Reverse Mortgage Market Set to Soar This Year
The number of federally insured reverse mortgages made in the United States last year jumped 77 percent, and legislators and lenders are bracing for another huge increase in 2007.
According to the Everett (Wash.) Herald, the U.S. Department of Housing and Urban Development insured 76,351 Home Equity Conversion Mortgages (HECMs) in 2006 compared with 43,131 for 2005.
A home equity conversion mortgage is the most popular reverse mortgage program - and studies say accounts for nearly 85 percent of the growing reverse mortgage market.
A reverse mortgage is a loan against a home that is not payable until the homeowner dies, sells the home, or permanently moves out of the home. It allows homeowners age 62 and older to turn the equity in their home into cash without having to move or make a monthly mortgage payment.
There is no minimum credit or income requirement to qualify for a reverse mortgage.
“More seniors are recognizing that traditional retirements tools, such as IRAs, pensions and 401(k)s are not providing sufficient income to help fund everyday living expenses and health care,” said Peter Bell, president of National Reverse Mortgage Lenders Association.
The U.S. House of Representatives recently passed a bill that would suspend the cap (temporarily), on the number of HECMs that can be insured by FHA. A companion bill in the Senate is expected to be considered soon.
Currently, the government cannot insure more than 275,000 FHA loan HECMs at any one time - and some industry officials say 120,000 new reverse mortgages this year is a realistic number.
In an effort to capture even more reverse mortgage customers, BNY Mortgage has introduced a new product nearly identical to the current HECM with a slightly lower mortgage interest rate.
The company’s HECM 100 product allows a homeowner 70 or older with a home valued at $300,000 to receive approximately $13,000 more in borrowing capacity than the traditional HECM loan. Given today’s mortgage rates, the homeowner will save approximately $28,000 in interest costs over the expected life of the average loan.
“BNYMC’s introduction of the new HECM 100 product is wonderful news for senior homeowners because it offers the consumer more money at lower costs,” said Meg Burns, HUD’s director of single family program development. “This is exactly the kind of product innovation the reverse mortgage industry needs in order to help older homeowners live a more comfortable and financially secure life.”
The Santa Ana, Calif., metropolitan area displaced Los Angeles as the top market in the country for reverse mortgages with 5,825 loans funded (compared with 3,067 in 2005), followed by:
- Los Angeles (5,758, up from 3,915)
- Sacramento, Calif. (3,625, compared with 2,161)
- Coral Gables, Fla. (3,577, up from 1,387)
- San Francisco, Calif. (3,353, compared with 2,040)
- New York City (2,492, up from 1,454)
- Fresno, Calif. (2,461, compared with 942)
- Phoenix (2,438, compared with 720)
- Boston (2,263, up from 1,148)
- Denver (1,947 compared with 1,515 in 2005)
NRMLA, which has seen its membership grow from 370 mortgage lenders in 2005 to 500 in 2006, attributes the explosive growth in reverse mortgages to several factors.
Topping the list is the a decade-long run-up in home appreciation rates in many parts of the housing market, allowing seniors to access greater amounts of equity.
Brian Montgomery, who serves as FHA commissioner and assistant secretary of Housing at HUD, said that he anticipates a reverse mortgage will one day be as commonplace as 401(k)s and other retirement planning tools.
“HUD has gone to great lengths to educate community leaders and senior advocates about the potential benefits of reverse mortgages, which has helped make more people comfortable with recommending the product to their elderly clients,” Bell said.