Reverse Mortgage Information

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: Read the rest of this entry »

8,270 HECM reverse mortgages were endorsed during November 2007 according to the most recent HECM activity report released by HUD. November’s HECM production is a 10.6% gain over the 7,478 HECM’s endorsed in November 2006 but a 1.7% decrease from October 2007 when 8,417 HECMs were endorsed. More troubling: November was the third consecutive month that HECM production fell below its 12-month moving average - the first time this has occurred since mid-2005.

The 12-month moving average provides a clearer trend line of HECM loan growth by smoothing out month-to-month variations. Interestingly, despite the fact that monthly HECM activity has dipped below the 12-month average for three straight months, the 12-month average itself hit an all-time high of 9,004 in November, due mostly to the exceptionally strong HECM activity earlier in the 12-month period.

For the calendar year 2007, 100,286 HECMS were endorsed compared to 77,879 during the first eleven months of 2006 - a 29% rise. For the twelve months ended 11/30/07, 108,046 HECMS were endorsed - a 30% rise over the 82,838 endorsed during the prior twelve month period.

Clearly, falling home values and the problems in the traditional mortgage sector are taking their toll on the once torrid growth of reverse mortgages. We’ll have more to report on the most recent HECM statistics in future posts.

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. Read the rest of this entry »

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. Read the rest of this entry »

In a previous post we noted an important fact largely ignored in the plethora of recent books and articles on reverse mortgages: the majority of reverse mortgages (at least HECM reverse mortgages) terminate within seven years of their origination. For many of these borrowers, a standard home equity line of credit loan (HELOC) might have been a more efficient borrowing tool.

Of course no one can predict the future and we suspect many HECM borrowers entered into their loans with thoughts of staying put for ten years or more. But, as noted, data from actual HECM loans reveals that fewer than 50% of HECMs last beyond seven years. For shorter periods such as these, the HELOC option is certainly worth investigating.

How does someone decide which is better for them - HECM reverse mortgage or HELOC? Let’s start by reviewing the the main points that differentiate the two types of home equity borrowing: Read the rest of this entry »

We came across this table that was part of a presentation at the Mortgage Banker’s Association 94th Annual Convention. The table shows, by borrower age, the cause for HECM reverse mortgage loan payoffs.

We’ve previously written about the surprising fact that the majority of HECM loans are paid off within seven years. This chart expands on this showing the general reasons why HECM loans are paid off.

Most notable is the fact that less than 1/3 of HECMs terminate due to death. Overall, the vast majority of HECMs terminate because the borrower sells and/or moves out - not because the borrower dies while living in their home. Read the rest of this entry »

In a prior post we examined evolution of the HECM market over the past two years (ended 10/31/06 and 10/31/07) focusing on the geographic location of HUD home equity conversion mortgage endorsements. The table below examines the evolution of lenders’ HECM market shares and growth over the same time frame.

Some observations:

Read the rest of this entry »