Poll: Are Reverse Mortgages Too Cheap?

February 22nd, 2010 | by John Yedinak Published in News, Reverse Mortgage | 6 Comments

Money Rates contributor Andrew Freiburghouse poses a good question to readers, Are HECM Reverse Mortgages Too Cheap?

Pointing to Jack Guttentag’s More Bogus Arguments Against the Reverse Mortgage:

Typically, excessive costs are described as the most negative thing about taking out a reverse mortgage. But Guttentag nicely reverses the thinking on that point, wondering aloud if HECM costs are not actually too low to cover the exposure of the FHA that backs this loan.

There has yet to be a sustainable private product that provides anywhere near the benefits of the HECM, does that mean the loan is too cheap?

Putting politics and/or any personal beliefs and look at it from a cost perspective. Vote below.

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http://www.examiner.com/x-24506-Tampa-Elder-Care-Examiner Kevin McNichol

There are other ways to lower fees. How many states eliminate intangible taxes and doc stamps on RM's? If we did that in Florida total upfront fees would be lower by about 25%.
The_Critic

The primary purpose of the FHA insurance is not to protect the consumer; it was to allow lenders to provide reverse mortgages with higher ratios of available proceeds to maximum claim amounts, lower interest rates to consumers than would otherwise be available based on the true risk of this product while at the same time demanding that the loan be nonrecourse with no FICO score or income minimum requirements.

However, HECMs were designed to be overall zero profit/loss based products. HUD/FHA believes it still is. That means in some years there will net profits and in others, net losses — but overall the net losses should offset the net profits over the life of the program.

The beginning of the problems for the HECM itself began with HERA when it was required to be reclassed from GI to the MMI category. Next came the attacks of this Administration on the historical appreciation rates used in computing the subsidy request.

If the MIP costs needed to be adjusted upward one would expect the suggestion to come out of HUD instead of the Administration. Now Mr. Guggentag who is no expert on this product is now over relying on the opinion of a former Wharton student to state that the HECM should have higher costs. I do not subscribe to that opinion.
bohemiajoe

The people that truly need a reverse mortgage do so as a survival mechanism. The loan is a high risk loan to the lender. The program allows seniors to use their homes equity to sustain themselves thus maintaining independence and pride. This is NOT an entitlement program and saves the taxpayer from increased cost from people who need gov assistance and the families of seniors from the financial burden of assisting them. The costs of the loan should be able to sustain the program, for people who can't meet the guidelines there should be gov programs to help fill the shortfall gaps.
Linden

I already brought this up to my 2 FL state reps and the governor, and they couldn't be bothered. Only one replied, sayign that “she was aware that there were may seniors in her district”, but went no further, and the others just didn't respond at all.
KatyDog

Excellent comments—-as usual. The only problem is that those in Washington responsible for programs like this can't read so therefore will not see your thoughts. Something must be done to have our voices heard.
I always what rock the AARP is hiding under, since I have seen nothing from them lately regarding RM.
tishman

Are you kidding me? All I ever heard is “A Reverse Mortgage is an Expensive Loan” When the closing costs are equal to 15% of the principal amount, and the borrower gets charged interest against this amount, wow!
And now wait until interest rates go up to say an historical average of 5%, all of the current adjustable loans will be paying 8-9% yearly on their accumulating outstanding balance. How anyone could say this loan is cheap must be smoking something real good/bad or just looking at the current rate with absolutely no understanding of the overall picture.
What a bummer that we have to endure B.S. like this.
You need to write to your congressmen.
<Ahref=”http://www.fhareversemortgagesofsouthflorida.com>reversemortgagessouthfloridaFHAhud

Poll: Are Reverse Mortgages Too Cheap?

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