Reverse Mortgages not Similar to Subprimes
Reverse mortgages are aimed at senior citizens who would like some spendable income to meet their financial needs and who own sufficient equity in their homes. Reverse mortgages are usually a tough sell. Elderly home owners have a fear of losing their right to continue their living in the same home. This was a fear well-founded because some early reverse mortgages had the provision that home owners could be forced out of their homes, under certain circumstances, by the lender.
But in 1989, Congress created a new type of reverse mortgage known as the HECM or home equity conversion mortgage. This completely protects the home owner as long as he or she continues to pay the property taxes regularly on schedule, maintains the home or property and doesn’t change names on the deed, the home owner can remain in the house forever. If the lender fails, any remaining payment obligation is assumed by the FHA (Federal Housing Administration).
The HECM program, though slow to catch on, has been growing rapidly in recent years. The year 2009 saw about 130,000 HECMs being taken by home owning senior citizens in America. Feedback from seniors who have taken such HECMs has been largely positive. A 2006 survey said 93 percent said that the reverse mortgage had a largely positive effect on their lives. 95 percent reported that they were satisfied with their counselors (All HECM borrowers need to undergo through a counseling process).
Some media sources have been bad mouthing the concept of reverse mortgage. These are spurious claims about home owners being asked to vacate their homes by their lenders. Seniors can rest assured that with a HECM, there is no scope for a reverse mortgage lender to ask a senior to move out of his home during the lifetime of the borrower. Some media outlets have been drawing parallels between reverse mortgages and subprimes and projecting that reverse mortgages will go the way of subprimes. For information and clarification, the two programs are much different, and there is no chance of a financial fiasco in the case of a reverse mortgage as happened in the case of subprimes.
Subprime loans impose repayment obligations on the borrowers. The financial crisis began because of the inability of subprime borrowers to meet their payment schedules so as a result, the number of foreclosures boomed to unprecedented levels. But compared to this scenario, reverse mortgage borrowers do not have to repay the money they get from reverse mortgage. They only need to maintain the home and pay property taxes correctly. Foreclosures do not apply to the reverse mortgage concept at all.
Subprime foreclosures caused losses on the part of lenders and investors in the form of mortgage securities which had been issued against subprime mortgages. In contrast to this, reverse mortgage lenders will not suffer due to losses on reverse mortgages because they are insured by the FHA.
In summary, the current state of the HECM (reverse mortgage) market does not have any resemblance as to the conditions in the subprime foreclosure market that led to financial disaster and crises.
