Why Credit Crisis isn't Touching Reverse Mortgage Biz
We're growing downright numb to hearing about all the horrors related to the current credit and mortgage crisis. Its a wicked thing making a wake through our entire economy.
I know mortgage loan officers all over the country. Each one tells a similar story. All their businesses have nose dived, and some have lost as much as three quarters of their business.
One common denominator of those crying the blues is that they are all in the forward mortgage segment of mortgage lending. On the contrary, reverse mortgages are booming.
The reasons are really two and a half fold. The first and most important is reverse mortgages by their very nature do not obligate the borrower to make payments. It's why people get reverse mortgages in the first place.
The one real risk to the reverse mortgage involves a negative equity position for the bank. To combat this the bank lends with relatively low loan to value ratios, which in turn give it the security its investors desire to fund the loans.
Additionally, and I say this facetiously, the senior population might be on a growth spurt. In the fall of '07 the first Baby Boomer turned 62, with I suspect a few others on the way.
Coupling with the growing senior population is the ever increasing cost of living. Invevitably a segment of the fixed income seniors are faced with a choice between selling the home or using the home's equity as a financial tool.
I haven't looked at the exact numbers of how much the stock market is down, but many seniors are running scared because of it. Many of my new reverse mortgage applications have been predicated on this.
From early indications this group is taking out a reverse mortgage and using it in one of two ways. They are either paying off a mortgage to free up more money for savings, or they are simply using the loan as a financial safety net.
It's hard to say exactly where this goes in the next few months to the next several years. Home values continue to fall nationally and no one knows where they will bottom out.
The reverse mortgage industry could take a hit if house valuations take a deep plunge. However, with a softer landing the reverse industry will continue its upward curve.
I know mortgage loan officers all over the country. Each one tells a similar story. All their businesses have nose dived, and some have lost as much as three quarters of their business.
One common denominator of those crying the blues is that they are all in the forward mortgage segment of mortgage lending. On the contrary, reverse mortgages are booming.
The reasons are really two and a half fold. The first and most important is reverse mortgages by their very nature do not obligate the borrower to make payments. It's why people get reverse mortgages in the first place.
The one real risk to the reverse mortgage involves a negative equity position for the bank. To combat this the bank lends with relatively low loan to value ratios, which in turn give it the security its investors desire to fund the loans.
Additionally, and I say this facetiously, the senior population might be on a growth spurt. In the fall of '07 the first Baby Boomer turned 62, with I suspect a few others on the way.
Coupling with the growing senior population is the ever increasing cost of living. Invevitably a segment of the fixed income seniors are faced with a choice between selling the home or using the home's equity as a financial tool.
I haven't looked at the exact numbers of how much the stock market is down, but many seniors are running scared because of it. Many of my new reverse mortgage applications have been predicated on this.
From early indications this group is taking out a reverse mortgage and using it in one of two ways. They are either paying off a mortgage to free up more money for savings, or they are simply using the loan as a financial safety net.
It's hard to say exactly where this goes in the next few months to the next several years. Home values continue to fall nationally and no one knows where they will bottom out.
The reverse mortgage industry could take a hit if house valuations take a deep plunge. However, with a softer landing the reverse industry will continue its upward curve.
About the Author:
To get a great guide discussing the ins and outs of the California reverse mortgage click here. For a great Q&A site for the reverse mortgage in California questions, you click here.
posted by Credit Counseling at
10:29 PM
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