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

As the reverse mortgage industry expands and constantly introduces new (and confusing) products, some people are beginning to wonder whether reverse mortgages are destined to become the .

The same type of financial engineering and securitization that repackaged regular mortgages (once held by local banks) into exotic investment securities sold around the world is now fueling reverse mortgage growth. The financial alchemy worked extremely well with traditional mortgages. Investors exhibited an almost unquenchable thirst for these “safe” mortgage-backed securities (MBS). Yet it’s now clear that credit agencies, regulators and investors themselves did not always understand the investments or the underlying risks. (more…)

One of the big culprits pointed to in the current mortgage fiasco is the rapid growth of mortgage “securitization”. This term refers to the practice of bundling lots of individual mortgages into investment securities for sale to investors throughout the world. The big benefit of securitization is that a larger pool of investors is attracted meaning more money can be raised for additional loans while, at the same time, investor competition (and GNMA guarantees) help keep interest costs down.

But when traditional mortgages are securitized, it seems that banks and other lenders tend to pay less attention to the underlying credit worthiness of the frontline borrowers than they do when mortgage loans are held in their own loan portfolio. In the rush to generate fees and maintain loan production, too many lenders lost sight of the simple fact the system ultimately depends on the ability of the borrower to make their monthly loan payments.

It seems ironic, then, that just as securitization of traditional mortgages undergoes close scrutiny, the Government National Mortgage Association (Ginnie Mae) unveils a new program aimed at expanding the securitization of HECM reverse mortgages. (more…)

As the march of baby boomers into retirement continues, the race is on in the financial industry to find innovative and cost-effective ways to unlock the enormous store of retirees’ home equity wealth in a way that doesn’t require regular loan payments. Estimates place the value of seniors’ home equity wealth at $3-$5 trillion and growing, so stakes are very high.

Reverse mortgages, in their many manifestations (HECM 1xx, Jumbo, HomeKeeper, etc., etc.), are the leading product at this point. They’ve been around for nearly twenty years now, are rapidly growing in popularity, but suffer somewhat from an image problem.

The Achilles heel of today’s reverse mortgage products is high costs (more…)

As the sub prime mortgage mess has unfolded over the last few months, reverse mortgages have gotten some positive press about being outside the fray and largely unaffected by the turmoil.

No more.

In the last week, several lenders and brokers have ceased origination of the new and popular HECM 100 reverse mortgages (more…)

With last week’s announcement by Countrywide that they are introducing another new product into the reverse mortgage arena, we thought it might be useful to organize our list of “known” reverse mortgage products and put it on the web for others to see. Accordingly we created this page listing the reverse products and information we are aware of.

We don’t claim this list is comprehensive, nor can we swear the details are entirely accurate. We’ve reviewed press releases, visited websites, made phone calls and generally did our best to assemble accurate information. But, it seems like many lenders strive to keep product details hush-hush until they’ve got your name, address and home value. Some of the announced products can’t even be found yet on company websites!

Still, for what it’s worth, we thought it might be useful to others to maintain a listing of reverse mortgage programs and products. We’ll do our best to keep the list as current. If you have any additions or corrections, leave us a comment and we’ll make any needed changes.

We maintain this list for our own use but thought it might have value to others as well. It’s accurate to the best of our knowledge, but programs can and do change, so always check with the lender for the most up-to-date facts. If you see any incorrect information or know of additional programs that should be listed, let as know and we will make the necessary changes.

HECMs Were Once Equal

A few months ago, the Home Equity Conversion Mortgage (HECM) was a complex, but still plain-vanilla type of reverse mortgage. A HECM was pretty much the same no matter who the lender might be. Today, as reverse mortgage popularity (and lender competition) has exploded, HECMs have evolved into a multi-headed hydra with confusing new features and and an even more confusing array of copyrighted “private label” names.

We thought it would be useful for seniors trying to wade through this marketing jungle to be aware of the key traits that set one type of HECM apart from another.

Is It Really a HECM?

The rising popularity of reverse mortgages hasn’t been limited to HECM’s. Other, non-FHA reverse mortgages have multiplied in recent months as well with tradenames that seem designed to confuse: “CashKeeper”, “Simple Zero Cash Account”, “Generation Plan”, “Independence Plan”, etc., etc. Many of these products are targeted at the “jumbo” housing market – homes with values over $450,000. These loans are not FHA-insured, nor are they restricted in size by FHA 203b loan limits. For owners of high value homes, jumbo products can provide benefits not available through the HECM reverse mortgage program.

But for the average senior homeowner in most parts of the country, a HECM reverse mortgage is usually the best avenue to take. So, if this describes you, 50% or more of the marketing confusion can be eliminated by simply asking the question “Is it an FHA-insured reverse mortgage?” and focusing only on products that meet this test.

Is It a Variable Rate or Fixed Rate HECM?

Until very recently, all HECM reverse mortgages were variable rate loans with interest rates that changed monthly or annually, depending on the borrowers preference. In March 2007 BNY Mortgage unveiled a fixed rate HECM that allows borrowers to “lock-in” an interest rate for the life of the loan. You may come across this product under different private label names such as “New Generation HECM” or “Fixed4Life”. And, if past experience is a guide, it is likely competing products will emerge from other lenders very quickly.

There are many sides to the fixed vs variable rate decision that we will discuss in a future article. The volume of fixed rate HECMs is presently quite small, but is certain to grow. It may be worth your while to look into one of the fixed rate options, but, for now, if you are following the crowd, focus on sorting out the confusing menu of variable rate HECM products.

What’s the HECM Margin?

The primary feature that distinguishes variable-rate HECM loans from one another is the interest rate margin. For several years, the most popular type of HECM loan carried a standard 1.50% margin over the one-year US Treasury Rate. This margin was determined by investors who purchased HECM mortgages, particularly Fannie Mae, the quasi-government agency who for many years was the sole investor in HECM reverse mortgages.

In late 2006, BNY Mortgage introduced the HECM 100, which carried a margin of only 1.00%. For borrowers, the lower margin translated into lower loan costs and more upfront cash. The HECM 100 quickly became the new reverse mortgage standard and other lenders introduced similar products to compete.

But higher margin HECMs haven’t gone away just yet. Lenders continue to offer “HECM 150″, “HECM 125″ and even HECMs with margins that “float” from month to month. In theory, this offers the consumer more choices. But, in almost all cases the 1.00 margin HECM products will be the best choice.

Bottomline: New product introductions and private label naming have helped make the reverse mortgage market more confusing than ever. For mainstream borrowers with average-priced homes, a lot of the confusion can be cut through by simply focusing on the 1.00% margin HECM loans.