In the last fiscal year, mortgage lenders funded 114,692 reverse mortgages under the FHA’s HECM program. Five years ago just 43,000 of reverse mortgage 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 were good savers and had a ton of equity in their homes?
With home prices still under pressure and fears of a double-dip recession rampant, reverse mortgages no longer look so safe. 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 year-to-date loans booked by the three largest lenders, had the October 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.
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; they may not receive enough reverse mortgage proceeds to pay off an existing mortgage or to handle another financial issue.
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.
As a result of weak home prices it is difficult for people to know what their homes are worth and if a reverse mortgage will get them enough proceeds.
There is hope, however, that the economy and consumer confidence will recover. As home prices and retirement assets stabilize, we’ll get back into a healthy phase of growth, people will reassess their retirement/home situations, and will include reverse mortgages in their financial plans.
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