Reverse Mortgage Trends in 2008
For most of us, 2008 has been a pretty difficult year. The overall economic downturn took its toll on our finances, particularly in the fields of personal savings, loans and credit schemes. Lenders found the year as a difficult time to lend while borrowers struggled to find attractive credit programs amidst the nationwide credit crunch. It is mainly the shattered credit industry, which turned the once-booming real estate sector into a highly unstable one, resulting in record number of foreclosures in almost all the states.
But amidst this bleak credit scenario, we have witnessed a continuous increase in reverse mortgage applications. In fact, reverse mortgage has now become a contemporary trend amongst the senior homeowners who are 62 years of age and above. Over the past years, reverse mortgage has become increasingly popular amongst the senior citizens of the country as an excellent alternative to selling their much-loved home. In particular, the years 2007 and 2008 saw a dramatic upward trend in newly-filed reverse mortgage applications. It is now being considered as a mainstream solution rather than a niche market as was thought by many in its initial years. The major client base for reverse mortgages is senior homeowners who have reached 62 years or more. Due to the fact that the Baby Boomers are now approaching their retirement age, the number of applicants is expected to increase exponentially with each passing year.
In 2000, there were only 7,000 senior citizens who obtained reverse mortgage. This figure jumped to 50,000 between autumn 2004 and autumn 2005 when there were 13 million eligible senior homeowners in the country.
Despite being a very attractive scheme, reverse mortgage failed to ring the bells until recently. It is largely because of the fact that senior homeowners already vulnerable to major financial losses didn’t have much trust on the program, probably because it was too attractive. Lenders, on the other hand, lacked the required expertise to explain and promote their reverse mortgage packages. Many also complain a feel of reluctance that continued to exist in the lenders.
However, the steadily growing number of reverse mortgage clients tells us a different story now. The nationwide credit crunch and record number of foreclosures have paved the way for reverse mortgage to become senior homeowners’ most favored credit refinancing measure.
Both FHA’s reverse mortgage and HECM (as termed by HUD) experienced dramatic hits in 2008.
More than 2 million applications were filed for FHA reverse mortgage in 2008 alone. This is approximately 2.6 times the figure of 2007. FHA approved nearly 60% of these applications which is also a significant increase (125%) as compared to that of previous year.
HUD on the other hand received 144,635 applications for HECM, a 20.2% increase from 2007. HUD approval figure stands as 77.54% - an all-time record, although it gained a 4.3% from 2007 approvals.
The above figures clearly demonstrate the enormous potentials of reverse mortgage lenders in grabbing the declining credit market. They also reveal the fact that senior homeowners are more interested in FHA reverse mortgage than HECM - its HUD counterpart (125% vs 4.3%).
As long as nothing magical happens to all other comparable regular credit programs, the trend of reverse mortgage is expected to scale further in 2009 and beyond.
