Reverse Mortgages – In Retrospect
Credit products are a multi-billion dollar industry in the U.S. alone. Much of the country’s economic indicators rely on this once-stable industry. Recent economic recess has either contributed or had contributions from a rather declining credit industry. Amidst the chaos of the present economic crisis, both lenders and borrowers are struggling to negotiate a credit program which is mutually rewarding. Countrywide credit crunch is taking its toll on people from all walks of life. While regular mortgages, VA loans, home equity loans and many other financing/refinancing options are failing miserably, the only performing program is probably the reverse mortgage.
Reverse mortgage is a type of loan that uses a homeowner’s access to his home’s equity and offers a periodical (monthly or annual) or one-time (lump sum) payment till the time he/she decides to sell the home, move elsewhere or die. With tempting offers, such as being able to keep the home, getting a substantial interest-free payment every month/year, being able to convert partial home equity into cash - reverse mortgage is becoming the trend amongst senior citizens especially for those who have reached the eligible age of 62 and are struggling to meet daily expenses. Since its congressional approval in 1988, reverse mortgage continues to survive in the credit industry. Let us now look back the trail of this successful credit program.
Over the last 20 years, since its formal introduction,the reverse mortgage has seen comparatively weaker response from its clients’ base, which comprises of senior homeowners at the age of 62 or above. The primary reason behind this phenomenon is the lack of trust and possibly inclusion of the word ‘reverse’ itself. Many potential consumers do not understand the complex ‘reversal’ of a mortgage.
In the initial days, there were no more than a few major lenders who wanted to take the risk of such a program. Reluctance observed in the lenders was also attributed by the smooth running and profitability of other regular loan products.
In recent years however, the much needed trust has been built and the reverse mortgage response scenario is far different from the initial struggling years. From the insecure credit versus real estate market, older homeowners vulnerable to lose their home have now understood the value of their homes’ equity. Therefore, they prefer to keep their home while getting paid under a reverse mortgage scheme. Lenders on the other hand, were quick to identify the growing trend and started promoting reverse mortgage to a growing elderly population.
Since its introduction, reverse mortgage loans have been gradually strengthened by more consumer protection methods like compulsory pre-loan counseling program, federal insurances, and so on. In 2008, the upper limit of the loan was raised to $417,000 from its previous range of $200,160-$362,790.
If we consider the total reverse mortgage figure in 2001-02, it was only 7,700. In 2004 this figure rose as high as 37,829. In 2005 more than 43,000 reverse mortgages were endorsed. These figures increased greatly in 2007 and 2008. In 2007, FHA approved reverse mortgage stood 532,337 while HUD endorsed 107,558 HECM (Home Equity Conversion Mortgage) applicants. This year the figures are even higher. Amongst an approximate 161% increased applicants, 1,199,624 FHA reverse mortgage loans were released. HUD’s HECM too saw a rise; the figure closed at 112,154.
This being the scenario, we can conclude that reverse mortgage has finally started to scale the ladder of its success after its long and arduous initial journey.
