A reverse mortgage is a unique loan that enables senior homeowners to convert part of the equity in their homes into tax free income without having to sell the home, give up title, or take on a new monthly payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax free. Borrowers can choose to receive the reverse mortgage funds as a lump sum, monthly income for up to life, or line of credit, or as a combination of monthly income and line of credit. No mortgage payments are due during the life of the loan.
These types of loans are picking up popularity and Bank of America's reverse mortgage business ended 2008 with a strong increase in origination fundings in December, with more than 2,200 closed loan, a 50 percent increase from October. The increase was due to expansion in their retail, wholesale and correspondent channels.
"Our strong results in December was due to the excellent execution of our balanced sales strategy,a s more seniors chose Bank of America for reverse mortgages as a means to help them stay in their home and meet their long term financial needs," said D. Steve Boland, Reverse Mortgage executive. "As we are continuing to provide seniors with the exquisite customer service they expect from Bank of America as they investigate reverse mortgages as an option to help them age in place."
Last year was another growth year year for the entire industry. In data released in December by the Department of Housing and Urban Development, the number of federally insured Home Equity conversion Mortgages closed in 2008 grew 6.4 percent to 115,176 loans.
The combined reverse mortgage results of Bank of America and Countrywide placed the bank as second in overall market share to Wells Fargo, which offers reverse mortgages almost exclusively through its retail channel. "As increased federal loan limits enable more seniors to investigate reverse mortgages in 2009, we expect to see more borrowers come to Bank of America, the brand they trust for many other financial services," Boland said.
The reverse mortgage market continues to exhibit its strongest growth in Sunbelt states. An analysis of HUD data conducted by consulting firm Reverse Market Insight, INC., indicates that three of the top 10 markets in the country are located in Florida. The Federal Housing Administration(FHA) insured 9,561 Home Equity Conversion Mortgages (HECM)loans in the Miami metro area, followed by Los Angeles, Tampa, Santa Ana, CA, Baltimore, Phoenix, Orlando, Richmond, VA, Philadelphia, and Chicago, to round out the top 10.
The growing market is drawing more competition. RMI data shows that 2,949 lender originated at least one HECM loan in 2008, a 76.5 percent increase over the prior year.
Last year HUD formally adopted a new single national loan limit of 417,000 for federally insured reverse mortgages and lowered the fees that lenders can charge. These changes to the HECM program were approved this past summer as part of the Housing & Economic Recovery Act of 2008.
2 comments:
John,
I have never been a fan of reverse mortgages except in special circumstances. The recent uptick in the rate of the applications has me concerned that this product is not the one many of these seniors would opt for if they were given other options.
Many of the applicants have immediate financial stresses and because of those problems, are more than willing to sign on the dotted line, unaware of what effect this transaction will have on their intentions for the property.
Even those with the financial where with all to navigate the paperwork and the fees have some difficulty determining the best deal. How would a senior with limited knowledge of the product, a distressed and stressful situation at hand, comprehend what they were getting into?
I have a question I seldom see portrayed when folks write about reverse mortgages: the interest rate. Who and what determines this rate, what are the current asset to loan considerations and can the owner ever pay-off the reverse mortgage should their financial situation improve?
Thanks,
Paul
Paul Petillo
Managing Editor/BlueCollarDollar.com
Paul,
I will addressing all of this in another post in the very near future.
For now, There generally are two types of rates. One fixed and one adjustable and tied into the LIBOR. Right now rates are running 2.875-3.875 for adjustable and 5.125 for fixed.
There are no monthly mortgage payments, no minimum credit score, and loan is not due until the last homeowner sells or permanently leaves the home.
Heirs also have options to pay off the loan. So paying off the loan is not a problem.
I hope this answers some of your questions. More to come in future post.
John
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