I read an interesting article last week by Tara Siegel Bernard. She writes for the Mortgage section of the NY Times and covered a topic I've been giving some serious thought to lately. Reverse Mortgages. With the real estate market taking such a hit, there are many questions in a lot of people's minds about this type of mortgage and how the senior community is responding.
Will the seniors have the money in their homes that they expected, considering the dropping values in the housing market?
The biggest answer comes from the fact that the nation’s two biggest providers of reverse mortgages are not offering this loan any longer. According to Bernard, Wells Fargo and Bank of America combined for a total 32,058 reverse mortgages. That's 43% of the business! BOA chose to exit this business in February of this year, and Wells Fargo announced last Thursday that they are following BOA's lead.
So, what does this do to the seniors who are expecting to use this lifetime investment to fund some (or all) of their retirement needs?
With the two big players out of the game, so to speak, there are no heavy hitters. And that means it might be difficult to get a reverse mortgage.
Key components of the reverse mortgage
- You must be over 62 years old.
- If you have enough equity in your home, you can get a reverse mortgage.
- The bank pays you out of the equity in your home.
- You are required to continue to pay the taxes.
- You are required to have homeowners insurance.
- You are required to pay mortgage insurance premiums.
- Home values are continuing to drop, which decreases the equity in the home.
- Some have taken a reverse mortgage out to pay off the balance due.
- Some now owe more than the house is worth.
- Some aren't paying the taxes.
- Some aren't able to afford the insurance, so have stopped paying for it.
- Banks cannot decline anyone if they meet the age and equity requirement; thus, they are required to issue loans to those unable to pay the insurance and taxes.
- Lenders are required to pay the tax and insurance payments on behalf of delinquent borrowers (with delinquencies, they submit a claim to HUD, which is responsible since it's guaranteeing the loan).
While the economy continues to struggle, some action is being taken. HUD provided lenders with some tips to help the borrowers, such as repayment plans and requesting a mortgage counselor's assistance. If neither of these options work, the lender is required to start foreclosure proceedings.
HUD is coming up with a plan for lenders that enables them to determine a loan applicant's ability to make the payments or have a determined amount set aside to pay for the taxes and insurance. There is no indication when HUD will complete this plan.
Things have changed
In past years, prior to the recession, a reverse mortgage was as close to a guarantee as anything could be. The housing market was stable and growing. Equity would grow for these homeowners because the value of the house continued to increase. This meant there would continue to be funds available.
And now ...
- Wells Fargo and BOA will continue to service their current reverse mortgage customers.
- The reverse mortgage association will work to ensure that seniors who need these loans will still be able to get them.
- Some anticipate increases in fees due to less competition, especially when the two key players have removed themselves from this market.
It's not just the seniors affected by this. Wells Fargo will be eliminating about 1,000 employees who are currently in the reverse mortgage offices. They are being offered other opportunities within the bank. Half of Bank of America's 600 employees have already been transferred to other positions within the bank.
Are you a senior, or know someone who is, and are interested in discussing your current mortgage? Do you want to prepare for a reverse mortgage? Grandview Lending has years of experience and are trusted mortgage brokers. We are happy to discuss any mortgage options with you.