the consequences for his or her heirs before being deemed eligible for the loan.
While our legislation leaves it to the discretion of the Secretary, if the Secretary follows current VA home loan regulations, veterans would be eligible for a higher available loan limit than the FHA HECM loan program, which means more cash to the veteran; and a savings of roughly 0.5% in interest rate, because monthly mortgage insurance premiums are not required with VA-guaranteed loans.
Elderly veterans should be offered this valuable tool, which allows them to cash-out the equity that they have built-up in their homes over 20, 30 or 40 years. This will enable them to continue to meet the demands of increasing health, housing, and sustenance costs, without the risk of losing their home.
There is almost no risk to the veteran and very little risk for the VA. It is truly a win-win opportunity. This legislation will allow more veterans to remain in their homes longer without having to take on additional monthly bills or face the prospect of losing their home. It will help them to enjoy the golden years of their lives.
Thank again Chairwoman Herseth-Sandlin and Ranking Member Boozman. I look forward to working with you on this issue.