Do The Mortgage Problems On The News Affect Reverse Mortgages?

image The Wall Street Journal continues to be a great resource for Baby Boomers with it’s Encore section of the paper.  Encore is targeted at the 50+ crowd and covers a range of different topics from finance to travel and many others.  The weekend edition of the Ask Encore section features a question from a senior in San Diego who wants to know if the mortgage problems on the news could affect her reverse mortgage?

Ms. Bell would like to use a reverse mortgage to pay off her mortgage balance and after attending several sessions on reverse mortgages she understands and is comfortable with the product.  However, she is nervous about taking a reverse mortgage out with all of the mortgage problems she hears about on the news.

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The WSJ explains that if you stick with a government backed reverse mortgage, your payments are guaranteed.  They also recommend that you might want to wait a few weeks to take out a reverse mortgage due to the housing law which will raise the lending limits for HECMs.  According to Peter Bell, president of NRMLA, he expects HUD to announce those limits and start using them on or about October 1st. 

The WSJ also mentions proprietary products which often have higher lending limits but aren’t government backed like the HECM.  According to the WSJ these loans are bundled and sold to investors which was typically handled by a unit of Lehman Brothers Holdings Inc.  Although Lehman’s holding company filed for bankruptcy-court protection Monday, the unit that securitized reverse mortgages "isn’t part of the bankruptcy filing," Mr. Bell says. "So for the moment, there’s no issue."  

If you have any clients who have the same concerns as Ms. Bell, this may be a good article to help answer their questions and assure them a reverse mortgage is safe.

Most Reverse Mortgages Dodge Credit-Crisis Woes (Wall Street Journal)

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  • Good article. I think the more that Baby Boomers learn about reverse mortgages the more they will realize how beneficial and safe they can be. Especially in this uncertain economy we are now in.

  • Is it possible, if you already have a reverse mortgage, with Bank of America, to reapply for a goverment backed loan? my property appraised at about 450,000$ and we received around 175,000 taking 26,000 as a cash out. but now i am beginning to worry that the market is so unstable what will happen to my reverse mortgage. i am 69 and my husband is 70. if it is possible to move into a government backed loan would make us feel more secure.

  • Beverly, you can certainly apply for a government insured reverse mortgage, HECM. It sounds like you only used $26,000 of an available $175,000. If that’s the case, there should be enough available under the HECM to pay off your current balance and have money left over, especially if you wait for the new lending limit to be put in place. Keep in mind that you will have to pay closing costs all over again.

  • have a question if property is about to be foreclosed on can the bank make me tap into my reverse mortgage moneys to satisfie the loan on the property?

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