HW Media connects and informs decision makers across the housing economy. Professionals rely on HW Media for breaking news, reporting, and industry data and rankings. Moving the Housing Market Forward.
AlternativesEquityKeyNewsReverse MortgageREX

Wall Street Journal Covers Equity Release Programs

image Equity Sharing agreements are all “the rage” at the moment.  In the past few weeks almost every major news publication has covered companies like EquityKey and Rex & Co.  Although each company structures the transactions in different ways, the premise of the arrangement is the same: A homeowner agrees to give up part of a home’s future appreciation in exchange for cash — typically 10% to 15% of the property’s current value.

While the companies decline to say how many clients they have enlisted, it’s clear there is a market for these types of products.  According to the WSJ, Equity Key has seen applications jump 112% in the first six months of 2008, from the previous year.  Rex has seen the dollar value of deals completed in the first half of the year rise 20% from all of 2007.

As the availability for jumbo reverse mortgages has almost totally disappeared, reverse mortgage originators are finding these products are a good fit for some people vs a reverse mortgage.

The WSJ points out that these type of agreements can make financial sense for some older adults. For one, they offer some protection against the current turmoil in real-estate markets by allowing homeowners to cash in a portion of their home’s current value. But these deals also carry considerable risks, according to some real-estate experts.

In the first few years of a contract, lenders are generally protected from bearing their share of the losses. And if a home appreciates over the life of an agreement, this approach could prove more costly than a conventional loan.  “From the perspective of the companies, this may be a very good time to do these deals,” says Susan Wachter, a professor of real estate at the University of Pennsylvania’s Wharton School of Business in Philadelphia. “When prices rebound, they will capture that in their share of the appreciation.”

Homeowners are using the money for a variety of things including investing in stocks or other investments they expect to outperform residential real estate.  Some others are trading away future profits to pay down debt and fund indulgences, such as renovations and vacations.  The WSJ article goes into much more detail about the products, definitely worth the read.

Trading on the Future

Technorati Tags: ,,,,,,

Latest Articles

HW+ Member Spotlight: Tom O’Donoghue HW+

This week’s HW+ member spotlight features Tom O’Donoghue, owner at Reverse Loans Now. O’Donoghue has been in mortgage banking for more than 30 years and has been helping and committed to working with Senior Citizens for the last seven years. HW Media: What is your current favorite HW+ article and why? Tom O’Donoghue: How inflation could be a net benefit […]

Aug 12, 2022 By