A new article from the Wall Street Journal describes how there is one segment of the mortgage market that is still hot: federally insured reverse mortgages.  In Seniors Drawn to Mortgages That Give Back, Nick Timiraos writes that more seniors are turning to reverse mortgages to supplement their retirement savings, which in some cases have been decimated by stock-market losses.

The article points out that while reverse mortgages are more popular than ever, borrowers find that their homes are not worth as much as they had thought.  Around one-third of borrowers who might have closed reverse mortgages two years ago no longer have enough equity in their homes to qualify, says Jeff Lewis, chairman of Generation Mortgage Co., an Atlanta brokerage. He estimates around 85% of his reverse-mortgage customers are retiring their existing mortgages.

It’s not clear how much the drop in home values will hit FHA, but HUD asked for nearly $800 million in taxpayer money next year to boost its loan-loss reserves due to deteriorating home prices. It is the first taxpayer subsidy in the 20-year history of the program. “Needless to say, this program is very sensitive to the projected path of long-term house price appreciation,” HUD Secretary Shaun Donovan told industry leaders last month at a conference.

Some say that the subsidy is a sign that the FHA needs to raise the insurance premiums borrowers pay that normally cover losses. “The government is giving people too much money,” Mr. Lewis says. Mr. Donovan says the agency opted against increasing insurance premiums on seniors “given the current pressure on retirement savings.”

Mr. Timiraos was also featured on CNBC this morning along with CNBC’s Diana Olick, which you watch here.
Seniors Drawn to Mortgages That Give Back (Wall Street Journal)