REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

Take a moment to consider the following. If you took out a $100,000 loan in 1990 at 7% and you continue to make monthly mortgage payments you’ve paid more than $112,000 in interest to the bank and you still owe $61,000. Your current payment is the same as it was in 1990- $665 a month and $305 just went to principle this month in 2008 and $360 goes to interest. The home’s value in 1990 was $200,000 and is now worth $500,000 in some parts of the country. You could figure the information for your scenario using this .

You are paying $7980 a year plus taxes and insurance of which $4440 went to interest this year, next year $4160 will go to interest and the year after that $3888 and then $3600 in year 4 and then $3300 in year 5. In 5 years you paid almost $19,000 in interest that went to the bank but had no impact on your equity only an impact on your monthly cash flow. You paid a total of $39,900 over the past 5 years on your mortgage and reduced your principle by $20,000. Half of that payment went towards interest you’ll not be getting back.

Lets say you are now 68 years old, recently retired and you’re holding off taking social security until you are 70 to maximize your benefits because you understand how all this works. Since your payments will be the same ($665 a month) you will continue to decrease your cash flow by $7980 a year until the loan is paid in full in 2019, you die or you move away. Do you really want to keep this going for that long?

Stay with me now.

What if you did not have to make that mortgage payment, you will now have that $665 a month for yourself to do with what you want. You may be doing alright to begin with but in 5 years instead of having paid $39,000, you could have had access to that money to supplement your income. Or what if in that same time frame you needed to access some additional cash but it was tied up in your retirement portfolio and you risk taking a tax hit or charge on the early withdrawl? Or what if you’ve been , you’re now 75 and even though property values have fallen, your property taxes have not and your retirement portfolio is now half its former value? Where do you find the money you need to pay the taxes or keep your long term care in place or continue to make that mortgage payment?

You’ll be able to find that answer in a reverse mortgage. A reverse mortgage is not for everyone but it can do quite a bit for someone looking to increase their monthly cash flow. In addition, the money that is left after this mortgage is paid will not just sit idly by, it will grow over time and even at almost historically low Treasury rates (of which reverse mortgage rates are tied) the borrower will still be able to see growth in the 3.5% to almost 4% range. In our example above for the 68 year old paying off the $100,000 mortgage will not only free up $7980 a year, it will also give him a credit line availability of $154,000 that can grow to $185,000 in just 5 years. He keeps title to the home, lives in the home and it provides him access to cash for whatever the occasion and it doesn’t have to be paid back until the borrower moves away or dies while still the owner of the home. There’s no telling the quality of life concerns that are set aside when that person knows he has complete access to that much equity.

So if you’re over 62 and still making monthly mortgage payments, consider whether keeping that payment amount in your pocket each month makes sense over giving almost half of it away to interest payments?

Rebounding from four consecutive months of below average performance, the number of HECM reverse mortgages originated rebounded in January posting the fourth best monthly performance on record. The 9,957 HECM’s approved in January represented a 24% increase over the 8,007 HECMs endorsed in the prior month (December 2007) and a 13% jump over the 8,824 endorsements made in January 2007. (more…)

8,270 HECM reverse mortgages were endorsed during November 2007 according to the most recent HECM activity report released by HUD. November’s HECM production is a 10.6% gain over the 7,478 HECM’s endorsed in November 2006 but a 1.7% decrease from October 2007 when 8,417 HECMs were endorsed. More troubling: November was the third consecutive month that HECM production fell below its 12-month moving average – the first time this has occurred since mid-2005.

The 12-month moving average provides a clearer trend line of HECM loan growth by smoothing out month-to-month variations. Interestingly, despite the fact that monthly HECM activity has dipped below the 12-month average for three straight months, the 12-month average itself hit an all-time high of 9,004 in November, due mostly to the exceptionally strong HECM activity earlier in the 12-month period.

For the calendar year 2007, 100,286 HECMS were endorsed compared to 77,879 during the first eleven months of 2006 – a 29% rise. For the twelve months ended 11/30/07, 108,046 HECMS were endorsed – a 30% rise over the 82,838 endorsed during the prior twelve month period.

Clearly, falling home values and the problems in the traditional mortgage sector are taking their toll on the once torrid growth of reverse mortgages. We’ll have more to report on the most recent HECM statistics in future posts.

The days of borrowing against ever-rising home equity and having home price appreciation cancel out the pain of loan interest costs appear to be over. Reverse mortgages are often described as “rising debt, falling equity loans”. Yet, for several years reverse mortgage borrowers in many parts of the country have enjoyed a “rising debt, rising equity” environment with home equity growth far outpacing the interest accruing on reverse mortgage debt.

Each quarter we compare the rates of housing value growth with average interest rates for HECM reverse mortgages over the comparable one- and five-year periods. The difference (variance) provides a simple measure of the best (and worst) areas for reverse mortgages borrowers. We call this the Reverse Mortgage Friendliness Index. (more…)

We came across this table that was part of a presentation at the . The table shows, by borrower age, the cause for HECM reverse mortgage loan payoffs.

We’ve previously written about the surprising fact that the majority of HECM loans are paid off within seven years. This chart expands on this showing the general reasons why HECM loans are paid off.

Most notable is the fact that less than 1/3 of HECMs terminate due to death. Overall, the vast majority of HECMs terminate because the borrower sells and/or moves out – not because the borrower dies while living in their home. (more…)

In a prior post we examined evolution of the HECM market over the past two years (ended 10/31/06 and 10/31/07) focusing on the geographic location of HUD home equity conversion mortgage endorsements. The table below examines the evolution of lenders’ HECM market shares and growth over the same time frame.

Some observations:

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Much has changed over the past year in the HECM loan market: Florida has taken over from California as the reverse mortgage activity “hot spot” in the U.S.; new products like the HECM 100 and HECM 125 have emerged, and the overall volume of HECM loans has increased substantially. We thought it would be interesting to track HECM market changes in each of the locations that HUD processes home equity conversion mortgages.

The following table shows, for each location, the absolute change in HECM volume and the change in market share. Time periods used for comparison are the 12-month periods ended 10/31/07 and 10/31/06. Most of the significant changes reflect the emergence of Florida HECM activity and the corresponding declines in California HECM activity that we’ve noted before. But some other interesting points emerge as well: (more…)