Reverse Mortgage Guide

The news release below came from Standard & Poors, the big ratings organization.

What’s interesting is the difference between the sale value a big builder, Lennar, was able to receive for 11,000 homesites and the book value of these properties. S&P says it’s a 60 percent mark-down.

How does this impact reverse mortgages? Reverse loans are generally insured by the federal government. Care is taken to assure than no one is getting 100 percent financing or anything close to reduce the potential for claims, to reduce risk.

However, when you get into 60-percent mark-downs you have to wonder how insurance funds would be impacted. Are there actuarial models that consider such a situation?

Vast declines in market values seem so improbable that it’s difficult to imagine the relevance of such calculations. And yet here we have an example of a major devaluation.

Happily, the situation below seems isolated and unusual. While many metro areas have slowing sales and reduced prices, the reported reductions to this point have been marginal — good news for reverse mortgage borrowers who want as much equity as possible to maximize possible borrowing.

Lennar Corp. Ratings Not Affected By Announcement Of Morgan Stanley Real Estate Joint Venture

NEW YORK Dec. 4, 2007 — Standard & Poor’s Ratings Services today said that its corporate credit and debt ratings and its outlook on Lennar Corp. (BB+/Negative/–) are not affected by the recently announced joint venture between the company and Morgan Stanley Real Estate. Lennar will contribute various land assets (11,000 homesites from 32 communities in eight states) to the joint venture, in which it will hold a 20% ownership stake. Lennar contributed the assets for a stated sale price of $525 million and will use net proceeds to bolster its near-term liquidity. However, the sale price represents approximately a 60% markdown of the book value of these assets. While we will review the terms of the venture agreement once they are available, we would expect to consolidate a good portion of the investment and any related debt, given Lennar’s 50% voting rights and the potential for preferential returns.

This entry was posted on Tuesday, December 4th, 2007 at 4:17 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.