Why Your Reverse Mortgage May Have Been Transferred in Process
You don't need to pick up the paper anymore or read the news to know that traditional forward mortgages are dramatically changed.
Those taking the biggest hit, other that big backers of mortgage backed securities, have been mortgage companies offering traditional mortgages. Some of these folks are unrecognizable and other are simple out of business.
Thus far reverse mortgages have been fairly insulated from this whole fiasco.
I mean lets face it, the reverse has some built in positives investors in todays mortgage backed securities probably like.
The biggest being the reverse mortgage does not require monthly repayment which essentially eliminates risk of default for these loans.
Mortgage companies lend money out of lines of credit known as warehouse lines. This is the problem. Some lenders fund reverse mortgage and traditional mortgage out of the same line.
The warehouse lines are not necessarily broken up between reverse and forward mortgages. All money comes from the same kitty.
Is it possible that some of these lines of credit or warehouse lines are somehow affected by the mess in the traditional mortgage market? What happens then?
That's right. The money available for reverse mortgages is thereby restricted. This is happening right now.
This is a bad deal for the bank as it temporarily loses that stream of income. And its bad for the consumer who may be in the process of getting the reverse only to be told mid stream that his deal must be sent to a new lender.
How Joe Blow gets hurt in all of this is by getting hit, because the closing takes an additional two or three weeks, by higher interest rates thereby reducing how much he cashes out of his mortgage.
Unlike forward mortgages where one can lock in an interest rate for extended periods, reverse mortgage don't have that. Therefore rate increases can severely limit borrowing power.
How can this affect someone? It can constrict the loan amount enough to the point where a borrower can no longer pay off a big bill or a forward mortgage currently sucking away most of the disposable income.
Word to the wise when getting a reverse mortgage, plan on a few bumps in the road and don't assume anything.
Those taking the biggest hit, other that big backers of mortgage backed securities, have been mortgage companies offering traditional mortgages. Some of these folks are unrecognizable and other are simple out of business.
Thus far reverse mortgages have been fairly insulated from this whole fiasco.
I mean lets face it, the reverse has some built in positives investors in todays mortgage backed securities probably like.
The biggest being the reverse mortgage does not require monthly repayment which essentially eliminates risk of default for these loans.
Mortgage companies lend money out of lines of credit known as warehouse lines. This is the problem. Some lenders fund reverse mortgage and traditional mortgage out of the same line.
The warehouse lines are not necessarily broken up between reverse and forward mortgages. All money comes from the same kitty.
Is it possible that some of these lines of credit or warehouse lines are somehow affected by the mess in the traditional mortgage market? What happens then?
That's right. The money available for reverse mortgages is thereby restricted. This is happening right now.
This is a bad deal for the bank as it temporarily loses that stream of income. And its bad for the consumer who may be in the process of getting the reverse only to be told mid stream that his deal must be sent to a new lender.
How Joe Blow gets hurt in all of this is by getting hit, because the closing takes an additional two or three weeks, by higher interest rates thereby reducing how much he cashes out of his mortgage.
Unlike forward mortgages where one can lock in an interest rate for extended periods, reverse mortgage don't have that. Therefore rate increases can severely limit borrowing power.
How can this affect someone? It can constrict the loan amount enough to the point where a borrower can no longer pay off a big bill or a forward mortgage currently sucking away most of the disposable income.
Word to the wise when getting a reverse mortgage, plan on a few bumps in the road and don't assume anything.
About the Author:
Find the seven most misunderstood assumptions regarding the California Reverse mortgage here. Also, the twenty commonly asked California reverse mortgage questions answered at this website.
posted by Credit Counseling at
2:08 PM
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