Lack of competition, rather than issues with lenders, originators, or the loans themselves is the real problem plaguing reverse mortgages, writes mortgage banker Richard Booth in an American Banker article this week.
Refuting an earlier column on the topic, reverse mortgage should not be compared with “exotic” loan products of the past, Booth writes, but it does face a challenge in now few competing products are in the marketplace, leading to unnecessary costs to the consumer.
“Reverse mortgages are expensive loans for consumers,” Booth writes. “… With their losses mounting in recent years, attributed to low down payment lending, the FHA has been forced to raise their mortgage insurance premiums multiple times in recent years.
What this niche, but growing market needs is more non-government-backed lending. Competition will drive down costs for consumers. In order to accomplish this, the regulatory environment for originating and servicing must become more investor-friendly or they will continue to sit on the sidelines.”
Current changes being worked on by FHA will help to resolve some issues that may be discouraging servicers from entering the market, he says, but private lenders will be the essential component to market growth and popularity of the product.
“Today, baby boomers are entering retirement with outstanding mortgage loans fueling the demand for this product. They are a wonderful financial tool and enable homeowners to remain in their homes and live with dignity,” Booth writes. “Lenders who do not offer reverse mortgages are missing out on an opportunity to interface with their aging customers. We need to encourage private lenders to return to the market. Until that occurs, the FHA will need to fill the gap.”
Written by Elizabeth Ecker