Cheap Reverse Mortgages Disappearing, Says Lender
September 19th, 2007
- HECM 100 Reverse Mortgages to Continue With Major Lender
- LIBOR FHA Reverse Mortgages Coming In August
- Unlike Unicorns, Fixed-Rate Reverse Mortgages Do Exist
- Fixed-Rate Reverse Mortgages Give Seniors More Choices
- What Fees Are Allowed for an FHA Reverse Mortgage?
The “HECM 100″ is being phased out by most FHA insured reverse mortgage lenders, says Joffrey Long, a 30-year veteran of the mortgage industry and the President of Southwestern Mortgage in Granada Hills, CA.
Long, the 2007-2008 President of the California Mortgage Association, says the interest rates on FHA insured reverse mortgages are determined by adding a certain percentage to the yield on one-year treasury obligations. The HECM 100 provided for adding only 1% to the one-year treasury. With the one year treasury at less than 5%, this meant that even after adding the one percent, HECM 100’s closed at an interest rate of less than 6%.
The HECM 100 is being replaced by the higher-cost HECM 150, which, says a release from Long, “is the same in every aspect, except 1.5% is added to the rate on the one year treasury security, rather than 1%. This extra half percent not only causes the borrower to owe more interest over time, more importantly, it means that the borrower is eligible for less money from the reverse mortgage.”
Long’s release offers the following analysis:
“The amount a senior citizen gets from a reverse mortgage is determined by their age, but also by the interest rate in effect at the time they obtain or close the reveres mortgage. How much does it affect the borrower?
“Look at this calculation:
“Under the HECM 100, a 72-year old borrower in Los Angeles County, with a $450,000 house could obtain $236,470.
“Under the HECM 150, the same 72 year old borrower, with a $450,000 house in Los Angeles County would obtain 220,050, — a $16,420 difference.
“What can borrowers do? If they feel that a reverse mortgage would help them, apply immediately. And make sure they lock in their loan and provide all conditions to the lender immediately to make sure their loan closes.”
Mr. Long’s comments cause one to wonder: Why do lenders need to jack-up rates for an adjustable-rate loan insured by the federal government? Lender risk is just about zero.
And why is there not stronger price competition to force down rates? If all lenders charge the same then what choice to do consumers have?