Home Price Declines Impact Reverse Mortgages
June 8th, 2008
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For some time there has been an effort to raise the loan limit for FHA-insured reverse mortgages, or home equity conversion mortgages (HECMs).
The logic behind such an increase is plain: Seniors would like to have the option of getting as much equity from their homes as possible. Also, in many high-cost areas the FHA limit is far below typical home values.
But now a new factor has begun to emerge which will surely complicate the loan limit debate: Put very simply, with each passing month borrowers have less equity because local home prices are diving.
The National Association of Realtors reports that “the national median existing-home price2 for all housing types was $202,300 in April, which is 8.0 percent below a year ago when the median was $219,900.”
In many markets the value declines are substantially worse.
In California — where about 1/10th of us live — the California Association of Realtors says that “home sales increased 2.5 percent in April in California compared with the same period a year ago, while the median price of an existing home fell 32 percent.”
The median price of an existing, single-family detached home in California during April 2008 was $403,870, a 32 percent decrease from the revised $594,110 median for April 2007, C.A.R. reported.
This is a serious matter. While folks debate loan-limit philosophies, seniors hoping to capture equity from long-held properties are losing opportunities everyday to finance, refinance and sell.
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