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.