FHA Commissioner Sees Bright Future For Reverse Mortgages

December 2nd, 2008 | by admin Published in FHA, News, Reverse Mortgage | 5 Comments

HeraldNet writer Tom Kelly does a great job covering reverse mortgages. His most recent article, Even now, reverse mortgages a viable option describes how even with the credit crunch, the reverse mortgage industry grew for the 19th straight year. While the 4.3 percent growth in HECM volume isn’t close to what the industry has seen previously, with loan limits raised and fees capped at $6,000 people are expecting a surge of applications.

"One reason for the lower (reverse mortgage) volume was the uncertainty over the loan limits," said Peter Bell, president of NRMLA, the nonprofit trade group based in Washington, D.C. "There were so many people waiting on the sidelines to see what would happen. Why would you want to close a loan a few weeks ago when you could borrow less and get a higher interest rate?"

While the industry has seen the loan limits increase to $417,000, Kelly writes that Lenders vow to push vigorously to lift the ceiling to $625,500 as soon as possible, especially given the exit of all jumbo reverse mortgage products. Raising the loan limits to $417K helps people in certain areas of the country, but in places like California the new loan limits don’t provide much more benefit.

The best part of the article comes from the story about FHA Commissioner Brian Montgomery’s mother and reverse mortgages, which Kelly describes below:

FHA Commissioner Brian Montgomery, who will leave his post when the current administration exits in January, said there is a bright future ahead for reverse mortgages, despite the current credit crunch. He has tried to convince his mother to take out a reverse, but she, like many seniors, has been suspicious of the concept.

"I told her that I was her son and would always be looking out for her best interests," Montgomery said. "I also told her that I administered the program for the United States of America and thought it was a pretty good idea."

Even now, reverse mortgages a viable option

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Harry Gormley

The FEES were only capped @ 6000.00 for the FHA origination. It makes it sound like that's the Total cost to get a reversr mortgage.

R. Novigrod

Hey Folks, God Bless All of You This Holiday Season!
The HUGE drop in home values has greatly affected the
number of loans being processed. It was not just the "wait and see" attitude of qualifying owners. The
20 to 30% drop in home values "devoured" the equity we
need to have to write up a HECM. The increased limit to $417,000 was not enough. The incresed limit to $625,000 will be much better. Now would be a GOOD TIME TO PRAY!

Question_Mark

Having learned a great deal about the financial structure of HECMs from Mr. Kelly's book, it is never a pleasant chore to criticize what he writes.

Why is it that so many in the reverse mortgage industry who claim to be educating seniors about reverse mortgages use terms that only confuse? Mr. Kelly refers to loan proceeds as income. This false description for cash was stated again and again by NRMLA convention speakers. Several in their presentations had to declare "well not income in that sense". In what sense are these proceeds income? Do these "educators" know what income is?

One speaker declared: "A reverse mortgage is an exchange of equity for streams of income." Some talked about reverse mortgages resulting in reduced equity.

The truth is, taking reverse mortgage proceeds out of the loan increases another asset called "cash" not a temporary category of equity called "income" and at the same time increases debt against the home.

Other than the costs related to reverse mortgages, it would be good to hear someone defend how a reverse mortgage always reduces equity or is an "exchange" for anything other than borrowing rights.

Here is an example where taking out a reverse mortgage actually resulted in increased home equity. The borrower took out the debt to do work to his dilapidated home that increased its appraised value beyond the proceeds taken, the costs of the loan, and the general average increase to homes in that area. So where is this decrease in equity? Yet the debt against his home rose.

Let's look at another case. A senior took out a reverse mortgage to pay off his existing mortgage and never touched his loan again. About five years later, after using his proceeds for a business that he sold he paid down his HECM to almost nothing. So did the reverse mortgage really result in reduced "equity"? What was equity exchanged for? Where were the "streams of income?"

linda jaikes

I saw an ad in the Naples paper that they promise the lowest origination fee and well as giving an extra $250
if they can't beat the price. I would hate to think this business can be prostituted! We are here to do the right thing. Have people forgotten that!
Whats the take on cutting fees to grab a client? and really, what is the true cost. You get what you pay for.

Amrapali

I agree with the critic and feel that before taking out a reverse mortgage, one must understand what is a reverse mortgage and the pros and cons of reverse mortgages fully in order to make an informed decision.

Vince..

In regard to the critics. It never fails to amaze. Here's the bottom line, if you've got a senior who can't survive and keep up with payments. Who cares if it's income or cash, they are both accomplishing the same thing. The two examples that where brought up only point to the diversity with this product as to what it can accomplish. As time goes on I'm thrilled to see more creativity with solving so many situations with this program for seniors.As a loan officer that relies on education as a central component of "the process" It remains super important that we surround ourselves with continuing education and police ourselves before the industry as a whole becomes a breeding ground for more government intervention. serve a senior today!

FHA Commissioner Sees Bright Future For Reverse Mortgages

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