Calculated Risk & Reverse Mortgages
September 11th, 2007
- What Fees Are Allowed for an FHA Reverse Mortgage?
- Reverse Mortgage Lenders Avoid Risk — For The Moment
- Reverse Mortgages & Shared Appreciation
- Nope: Lenders Can’t Go After Heirs
- How Risky Are Reverse Mortgages?
One of the most interesting discussions I have seen regarding reverse mortgages appears on Calculated Risk, a remarkably logical and well-written blog about finance and economics. (And that, of course, is a neat trick in itself.)
The posting that caught my attention should be required reading for anyone with an interest in reverse mortgages or has some thought of getting one. In fact, you need to read this posting several times to catch all the subtle notions and ideas.
As an example of what you can find, Calculated Risk says that:
“The reverse mortgage obviously has some similarity to the negative amortization mortgage, since all accruals of interest and fees are added to the outstanding mortgage balance. A major difference is that while disbursements to the borrower will stop when the contractual maximum principal limit of the loan is reached, interest continues to accrue without limitation on the outstanding total balance until the ‘maturity event.’ However, reverse mortgages cannot be ‘upside down’ by definition: the borrower or estate never owes more than the current appraised value of the property to the lender, regardless of loan balance outstanding. The lender accepts either sales proceeds equal to the appraised value or a deed-in-lieu (i.e., the lender accepts title to the property as repayment of the debt), even if the accrued interest has long exceeded the value of the property. There is never “recourse” to other assets of the borrower or estate. The lender’s risk is ‘actuarial’: if Grannie lives to be 105, Fannie writes off a lot of interest income if Grannie’s house price appreciation didn’t keep up with Grannie’s longevity. Of all the many, many things to cherish about those tough old birds, the idea of them blowing a mortgage lender’s balance sheet to kingdom come just by getting up every morning has to appeal to you. It has a tendency to annoy Grannie’s heirs, but we’ll get to that.”
I love that term, a maturity event. There must be a government office somewhere that dreams up such expressions.
There is more about reverse mortgages at Calculated Risk, and all of it is terrific. For the whole posting, see: