Whatever Happened To Reverse Mortgage Volume?

Given the state of the economy — not-so-good, bordering on outright collapse if we are to believe federal officials — you might think that reverse mortgages would be as popular as winning lottery tickets.

To get a reverse mortgage backed with FHA insurance you do not need a particular income, a job or a good relationship with a bank. Instead, you need to be age 62 and above, sentient and the owner of a prime residence which holds real estate equity. What you make per week or per month is irrelevant, a not-so-minor consideration in a year when 9.4 million people are unemployed.

Given this background you might think that reverse mortgage borrowing would be strongly on the rise. How could that not be the case?

Well, interestingly, it is the case.

Through September 15th, HUD reports that it has endorsed 107,074 home equity conversion mortgages (HECMs). That’s up 3.5 percent from the same period a year ago.

The reverse mortgage results contrast sharply with FHA activity in general: So far in fiscal 2008, says HUD, the FHA has endorsed 1,119,430 mortgages, an increase of 159.7 percent.

You have to wonder about this: In a weak economy a reverse mortgage can be very attractive because it’s debt without the need to make current payments. That’s much better than a forward mortgage where a payment is due without fail every month.

A reverse mortgage is also a financial device which can be used to avoid foreclosure. In the right circumstances, a senior property owner can refinance an existing loan with a reverse mortgage and wind up with a house that does not require huge monthly payments. For a growing number of people that could be the difference between foreclosure fears and no foreclosure worries.

No less important, a reverse mortgage is insured by the U.S. government, If a reverse mortgage lender fails and you’re owed money, the government will pay up. Guaranteed.

So why the modest showing with reverse mortgages?

I suspect some loans have been lost because of declining home values and thus declining amounts of equity. As well, the mortgage market in general looks fairly foreboding for anyone who reads the daily paper. Lastly, some reverse mortgage lenders have gone under and with them potential loan sales.

Will things change in fiscal 2009, a period that begins October 1st? Perhaps that will be the case given that origination fees are falling under the FHA reform measure passed by the Congress over the summer.

As they say, stay tuned….

This entry was posted on Thursday, September 25th, 2008 at 5:17 am 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.