Bank Realty Woes Hit Elderly, How Can Reverse Mortgages Help?

image Interesting article from American Banker which describes how regional banks are seeing older Americans struggle to repay their loans as the recession scrambles once-optimistic plans for retirement.

Specifically, the article points out that senior citizens are finding it difficult to pay off their mortgage on retirement properties because they haven’t been able to sell their primary homes. 

"Real estate has remained under pressure … . Do these borrowers ultimately sell their house and move to the mountains of North Carolina? Maybe. Maybe not," said Jeff Davis, an analyst at First Horizon National Corp.’s FTN Equity Capital markets. "There are a lot of latent real estate issues out there that aren’t going away."

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Albert Savastano, an analyst at Fox-Pitt Kelton Cochran Caronia Waller USA LLC, said the housing markets in popular retirement destinations like Florida and Arizona have been punished for more than a year due to an overstock of vacant second homes. But now the trend is extending itself to less high-profile retirement spots like the Carolinas, upstate New York and Georgia.

"The second-home markets have had this issue. It is now spreading into second-tier markets," he said. "It’s not a shock, given where the economy is and the job losses, etcetera."

There has got to be a way for the HECM for purchase to help play a role in this situation, any ideas? 

Realty Woes Infect Loans to Elderly 

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  • Seniors need to be careful. Foreclosures can impact their access to HECMs.

    There are techniques and ideas being explored right now to exploit current market conditions. When seniors purchase homes at significant discounts, the three factor MCA determination on a HECM for Purchase results in much lower proceeds than a traditional HECM provides. We are developing concepts to use in these situations without violating the spirit of HUD rules and allowing appraisers their space and rightful independence. It is very hard but we are seeing some daylight.

    Being overly creative is very dangerous. But looking for options can be very rewarding. We think we have found one avenue that may be instrumental in getting 50 seniors into homes. It is difficult to do and because it is truly unique, cannot be used in other situations.

    I know this is vague but until it is proven by us and approved by HUD, we need to play it close to the chest. It is important that loan officers aggressively go beyond cookie cutter solutions and find better solutions that do not violate either HUD rules or the spirit of those rules.

    We live in interesting and challenging times. This is not 2005 and 2006 when placing a simple ad in the newspaper returned multiple times its costs in revenues. This is a very different marketplace.

  • If you have found your dream home in the mountains, one option would be to secure a reverse mortgage to pay off the primary home. This would free up cash to make monthly forward mortgage payments on the retirement home in North Carolina. Two issues: can you make the down payment on house #2 without selling the primary home and secondly, are you willing to wait until the market improves to sell house #1 and move (home with RM needs to be primary residence).

    • mortgagegirl,

      The technique is very valid and sound. The timing is lousy.

      Neither sales volume over the summer nor home prices have been very encouraging. Now at the beginning of fall, this is not a good time to be a seller. In most places, there is still a lot of inventory, shadow inventory, pent up supply, and newly foreclosed homes ready to come onto the market, etc.

      Your hypothetical senior could be stuck in the current home waiting for the right sale for months. As the old saying goes: “Just because you can, does not mean that you should.”

      Until unemployment turns around, the outlook for the home market is not bright. This is not the time for seniors to be extended in paying for a vacant home for an extended period of time unless they have money to burn.

      Situations like the one you are proposing bring on more stress, more worry, and perhaps financial loss, unless the first home is a guaranteed quick sale. Lately, I have seen a lot of those guaranteed quick sales end up in escrow for the third or fourth time with contingencies that make completion unlikely.

      BUT you are right, that does not mean what you propose is not a valid option for a few.

  • If you have found your dream home in the mountains, one option would be to secure a reverse mortgage to pay off the primary home. This would free up cash to make monthly forward mortgage payments on the retirement home in North Carolina. Two issues: can you make the down payment on house #2 without selling the primary home and secondly, are you willing to wait until the market improves to sell house #1 and move (home with RM needs to be primary residence).

  • mortgagegirl,rnrnThe technique is very valid and sound. The timing is lousy. rnrnNeither sales volume over the summer nor home prices have been very encouraging. Now at the beginning of fall, this is not a good time to be a seller. In most places, there is still a lot of inventory, shadow inventory, pent up supply, and newly foreclosed homes ready to come onto the market, etc. rnrnYour hypothetical senior could be stuck in the current home waiting for the right sale for months. As the old saying goes: “Just because you can, does not mean that you should.” rnrnUntil unemployment turns around, the outlook for the home market is not bright. This is not the time for seniors to be extended in paying for a vacant home for an extended period of time unless they have money to burn. rnrnSituations like the one you are proposing bring on more stress, more worry, and perhaps financial loss, unless the first home is a guaranteed quick sale. Lately, I have seen a lot of those guaranteed quick sales end up in escrow for the third or fourth time with contingencies that make completion unlikely. rnrnBUT you are right, that does not mean what you propose is not a valid option for a few.

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