BluefoxToday blog : Reverse mortgage choices multiply

Reverse mortgage choices multiply

The still little talked-about reverse mortgage option is fast becoming a household word. It only makes up less than 1% of the huge overall home loan market that right now stands at around $10 trillion, so it's no wonder. In the coming years it'll take a larger bite out of that total, though, if a recent trend is any indication. According to HUD, the Department of Housing and Urban Development, federally-sponsored reverse product lending grew 41% in the fiscal year ending in September, 2007. The increase is indisputably substantial.

The traditional reverse mortgage is available to homeowners 62 years and older who can tap on the built-up equity of their homes and receive funds either in a lump sum, monthly payments, a line of credit or a combination of them. Government-backed programs have long ruled this niche segment, but now a number of mortgage lenders and large financial institutions are entering the market and are inventing more product variety.

Some of them are already offering loans on second homes and even vacation rentals, the minimum age was dropped by one to 60 and jumbo reverse mortgages are creeping into the picture, too, going as high as $10 million. The direction is clearly moving away from meeting the applicant's basic needs, the original reason to getting one, to helping him also satisfy an investment plan, a childhood dream or a spouse's must-have impulse. Or whatever. Generally to put more depth to one's retirement life.

Also, Fannie Mae used to be the principal buyer of these loans, but now big investment operations like Lehman Bros. and Bank of America are doing so, too, and sometime soon will start packaging them and selling them on. Ginnie Mae, a federal agency, is providing a guaranty to mortgage lenders that gives them better pricing on the secondary market and that allows them to make additional money available for new loans. That is its primary role. Ginnie Mae now has plans to create a government bond issue supported by reverse mortgages and when that initiative sees daylight, borrower costs will decrease and the reverse product becomes even more accessible.

This niche market is nicely maturing and drawing the interest of large institutions, two key developments that together will bring a string of new choices to the benefit of the older consumer.

 

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 8 commentsEsko Kiuru • March 23 2008 12:09AM

Comments

Hi Esko,

Thanks for the info. A question, are the newer reverses you're referring to non-FHA loans? And you feel the costs will be lower than the others? AARP (as you probably know) did a report some time back on the more original reverse product.

Posted by Lynda Eisenmann, Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co (Preferred Home Brokers) over 10 years ago

The FHA product - the HECM or Home Equity Conversion Mortgage - accounts for over 90% of all reverse mortgages closed in the US.  You will see new products hit the market but they will be slower to grow due to investor wariness.

The costs are high but what is often forgotten is that they are based on the claim limit which is the lesser of the home value or local FHA lending limit and not the amount of money the borrower is getting.  Keep in mind that what is a loan limit in the forward world is a value in the reverse world.

Consider a $250,000 value and your ability to do an FHA loan up to 97% of that.  all the costs associated with that loan are based on the loan amount of 97%.  when you take the same property and do a reverse mortgage, the initial principal limit (we don't call it a loan amount) is usually in the 45% to 70% range (sometimes higher) dependant on the age of the borrower.  The costs that are based on a loan amount such as origination fee, MIP and title insurance are now all based on the claim limit. 

that is why costs seem high.

Posted by David Gold (Pantheon National Title) over 10 years ago

Lynda,

With all these new players entering the reverse mortgage market, like large financial institutions and Ginnie Mae, cost will inevitably come down.

Posted by Esko Kiuru over 10 years ago

David,

Thanks for expanding on the topic.

Posted by Esko Kiuru over 10 years ago
Esko, there is still only a few Lenders doing Reverse Mortgages around here.  I think that the Closing Costs and lack of understanding on how they work have contributed to the lack of growth in this program.
Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 10 years ago
Esko, I hope that reverse mortgage doesn't somehow fall into the wrong hands and become our next dilemma. I see this as a life saver for keeping homes updated with an aging population that would like to stay out of the nursing homes. Hopefully, this will remain a good viable product in the years to come.
Posted by Gena Riede, Real Estate Broker - Sacramento CA Real Estate (916) 417-2699 (Riede Real Estate, Lic. 01310792) over 10 years ago

George,

Lack of understanding of the reverse mortgage is still hurdle to be overcome, I agree.

Posted by Esko Kiuru over 10 years ago

Gena,

As more mortgage lenders enter the market it'll become more viable and cheaper, too.

Posted by Esko Kiuru over 10 years ago

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