In 1969, a very smart economist from UCLA made a presentation to Congress in which he explained a way to solve the major problem about home ownership. This being that your equity wasn’t liquid when you needed it without selling the home or incurring substantial mortgage interest payments. To put it another way, how can your home equity increase your retirement income?
In 1987, Congress passed an FHA insurance bill called the Home Equity Conversion Mortgage Demonstration, which was a reverse mortgage pilot program that insured reverse mortgages. In 1988, HUD gained the authority to insure reverse mortgages through the FHA when President Ronald Reagan signed the reverse mortgage bill into law.
For over a decade, the program was designed and redesigned. One big problem that needed to be overcome was how to make the loans safe and non-recourse to the borrower. In other words, what would happen if the loan was bigger than the property value. Working with the Federal Housing Authority, an insurance fund was set up and a Mortgage Insurance Fund premium was agreed upon. This solved that last big problem.
As a result of that study, in 1998 the Home Equity Conversion Mortgage (HECM) program came into being. This program was regulated by the Federal Housing Authority but was implemented by private mortgage companies. Just like private banks and investment companies implement the IRA, Keogh and 401K plans for you.