Reverse Mortgage Demand Grows

The Wall Street Journal reports that demand for reverse mortgages is rising, a hardly remarkable observation given the state of the mortgage marketplace.

“While still a very small share of the borrowing market,” says the Journal, “demand for these mortgages climbed in 2008 as credit tightened and retirement savings plunged. The market is expected to grow significantly as loan amounts increase and baby boomers with inadequate savings tap their home equity to fund retirement. Consumer groups, however, warn that fees are high and the cash sometimes is misused.”

The actual numbers from HUD also point to a rising number of home equity conversion mortgages — HECMs, the term HUD uses for reverse mortgages. HUD says that in the current fiscal year — the period of October 1, 2008 through September 30, 2009 — it expects to receive 200,000 reverse mortgage applications. Already, 49,498 applications have been received — that’s up 13.9 percent from a year ago.

Applications are one thing, but what about endorsements? HUD says it expects to endorse 166,000 FHA reverse mortgage applications and so far has approved 32,712 in this fiscal year — that’s up 11.4 percent from the same period last year.

While the numbers to date look very good and consistent with projections, the year is hardly over. There are several factors which will likely impact final numbers.

First, FHA reverse mortgages can now be used to acquire a prime residence. This is a clever idea for some seniors because it means that you can sell a current residence and buy a new and cheaper one financed with a reverse mortgage. The result will be, hopefully, a cash profit from the sale of the older home and no monthly payments for principal and interest on the new one.

Second, falling home values impact reverse mortgages in the sense that most owners would prefer a bigger reverse mortgage rather than a smaller one. Less equity means less ability to borrow the maximum allowed under the FHA reverse mortgage program.

Third, a lot of people are in a lot of trouble, financially. A reverse mortgage can reduce both stress and current debts when used to pay off a forward mortgage and maybe some consumer debt as well. However, if spending habits don’t change then the advantages of reverse mortgage financing can be easily lost.

Lastly, it’s possible that the reverse loan limit may be increases this year under the economic reform package. We’ll have to see the final language, but a higher loan limit could help folks in high-cost areas and make reverse mortgages in such locations more attractive.

For the full story, see: Demand For Reverse Mortgages Climbs

This entry was posted on Thursday, February 5th, 2009 at 11:35 pm 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.