Following is an article that was published in the National Reverse Mortgage Lenders Assoc. newletter this month.
REVERSE PROSPECTS IMPROVE WITH LOAN LIMIT BOOST
By Karen Epper Hoffman
The recent increase of the national loan limit for Home Equity Conversion Mortgages (HECMs) is barely a month old and already lenders see it as a game-changer.
The federally insured HECM limit climbed to $625,500 from $417,000 on Feb. 17, when President Obama signed the American Recovery and Reinvestment Act of 2009 into law. The higher loan limit, which stays in effect until yearend, follows by less than four months an increase of the loan limit to $417,000; previously, the loan limit varied by county and maxed out at $362,790.
The financial crisis has accentuated the value of the higher limit. With so many seniors reeling from diminishing investments, weakened home values, and scant availability of consumer credit, many reverse mortgage originators say the HECM increase offers a valuable option to cash-strapped seniors.
“This increase is going to help a lot of people after that triple whammy,” said Michael Branson, chief executive of All-Reverse Mortgage Co., Garden Grove, Calif. “Many people come to use saying ‘if I sell right now I’ll lose my shirt.’ A reverse mortgage can be the only alternative to a fire sale of the property.”The interest in higher-limit HECMS is coming from the more affluent end of the marketplace, lenders said. Many wealthy consumers are finding their investment portfolios depleted, making them cash-poor, yet still house-rich. This is especially true for seniors living in coastal states, like California, Massachusetts, New York, or Washington, where housing prices are historically higher.
“There’s a lot more interest in [HECM] coming from people with homes in the million-dollar range,” said Maggie O’Connell, broker for Reverse Mortgage Store of Livermore, Calif.
Michael Odden, vice president and reverse mortgage product manager for M&I Bank in Milwaukee, Wisc., said the old HECM loan limits below $370,000 hamstrung the affluent market.
“A lot of people around here retire to their lake house, which can be worth $500,000 or more,” Odden said. “The new limit really opens this market up.”
In fact, the higher loan limit is filling an even more pronounced void, and that is the one left by the evaporation of proprietary and jumbo products. With the capital markets still in shambles, most originators sell almost nothing but HECMs. Odden said M&I Bank’s reverse mortgage business is “north of 95% in HECMs
It’s now possible for anyone over the age of 62, to purchase a home using a Reverse loan! This is wonderful news and opens up many possibilities to stimulate the Real Estate market, which we all know is very, very slow.
In general, all of the traditional requirements remain the same but now the documentation will be more in line with a traditional loan. In other words, the source of funds for the down payment ( yes, there will still be one ), verification of funds that might be needed to close the loan and they must occupy the property. No rentals or investment purchases will be allowable.
The client does not have to qualify for the loan on their credit or income, just be age 62 or more. It’s all pretty simple, pretty exciting and I think it will make a difference in the Real Estate market overall as some seniors will want to take advantage of this, still own their own home but not be obligated to make any mortgage payments.
It seems to me that almost every day I’m seeing another article about how the financial crisis is effecting the senior community. It should come as no surprise, that they are struggling probably more than the younger population with the economic meltdown.
Many of them had counted on investments, savings or possibly selling their homes to fund their retirement and expenses. With housing values continuing to drop in many instances, they are unable to retrieve anough equity after the sale of the property, to make selling the house an option.
And moving in with their “kids”? That’s not an option either, as in too many cases the adult children are finding themselves unemployed and in foreclosures and unable to help their parents.
More seniors are finally getting past their fears about Reverse loans…it’s the only solution to their dilemma. And fortunately for them, they have it. The only possible issue that could prevent them from moving forward, would be if they have a huge loan against the home and the market value is too small.
Over this past weekend, the New York Times published a very positive article on Reverse Mortgages and how many seniors are taking advantage of them at this time due to the financial crisis.
The loans have had to overcome the negative image that they are the choice of last resort, too expensive, the lender gets the property at the end of the loan and a plethora of other incorrect information.
And due to the general stupidity regarding how great they are and the fact that they are insured by the federal government, the perception is that they are something to be avoided. How sad!
I have had countless calls from frantic homeowners that are in foreclosure and hoping that they can do a Reverse loan. And most of these calls are from people that are too young and I can’t help them.
This is one of those times, it pays to be a Senior. It’s much more about than getting a movie or meal discount, it’s about staying in their home, having money to do so, cover their expenses and relieving their adult children of a financial burden.
The New York Times article was very favorable and pointed out all of the great benefits to having a Reverse mortgage. I don’t have their website handy, but just google it and look for last weekend’s edition and an article titled, “The Reverse Gear”.