Why Credit Crisis isn't Touching Reverse Mortgage Biz
We have all read and heard about the results of the the credit crisis, which all begain with high-risk home loans. The entire forward mortgage industry is in a world of hurt.
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.
All polled telling sob stories would have one thing in common, they are all doing forward mortgages. If I polled a reverse mortgage loan officer I'd hear something quite different.
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.
Another factor aiding reverse mortgage market is simply our growing senior population. The first baby boomers turned 62 over a year ago. I believe there is more to come.
This age group has one problem its parents didn't. It's parents faced cost of living increases, as we all do, but this generation of seniors didn't save like it's folks did. The need for additional income is greater with this group.
Another less important factor is the current economy. Many seniors have lost much of their savings in the stock market dive of '08, and large numbers are looking for additional financial tools.
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.
Reverse mortgage lenders could see real issues if home values drop drastically from here, but barring that event the sun appears to be shining on this business.
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.
All polled telling sob stories would have one thing in common, they are all doing forward mortgages. If I polled a reverse mortgage loan officer I'd hear something quite different.
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.
Another factor aiding reverse mortgage market is simply our growing senior population. The first baby boomers turned 62 over a year ago. I believe there is more to come.
This age group has one problem its parents didn't. It's parents faced cost of living increases, as we all do, but this generation of seniors didn't save like it's folks did. The need for additional income is greater with this group.
Another less important factor is the current economy. Many seniors have lost much of their savings in the stock market dive of '08, and large numbers are looking for additional financial tools.
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.
Reverse mortgage lenders could see real issues if home values drop drastically from here, but barring that event the sun appears to be shining on this business.
About the Author:
If you are looking for a great resource discussing the ins and outs of the California reverse mortgage click here. For a great Q&A site for the Califnornia Guide to the reverse mortgage, click here.
posted by Debt Consolidation Loan at
10:29 PM
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