Why Credit Crisis isn't Touching Reverse Mortgage Biz
We're growing downright numb to hearing about all the horrors related to the current credit and mortgage crisis. Its a wicked thing making a wake through our entire economy.
I know mortgage loan officers all over the country. Each one tells a similar story. All their businesses have nose dived, and some have lost as much as three quarters of their business.
All polled telling sob stories would have one thing in common, they are all doing forward mortgages. If I polled a reverse mortgage loan officer I'd hear something quite different.
The question is why? First, since banks on the forward end are so hesitant to lend out money one can see how a reverse mortgage, which does not require monthly interest or principal payments, might be a healthier investment for a bank or the banks investors.
The one real risk to the reverse mortgage involves a negative equity position for the bank. To combat this the bank lends with relatively low loan to value ratios, which in turn give it the security its investors desire to fund the loans.
Adding to the recipe, the over 62 market is growing like a weed. Many demographers believe the over 62 population will double by the year 2030.
This age group has one problem its parents didn't. It's parents faced cost of living increases, as we all do, but this generation of seniors didn't save like it's folks did. The need for additional income is greater with this group.
Another less important factor is the current economy. Many seniors have lost much of their savings in the stock market dive of '08, and large numbers are looking for additional financial tools.
From early indications this group is taking out a reverse mortgage and using it in one of two ways. They are either paying off a mortgage to free up more money for savings, or they are simply using the loan as a financial safety net.
Where things go, economically, in the coming years in anyone's guess. Home values are falling with no real end to the recession in sight.
Reverse mortgage lenders could see real issues if home values drop drastically from here, but barring that event the sun appears to be shining on this business.
I know mortgage loan officers all over the country. Each one tells a similar story. All their businesses have nose dived, and some have lost as much as three quarters of their business.
All polled telling sob stories would have one thing in common, they are all doing forward mortgages. If I polled a reverse mortgage loan officer I'd hear something quite different.
The question is why? First, since banks on the forward end are so hesitant to lend out money one can see how a reverse mortgage, which does not require monthly interest or principal payments, might be a healthier investment for a bank or the banks investors.
The one real risk to the reverse mortgage involves a negative equity position for the bank. To combat this the bank lends with relatively low loan to value ratios, which in turn give it the security its investors desire to fund the loans.
Adding to the recipe, the over 62 market is growing like a weed. Many demographers believe the over 62 population will double by the year 2030.
This age group has one problem its parents didn't. It's parents faced cost of living increases, as we all do, but this generation of seniors didn't save like it's folks did. The need for additional income is greater with this group.
Another less important factor is the current economy. Many seniors have lost much of their savings in the stock market dive of '08, and large numbers are looking for additional financial tools.
From early indications this group is taking out a reverse mortgage and using it in one of two ways. They are either paying off a mortgage to free up more money for savings, or they are simply using the loan as a financial safety net.
Where things go, economically, in the coming years in anyone's guess. Home values are falling with no real end to the recession in sight.
Reverse mortgage lenders could see real issues if home values drop drastically from here, but barring that event the sun appears to be shining on this business.
About the Author:
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posted by Credit Counseling at
10:46 PM
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