Call it “the law of unintended consequences” – the two-year drop in home valuations currently playing havoc with seniors’ plans to get a reverse mortgage.
Like raising the speed limit on a highway while simultaneously lowering the maximum velocity a car can achieve, seniors are being appraised out of qualifying for financial aid. Many have high conventional mortgage balances at a time when lower reverse mortgage proceeds – based on “future valuation” – will not satisfy the existing lien and eliminate their mortgage payment.
“We have had appraisers admit to us that they are projecting declines out as far as 12 months and adjusting values downward in an effort to protect themselves from future claims,” says a long-time reverse originator. Seniors who need fair present value valuations, “will likely stay in their homes at least six additional years,” he predicts.
Part of a pendulum swing toward tighter market conditions, this Florida originator registers concerns. “It is popping up all over. Counselors are over-reacting, lenders are creating guidelines far in excess of HUD’s own requirements – which means lower origination fees just as property values drop and the secondary marketing financing shrivels.”
Meanwhile, Joseph Kelly, partner, New View Advisors, notes that, “Extremely high loan amounts, with LTV ratios of 90 percent for older borrowers, are creating ‘crossover’ losses as property values decline and loan balances increase.” In an essay on the company’s website, entitled: "The Trouble with HECMs,” Kelly declares that: “The HECM program faces a potential death spiral scenario, in which senior borrowers are faced with ever-increasing costs to fund the subsidy required to continue its existence, one made more tenuous by the high costs to the borrower and the taxpayer.”
Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at [email protected]