Competitve Climate Drives Reverse Mortgage Costs Down

NewImage.jpgOlder consumers looking to access home equity through a reverse mortgage will find that a new competitive climate has reduced out-of-pocket costs considerably according to the Star Telegram.

Starting October 4th, consumers will have access to the HECM Saver, which will allow access to just part of a homeowner’s equity at a reduced cost.

“Reverse mortgages are becoming more mainstream.” said Scott Norman, president of the Texas Mortgage Bankers Association. “A reverse mortgage is not for everybody, but every extended family in Texas has a member that could benefit from one.”

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Reverse mortgages, which have been available in the state for 11 years, allow senior citizens 62 and older to convert equity in their house into tax-free income without having to sell the home, give up the title or take on a new mortgage payment. When the borrower leaves the house, the loan is either paid off or the property reverts back to the lender.

Reverse mortgages are starting to gain traction in Texas. The state’s seniors took out 7,495 reverse mortgages in 2009 for an average home value of $178,920, according to data from the bankers association. Over the past 10 years, there have been 35,702 reverse mortgages for a total value of $3.3 billion.

Now’s the time to take another look at reverse mortgages

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  • In the first part of the article the author confuses “out-of-pocket” costs with upfront costs. But then correctly states that there have never been a lot of “out-of-pocket” costs since they have been eligible to be rolled up into the loan.

    As the Savvy Consumer it is odd that she says the Saver is brought at a lower cost. Yes, the upfront MIP cost may be lower than on September 23rd but the backend is not and in fact could result in higher total loan costs depending on how long the HECM is outstanding and what the interest rate is.

    Is it just me or does everyone else have problems with the word “revert” when people say if the mortgage is not paid off, the property “reverts” to the lender? In most cases, the lender would not get the property anyway since the note is owned by the investors. “Revert” has the idea of going back to where it came from. So how does that work with a HECM? It is that kind of misuse of words that causes seniors to believe that “the bank” somehow owns the property after loan funding.

    Like many others Teresa confuses servicing fee set asides with upfront costs. But then Teresa quotes Judith Smith as saying that HUD is waiving servicing fee set asides. When did that happen?

    Then Scott Norman is quoted as saying Savers will only offer 20 to 25 percent of equity rather than 80%? That whole statement is strange.

    While the article is not negative, it is among the odd ones.

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