Could There Be A Mortgage Meltdown For Seniors?

by Peter G. Miller
January 8th, 2008

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There is an interesting discussion regarding reverse mortgages at AllFinancialMatters.com discussing whether or not reverse mortgages will be the next subprime debacle.

The central worry is that as more reverse mortgages are issued that they, like other loans, will be packaged and securitized. As JLP writes “I don’t know about you but this concerns me. Isn’t the packaging of mortgages and selling them to investors one of the reasons we got into the subprime mess? Could the same thing happen to the reverse mortgage market? I can imagine that as demand from brokerage firms and investment banks for reverse mortgages increases, standards will be lowered, and we’ll see all sorts of shady practices take place.”

My sense is that reverse mortgages are actually more secure than most other forms of mortgage financing. Why?

First, the overwhelming majority of reverse mortgages are insured by HUD under the HECM program.

Second, as with any FHA program, certain standards must be met. There is little traction in the marketplace for private-sector reverse mortgage products to this point, products which might have the “nontraditional” and risky standards which are behind much of the current mortgage meltdown.

Third, HUD is collecting hefty insurance fees — up front.

I hope I’m right….

The full discussion can be found at: http://allfinancialmatters.com/2007/11/13/reverse-mortgages-the-next-subprime-mess/#comment-199459.

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This entry was posted on Tuesday, January 8th, 2008 at 8:19 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.

2 Responses to “Could There Be A Mortgage Meltdown For Seniors?”

Trace Says:
January 20th, 2008 at 7:03 am
I think a lot of elder people will not understand the ramifications of a reverse mortgage. They will be “awed” by the sales pitch and not know what questions to ask and the LO will know only enough to be dangerous. So I’m in agreement with it being the next meltdown.
Jim Rocco Says:
February 6th, 2008 at 1:42 am
Totally ridiculous. Not everything leads to a “meltdown”. Although many, many borrowers can be painfully ignorant (and just as arrogant with regards to how much they actually do supposedly “know”), more often than not, it is unwarranted intervention by state and local governments, along with the market tampering policies of the central bank (the Fed) and elitists in congress who cause such monumental crisis in the marketplace. Don’t blame the salesman. Brush up on your history. You may even want to research the subject a bit before you make another blanket statement that fails to hold water…