Jumbo Reverse Mortgages Slip-Sliding Away
September 16th, 2008
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The word is out: Jumbo reverse mortgages are about as common as unicorn toes.
REX & Co., which offers appreciation-sharing agreements as an alternative to reverse mortgages, says that “for anyone keeping score, the list of mortgage products that have disappeared over the past 24 months is long indeed. That trend has showed few signs of abating in 2008, with jumbo reverse mortgages among the latest casualties to face Wall Street’s waning appetite for mortgage-related products, particularly in high-value states with declining markets like California, Florida, Massachusetts and more.”
Actually what’s going on has been a problem since Day One — in this case Day One was the moment the federal government decided to raise conventional loan limits under the Economic Stimulus Package from $417,000 to $729,750 for a single-family home in the lower 48 states.
As we pointed out last April on our sister site, FHALoanPros.com, the government can issue whatever order it wants but it cannot force mortgage investors to purchase super-jumbo conventional loans.
Think through the logic of it: With the mortgage marketplace so troubled, with lenders going belly-up at rates not seen since the 1930s, and with the U.S. Treasury stepping in to assure mortgage investors with paper from Fannie Mae and Freddie Mac would YOU want to buy bigger loans that represent more risk?
Investors in today’s marketplace largely don’t want super-jumbo loans or they want borrowers to pay a steep premium to make up for the extra risk.
The result is not a problem with reverse mortgages particularly or the reverse mortgage concept, rather the problem is one of balance: Do mortgage investors want larger loans? If so, what premium should they require in the face of greater perceived risk?
As we explained in June 2007, the REX agreement is a form of appreciation sharing — in exchange for cash today REX gets a percentage of future value growth. This means owners get to keep the equity they have as of today and a portion of any equity the property may gain in the future. If values go down the loss is split between the homeowner and Rex. If the value is unchanged, homeowners owe nothing.
The REX Agreement, says the company, is available in 13 states nationwide “and allows homeowners to access their equity without ever incurring debt, interest or monthly payments. With the REX Agreement, homeowners can convert a portion of their home’s value into cash now in exchange for granting REX & Co. a portion of the future increase or decrease in the home’s value when they sell or decide to end the Agreement. The arrangement applies only to the future change in value. Homeowners retain 100% of the equity they have already built up in the home.”
“Responsible homeowners have worked hard to build equity in their homes. Now, homeowners have a choice when it comes to accessing that equity to reduce debts, make home improvements, supplement their retirement needs, buy long-term care insurance or for any other use,” said Tjarko Leifer, managing director at REX & Co. “The REX Agreement gives homeowners a large, lump-sum cash advance to use anyway they wish with no interest charges to erode their existing equity and no monthly payments to burden their budget.”
As always with any reverse mortgage product, consult with an attorney who specializes in elder law before signing any paperwork.
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