Reverse Mortgage Loan Blog

Once booming, Home Equity Conversion Mortgages have begun a slowdown that could continue until home prices stabilize.

In the fiscal year that just ended, mortgage lenders funded 114,692 reverse mortgages under the FHA’s HECM program, a phenomenal growth rate of 1,336% over 10 years. Five years ago just 43,000 of reverse loans were written.

Until a year ago, the reverse mortgage niche looked like a safe bet for mortgage bankers seeking a haven from the carnage in the industry. After all, what could be safer than lending money to “The Greatest Generation” and older baby boomers who not only were good savers but had a ton of equity in their homes?

But now — with home prices still under pressure and fears of a double-dip recession rampant — reverse mortgages no longer look like a safe bet. Moreover, new government underwriting guidelines are likely to crimp the market’s stellar growth.

According to a survey by the National Reverse Mortgage Lenders Association, of the loans booked year-to-date by the three largest portfolio lenders of reverse mortgages, had the Oct. 1 changes been in effect for the entire year, one out of five borrowers would not have qualified for their loans because the amount of equity available to them would have been less than what was still owed on the property.

Declining home prices have had a major impact on the reverse mortgage industry and seniors who are considering their financial options. Currently, a potential customer doesn’t know if a reverse mortgage will work for them until the appraisal comes in.

“Once homeowners get an appraisal, they may find out that it was appraised for less money than expected,” said Jeff Lewis, chairman of Generation Mortgage, Atlanta.

“They may not receive enough reverse mortgage proceeds to pay off an existing mortgage or to handle another financial issue,” he said. “No question the drop in home prices has had an impact,” he added.

During these tough times, reverse mortgage servicers also have to keep an eye on borrowers to make sure they are maintaining their real estate tax payments and home insurance payments.

On a traditional mortgage, these payments are often escrowed and the servicer automatically pays them. But the borrower is responsible for making these payments on a reverse mortgage. “Even though this is discussed when taking out a reverse mortgage, it may throw borrowers for a loop, so it is important for us to work through the process with customers,” Mr. Lewis said.

He also mentioned that as a result of weak home prices it makes it difficult for people to know what their house is worth and to determine for themselves to know if a reverse mortgage will get them enough proceeds.

Meanwhile, Mr. Lewis is looking for the economy and consumer confidence to recover. “As we get stabilization of home prices and retirement assets, we will get into a healthy phase of growth and people will look at their retirement and home situations and will begin to have reverse mortgages as part of their financial plan,” he said.

Found here.

Bookmark It

Hide Sites