Can Senior Citizens Still Find a Reverse Mortgage
with New Credit Crunch?
The answer is in the basic premise of the reverse
mortgage itself says mortgage company
By
All Reverse Mortgage Company (Special to SeniorJournal.com)
Sept. 18, 2008 - Everyone has heard so much since
Monday about the credit crunch and how it will adversely affect the
ability of people to borrow money. One of the new mantras in the
financial sector is that loans will only be made to borrowers who can
actually afford to repay them (imagine that) and many senior homeowners
are concerned about how this will affect them in their efforts to obtain
a reverse mortgage. The answer is in the basic premise of the reverse
mortgage itself.
Seniors considering reverse mortgages lowering
their home values, new housing legislation helps older
Americans, says reverse mortgage lender in other studies
A reverse mortgage operates in the reverse fashion
of a traditional or forward mortgage in that under a forward mortgage
you have a falling debt, rising equity loan as the borrower pays
payments and repays the principal.
The reverse mortgage is a falling equity, rising
debt mortgage in that the borrower receives payments from their home and
therefore, the borrower is not in risk of defaulting on the mortgage
payments as there are no monthly payments for the borrower to make.
So when there is talk of a credit crunch from the
standpoint of borrowers not obtaining credit due to their inability to
repay the obligation, reverse mortgage borrowers do not have that same
concern.
The credit crunch does have other
ramifications.
The credit crunch does affect reverse mortgage
borrowers in other ways. We have already seen the exodus of almost
every jumbo or proprietary reverse mortgage product that was available
to senior homeowners with very high valued properties. The only ones
available very recently required large lender-imposed reductions in
property values right off the top, before even considering borrower
eligibility.
Much of this blow will be softened as soon as the
Housing and Economic Recovery Act (H.R. 3221) is fully implemented by
HUD and the loan limits are raised, but there is still some confusion as
to the new limit.
Letters have been issued by both U.S. Senators
Diane Feinsten (referenced by Reverse Mortgage Daily
click to story) and Barbara Boxer citing limits of $417,000 and
$625,500, respectively.
If two senators from the same state do not agree
with the new limit that H.R. 3221 establishes for the Home Equity
Conversion Mortgage (HECM or Heck-um) which FHA insures, it is no
wonder that HUD is having a hard time interpreting the Bill and sending
the new limits out to lenders.
The Bill was signed into law on July 30, 2008 and
the definitive limits have not been announced as of this date.
Another pinch that senior borrowers have felt as a
result of the recent credit woes is in the margins available to them on
the loans.
As credit tightens, the margins that banks must put
on the loans have had to be raised in order to sell the reverse mortgage
loans on the secondary market. How that affects senior borrowers is
that just a year ago, borrowers could obtain a reverse mortgage loan
with a Constant Maturity Treasury (CMT) index and a margin of 1.00.
Most lenders have had to switch to the higher
London Inter Bank Offered Rate (LIBOR) and just within the last 4 days,
the margins have risen drastically on that index as well.
The bottom line for senior borrowers is that
generally the higher the rate and margin, the less money the borrower
will receive (and the faster they will accrue interest on their loan).
This is not always true when rates are extremely
low, they hit a floor where they actually receive more money with a
slightly higher margin, but with the recent volatility in the LIBOR
index and the rapid increase in the margins, the credit crunch will
definitely affect many borrowers.
As property values have continued to decline in
many markets, borrowers have seen their equity erode and also their
ability to receive reverse mortgage funds. This is especially important
if the borrower has a current mortgage which needs to be paid off and
they do not have other funds to pay off the mortgage if the new value
does not give the borrower adequate equity to obtain a large enough
reverse mortgage to pay off the entire lien.
This combination of
falling values and rising margins can make all the difference in the
ability of a borrower to be able to pay off an existing debt if the
borrower was close to begin with.
In the end, the credit crunch will not stop
borrowers from being able to obtain a reverse mortgage as long as there
is a place to sell the loans in the secondary market and these loans are
insured by the federal government, which makes them a very attractive
instrument.
The credit crunch will, however, affect the
interest rates and the types of programs available.
The reverse mortgages should remain available, but
even senior borrowers will feel some of the sting of the credit crunch
in the form of higher margins and fewer programs for higher valued
properties.
The other affect the credit crunch is already
having on many seniors is in their pocket books those who had stock in
companies like Lehman and AIG for example may well now need to look at
reverse mortgages for the first time as a means to supplement their lost
assets/income.
This guide lists the most
common questions asked by consumers about reverse mortgages with
the answers.
About All Reverse Mortgage Company
ARMC is a HUD approved Lender helping senior
homeowners turn dormant equity into spendable tax-free cash. The
companys founder has been in mortgage banking for over 32 years and
this dedicated team of mortgage professionals have written their own
reverse mortgage product and sold reverse mortgage loans to investors on
Wall Street. We are passionate about seniors rights to age in place
and dignity and about the reverse mortgage products ability to allow
them to do so. Website:
http://www.allrmc.com
Editor's Note: All Reverse Mortgage is an
advertising customer of SeniorJournal.com
Keep up with the latest news for senior citizens, baby
boomers
Sept. 18, 2008 - Everyone has heard so much since
Monday about the credit crunch and how it will adversely affect the
ability of people to borrow money. One of the new mantras in the
financial sector is that loans will only be made to borrowers who can
actually afford to repay them (imagine that) and many senior homeowners
are concerned about how this will affect them in their efforts to obtain
a reverse mortgage. The answer is in the basic premise of the reverse
mortgage itself.
The bottom line for senior borrowers is that
generally the higher the rate and margin, the less money the borrower
will receive (and the faster they will accrue interest on their loan).
