How Reverse Mortgages Evolved

When I got into this business six years ago, there was one proprietary (private brand) reverse mortgage program and three standard programs. These included the government-insured HECM, which came in two varieties: The monthly adjustable (with a margin of 150 basis points — 1.5 percent) and the annual adjustable (with a margin of 210 basis points — 2.1 percent). And there was Fannie Mae’s Home Keeper program. That was it.

But then came 2006, a seminal year. The HECM 100 (with a margin of 100 basis points) and the fixed-rate HECM were introduced. Reverse mortgages were poised to jump into the mainstream. Additional programs with even lower margins were introduced. The industry proudly boasted that there were 22 different reverse mortgages programs from which consumers could choose.

In addition, the Department of Housing & Urban Renewal (HUD) approved the LIBOR (London Interbank Offered Rate) index, an alternative to indexes based on Treasury securities. The LIBOR index is the language of Wall Street and the worldwide investing community. Ginnie Mae was set to securitize these loans as well. Foreign investors love to purchase Ginnie Mae certificates.

And then came the Alt-A and subprime debacles. Wall Street lost its appetite for any type of mortgage-backed securities. Programs were withdrawn from the drawing board and from the market place. Programs with margins lower than the HECM 100 were scrapped. Proprietary programs started to vanish. Many such programs reduced their benefit amounts as community after community were deemed to be in a “declining” housing market.

The available reverse mortgage programs, with a few exceptions, now resemble the mix of programs that existed at the end of 2005.

In spite of the paucity of programs, the number of seniors obtaining reverse mortgages has climbed steadily. Of all the reverse mortgages that have closed since 1990, 92% have closed since 2000. Astonishingly, 60% have closed in the past 28 months.

————————–

Attorney Dennis Haber is the author of the just-published, ground-breaking book, Piggy Bank Your Home: Tap Into The Power Of A Reverse Mortgage.

This entry was posted on Wednesday, May 7th, 2008 at 12:02 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.