Saver reverse mortgage shows modest gain

Things were supposed to be better in February. The FHA Saver reverse mortgage product was supposed to gain traction with time and to some extent this has happened. But given the huge advantage of the program — an up-front mortgage insurance premium of just .1 percent versus the 2.0 percent for the regular FHA-insured reverse mortgage product — the latest production figures are hardly exceptional.

To start in February HUD endorsed 6,904 standard reverse mortgages. This is down 1.7 percent from last year, just about a rounding error and not evidence of a trend.

As to the HECM Saver, there were 296 such loans endorsed by HUD versus 165 in January. That’s an increase of 79.4 percent.

The catch, of course, is that it’s possible to have huge percentage increases when you’re dealing with small numbers.

Another way to view the Saver product is to say that in February there were a total of 7,200 reverse mortgage originations. Of these, 4.11 percent were Saver HECMs.

There are, I suspect, several parts to the Saver mystery.

First, reverse mortgages in general continue to suffer from adverse media coverage. When the New York Times asked readers to report your reverse mortgage experience the comments were largely negative. This is not a criticism of the Times, rather it is to point out that the public view of reverse mortgages is hardly one of elation.

Second, many complain about reverse mortgage fees without, apparently, realizing that at least the Saver program substantially reduces up-front costs.

Third, when there is an abusive situation involving a senior citizen and reverse mortgages generally the news is never good. There is simply nothing redemptive about such cases, even if they represent a small number of incidents.

Fourth, it is difficult to think in terms of an equity-based loan when equity has generally fallen across the country.

Fifth, the idea of people with reverse mortgages being subject to foreclosure is hard to understand given that reverse mortgages do not require monthly payments for principal or interest.

What can you do to see if a reverse mortgage is right for you?

As a start it ought to be understood that reverse mortgages work for some borrowers — but not for others.

Prospective borrowers need counseling which shows how reverse mortgages fit within an overall financial and estate plan — including pros and cons. This means sitting down with a fee-only financial planner or an attorney who specializes in elder law to get independent information.

It pays to shop around. Compare rates and fees. It’s time well spent.

Lastly, a home is typically the largest asset most of us hold. In addition to speaking with financial professionals, speak with adult children and ask for their views. Ask them plainly, if not a reverse mortgage then what alternative makes sense in your situation?

 

This entry was posted on Wednesday, March 23rd, 2011 at 12:33 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.