Why Your Reverse Mortgage May Have Been Transferred in Process
You don't need to pick up the paper anymore or read the news to know that traditional forward mortgages are dramatically changed.
Those institutions offering forward or traditional mortgages have changed dramatically. If they are still in business without the help of government bailout money they are doing pretty well.
Up to this point those companies offering HECMs (reverse mortgages) have not seen any real issues.
Relative to the traditional mortgage counterpart the reverse mortgage has some very appealing traits for investors in mortgages.
The HECM is much less risky than the forward mortgage in that its structured to not accept interest payment until end of the mortgage. This greatly reduces the chance of default.
Mortgage companies lend money out of lines of credit known as warehouse lines. This is the problem. Some lenders fund reverse mortgage and traditional mortgage out of the same line.
The warehouse lines are not necessarily broken up between reverse and forward mortgages. All money comes from the same kitty.
So, what happens if the entire warehouse line is restricted based upon events in the forward mortgage market?
Of course the money made of available for the reverse mortgage gets severely limited. This is currently happening.
This is a bad deal for the bank as it temporarily loses that stream of income. And its bad for the consumer who may be in the process of getting the reverse only to be told mid stream that his deal must be sent to a new lender.
The consumer can take a hit in that it is taking much longer to close a loan being transferred to another lender. We are in an increasing interest rate environment contrary to what you're reading elsewhere. When rates go up mid stream the consumer can realize less money.
Time is of the essence for reverse mortgages more so than under normal market conditions. Increasing lender margins effectively limit borrowing power if the loan doesn't close before the rate increase.
This can have the net effect of hugely damaging plans to pay of a large medical bill or mortgage currently eating away what little income some of these folks have.
Word to the wise when getting a reverse mortgage, plan on a few bumps in the road and don't assume anything.
Those institutions offering forward or traditional mortgages have changed dramatically. If they are still in business without the help of government bailout money they are doing pretty well.
Up to this point those companies offering HECMs (reverse mortgages) have not seen any real issues.
Relative to the traditional mortgage counterpart the reverse mortgage has some very appealing traits for investors in mortgages.
The HECM is much less risky than the forward mortgage in that its structured to not accept interest payment until end of the mortgage. This greatly reduces the chance of default.
Mortgage companies lend money out of lines of credit known as warehouse lines. This is the problem. Some lenders fund reverse mortgage and traditional mortgage out of the same line.
The warehouse lines are not necessarily broken up between reverse and forward mortgages. All money comes from the same kitty.
So, what happens if the entire warehouse line is restricted based upon events in the forward mortgage market?
Of course the money made of available for the reverse mortgage gets severely limited. This is currently happening.
This is a bad deal for the bank as it temporarily loses that stream of income. And its bad for the consumer who may be in the process of getting the reverse only to be told mid stream that his deal must be sent to a new lender.
The consumer can take a hit in that it is taking much longer to close a loan being transferred to another lender. We are in an increasing interest rate environment contrary to what you're reading elsewhere. When rates go up mid stream the consumer can realize less money.
Time is of the essence for reverse mortgages more so than under normal market conditions. Increasing lender margins effectively limit borrowing power if the loan doesn't close before the rate increase.
This can have the net effect of hugely damaging plans to pay of a large medical bill or mortgage currently eating away what little income some of these folks have.
Word to the wise when getting a reverse mortgage, plan on a few bumps in the road and don't assume anything.
About the Author:
Learn the top seven myths regarding the reverse mortgage in California. Also, the twenty commonly asked California reverse mortgage questions found here.
posted by Debt Consolidation Loan at
2:37 PM
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