The following heatmap shows how HECM reverse mortgage loan activity changed from 2006 to 2007: (more…)

Recently, the United State Senate Special Committee on Aging held hearings on the problems and opportunities surrounding the rapid growth in reverse mortgages (Reverse Mortgages: Polishing Not Tarnishing The Golden Years). The testimony of witnesses is loaded with some compelling insights (good and bad) and is highly suggested reading for those considering a reverse mortgage.

We thought it worthwhile to re-publish some of the testimony for the benefit of visitors. The first entry is from the daughter of a elderly California homeowner who clearly feels her mother was taken advantage of in the reverse mortgages process: (more…)

The days of borrowing against ever-rising home equity and having home price appreciation cancel out the pain of loan interest costs appear to be over. Reverse mortgages are often described as “rising debt, falling equity loans”. Yet, for several years reverse mortgage borrowers in many parts of the country have enjoyed a “rising debt, rising equity” environment with home equity growth far outpacing the interest accruing on reverse mortgage debt.

Each quarter we compare the rates of housing value growth reported by OFHEO with average interest rates for HECM reverse mortgages over the comparable one- and five-year periods. The difference (variance) provides a simple measure of the best (and worst) areas for reverse mortgages borrowers. We call this the Reverse Mortgage Friendliness Index. (more…)

As the reverse mortgage industry expands and constantly introduces new (and confusing) products, some people are beginning to wonder whether reverse mortgages are destined to become the next subprime mess.

The same type of financial engineering and securitization that repackaged regular mortgages (once held by local banks) into exotic investment securities sold around the world is now fueling reverse mortgage growth. The financial alchemy worked extremely well with traditional mortgages. Investors exhibited an almost unquenchable thirst for these “safe” mortgage-backed securities (MBS). Yet it’s now clear that credit agencies, regulators and investors themselves did not always understand the investments or the underlying risks. (more…)

We came across a truly useful book the other day: Scam Proof Your Life (377 Smart Ways to Protect You & your Family From Ripoffs, Bogus Deals & Other Consumer Headaches). The book is written by Sid Kirchheimer, “AARP’S Scam Alert Expert” and contains a wealth of practical tips and advice to use in protecting against all types of financial mischief from high-tech identity theft to avoiding used car sales scams.

Our initial interest in picking up the book was to see the advice offered for avoiding reverse mortgage scams. Given the authors AARP connection (even highlighted on the cover) we surely thought a chapter (at least a few pages) would be devoted to dangers in the fast-growing reverse mortgage sector. On this point we were disappointed. Not a word about reverse mortgages or reverse mortgage scams.

A chapter is devoted to “Homes”, but it deals mostly with home purchase mortgages and home improvements. Quite surprising that a book about consumer scams carrying the AARP logo on its cover does not mention reverse mortgages.

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We came across a recent press release that included a few interesting tidbits about the Financial Freedom reverse mortgage operations, the recognized industry leader (at least in terms of loan volume):

As of June 30, 2007, Financial Freedom serviced a portfolio of 131,315 loans with an outstanding principal balance of nearly $16 billion, representing a 41% growth over the prior year. Financial Freedom originates the Home Equity Conversion Mortgage (HECM), the Fannie Mae Home Keeper, as well as its own proprietary Cash Account Advantage products. The company sources 75% of its production through its wholesale, 25% through retail and 5%-10% through its correspondent channels. Financial Freedom expects portfolio volumes to reach 145,000 loans by year-end 2007.

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Recently, we’ve spent time catching up on some reading. There have been a number of good articles on reverse mortgages published recently by respected sources like Kiplinger and others. A new book on reverse mortgages (The Complete Guide to Reverse Mortgages), has also hit bookstores within the last couple of months and we’re now in the process of reading it. The recent boom in reverse mortgage growth has definitely spawned a spin-off boom of new literature targeted at seniors wanting to learn more about this “new” retirement financing tool.

Most of the reading materials we’re seeing are accurate, even-handed and clearly written.

But we can’t help noticing that they all are missing some extremely important information about reverse mortgages. In fact, in the materials we’ve seen, we don’t recall seeing even a passing mention of this information - information that we believe is absolutely crucial for anyone considering a reverse mortgage to be aware of. (more…)