How Are Lower Home Prices Impacting FHA Reverse Mortgage Insurance?
October 22nd, 2007
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Is there a lot of risk to the FHA reverse mortgage program? A lot of risk as home values in many areas of the country go down? The FHA, after all, is nothing but an insurance program — an insurance programs by their nature should have a limited amount of risk.
The way the FHA reverse mortgage program is set up, insured homes have a large amount of equity above the value of any financing ensured by the the program. To this point, in virtually all jurisdictions, price declines by simply not significant in terms of possible FHA losses.
What happens if today’s lows are not marketplace bottoms? What if prices in many markets continue their decline? Even in such circumstances it’s difficult to say how the FHA insurance fund would be threatened given the enormous amount of homeowner equity required to participate in the FHA reverse mortgage program.
What ought to be a concern however, is that so many projections in so many areas have proven to be more conservative than real-world results. Certainly that’s one problem we’ve seen with subprime losses — the mathematical models simply did not anticipate the huge number of foreclosures that we’ve recently seen.
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October 23rd, 2007 at 10:30 am
Scary for who? Senior homeowners who did reverse mortgages 2 or 3 years ago are sitting so pretty, especially with the guaranteed growing line of credit feature. And, even now is not a bad time to get one. The reverse mortgage has so many safeguards attached to it, it’s only scary to those that don’t fully understand it’s loan features. Remember, this is a non-recourse loan.
The FHA mortgage insurance for reverse mortgages is so massive, that congress has their hands in it using the funds for other spending measures. Of the 350,000 reverse mortgages done since 1989, about 1% actually have reached the maximum claim amount and the MIP was used to purchase the loans from the lenders and servicing was transferred to HUD (Morris Griffin).
Ask yourself, if you are 75 years old, does it make more sense to keep putting money into your home, or would it better to have that money in your hands to live just a little more comfortably. Reverse mortgages are no-brainers in my mind.