Mortgage market collapse has impacted reverse loan industry, says report
March 7th, 2011
- Q&A: Does Ginnie Mae Mean Lower Rates?
- Reverse mortgage use up 8-fold since 2001
- Mortgage-Backed Securities Packed by Ginnie Mae. Why you should care.
- How Reverse Mortgages Evolved
- Private Sector Moving On Reverse Mortgages — Why Not Government?
There have been some major changes in the reverse mortgage industry since the collapse of the mortgage market in 2008-09, according to a recent report from the AARP Public Policy Institute. The report says that some of the changes have the potential to create more choices for consumers, but that the choices are more complicated and reverse mortgages are more expensive.
Among the changes that have occurred is an absence of funding by Fannie Mae. The agency purchased most Home Equity Conversion Mortgages (HECMs) until 2006. After the mortgage market collapsed the costs jumped and by 2010 Fannie Mae said it would stop purchasing reverse loans.
Now, mortgage-backed securities purchased by Ginnie Mae, an arm of the Department of Housing and Urban Development (HUD), have become the primary way HECMs are funded. Most Ginnie Mae reverse mortgages have fixed interest rates and require borrowers to withdraw the full loan limit at closing. Those loans may be more expensive for homeowners who don’t really need the full amount at closing since the interest rates are higher and interest begins to accumulate right after closing.
Reverse mortgage age declines
Another change in the market is that the average age of borrowers applying for reverse mortgages has declined. The average borrower age fell to 72.9 years in 2010 from 76.7 years in 1990. The report says the declining age of borrowers is worrisome because of the possible impact on long-term financial security. Also, borrowers were more likely to be part of a couple than single, with 37 percent of reverse loans going to couples in 2010, compared with 26.1 percent in 1990.
Reverse mortgage guidelines
Not all seniors should apply for reverse mortgages, but a housing counselor can help you determine if a loan is right for you. A reverse loan counselor can review the most current reverse mortgage guidelines and other programs that might be help you with financial planning.