Reverse Mortgage Loan Blog

The checkered beginnings of reverse mortgages made them a difficult sales proposition to seniors. In the early years, some programs gave the lender a bigger share in the home than the homeowner, then the amount of available money that could be tapped was too low, and the fees were too high.

Toss in the fact that seniors are wary by nature, often have little to risk and view paying off the roof over their head as the ultimate measure of success and pride.

Now, all of the chuckholes on the road to reverse mortgage acceptability have been filled. If you doubt that, simply check with the investors on Wall Street who are more than willing to pay a premium to buy these assets, creating a secondary mortgage market for the once-orphaned loans with seemingly no home in sight.

A reverse mortgage historically has enabled senior homeowners to convert part of the equity in their homes into tax-free funds without having to sell the home, give up title or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free.

The biggest lift to reverse mortgage credibility came in 1989 when the Federal Housing Administration agreed to insure the Home Equity Conversion Mortgage (HECM), which not only allowed owners older than 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.

HECMs now account for nearly every reverse mortgage written today. Other private reverse mortgage “jumbo” funds have virtually evaporated, given the present credit crisis. More than 130,000 HECMs were originated last year. AARP reported that approximately 93 percent of applicants were satisfied with the process.

The next boost for reverse mortgages toward acceptance was a single national loan limit (currently $625,500) and then onset of fixed-rate products (currently about 5.50 percent). However, not every homeowner qualifies for the maximum. A borrower’s age, along with prevailing interest rates, determine the actual amount of the HECM. Older borrowers qualify for the greatest amounts.

The Housing and Economic Recovery Act of 2008 approved the HECM for purchase program. The move allows older homeowners to make a large down payment on a new home and then utilize the reverse mortgage as permanent financing. The same law reduced the maximum loan fee on reverse mortgages to 2 percent on the initial $200,000 of the home’s value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, HECM fees were capped at 2 percent of the home’s value or the county lending limit, whichever was lower.

However, given investors’ appetite for reverse mortgage securities, many of those fees have been eliminated or significantly reduced. Why did this happen and what does it mean for consumers? In a nutshell, Wall Street sees reverse mortgages as a more predictable asset class, and the mortgages have finally reached a supply threshold that allows for group discounts to lenders — many of whom pass the savings on to consumers.

The savings vary depending upon home value, but all options result in greater loan proceeds to the borrower.

A variety of lenders also have announced reductions in fees for servicing, origination, mortgage insurance premium and title insurance fees.

If you are a senior in the market for a reverse mortgage, or an adult child doing the research for Mom or Dad, the good news is that fees have come down dramatically. The puzzling news (not to be confused with “bad”) is that there could well be some costs in today’s advertised “no-cost reverse mortgages.” Make sure you understand the up-front costs and those incurred down the road.

Reverse mortgages have hit the mainstream. With that comes a variety of combinations and sliding scales.

Found here.

Bookmark It