Reverse Mortgages on the Horizon again
Only a few senior citizens these days feel they have built up an adequate nest egg for meeting the expenses of their golden years. Higher costs of living and higher life expectancies are forcing senior citizens to consider more options for converting assets into liquid income upon retirement. One such option is the reverse mortgage. The loan first made its debut during the late 70s and early 80s. Only a few borrowers understood the program and it was also abused by several lenders. But these days the loan’s image and impact has changed dramatically.
The FHA (Federal Housing Administration) insures reverse mortgage loans calling them Home Equity Conversion Mortgage (HECM). While proprietary (non-insured) reverse mortgages exist, nearly 95% of reverse mortgages originated are insured by the FHA and are classified as HECMs. The FHA has been regulating reverse mortgage naming them HECMs since the year 1989. Since then, the growth of the reverse mortgage loan has been significant.
Typically, reverse mortgage loans are seen with the likes of big names like Wells Fargo and Bank of America. But credit unions - even smaller credit unions - have a significant role to play. Credit unions are seen employing three types of models in order to make reverse mortgage programs a feasible component of their lending portfolios. These models are as follows.
1. Partnerships
This option is more suitable for smaller credit unions. It establishes a partnership with a broker or lender. The credit union sends interested members to a trusted partner who is then responsible for managing the relationship of reverse mortgage. With these kinds of partnerships, credit unions bypass the need to make a commitment but can still include the reverse mortgage as part of a package of loan solutions.
2. Turn-key approach
This option is a great one for credit unions wanting to increase their involvement with reverse mortgages while bypassing prohibitive obstacles such as FHA licensing, processing and employee training, etc. Several CUSOs and suppliers offer complete lending solutions to credit unions, including the reverse mortgage component. The credit union can decide the appropriate level of involvement of the second party.
3. In-House System
This option is good for larger credit unions. It may not be suitable for smaller credit unions because of the volume required for in-house staff in order to develop expertise in reverse mortgage. The advantage is that the credit union can have the degree of flexibility and ownership which it seeks.
Your credit union can start seriously looking into reverse mortgage, as more number of FHA-insured HECMs was originated during the year 2009 than during the first 15 years of its existence. The right solution for the right members might be a responsible reverse mortgage package.
