We have all read and heard about the results of the the credit crisis, which all begain with high-risk home loans. The entire forward mortgage industry is in a world of hurt.
I have friends in the mortgage industry from Seattle to Phoenix and east into Texas. All of their respective mortgage businesses are down. Some are down as much as 75%.
And they all seem to have one thing in common. They are all in the forward mortgage market. The reverse mortgage end is doing quite swimmingly.
The question is why? First, since banks on the forward end are so hesitant to lend out money one can see how a reverse mortgage, which does not require monthly interest or principal payments, might be a healthier investment for a bank or the banks investors.
The one real risk to the reverse mortgage involves a negative equity position for the bank. To combat this the bank lends with relatively low loan to value ratios, which in turn give it the security its investors desire to fund the loans.
Additionally, and I say this facetiously, the senior population might be on a growth spurt. In the fall of '07 the first Baby Boomer turned 62, with I suspect a few others on the way.
Coupling with the growing senior population is the ever increasing cost of living. Invevitably a segment of the fixed income seniors are faced with a choice between selling the home or using the home's equity as a financial tool.
And lastly, to a lesser extent, the current state of the stock market is simply making my phone ring. Many seniors have lost much of their net worth in the last year. Many are not feeling so financially comfortable.
This group must be feeling like they just got punched in the stomach. The safety net, which they've been building over the years, just had a bunch of holed cut out of it. These folks are looking for patches.
Where things go, economically, in the coming years in anyone's guess. Home values are falling with no real end to the recession in sight.
Reverse mortgage lenders could see real issues if home values drop drastically from here, but barring that event the sun appears to be shining on this business.
I have friends in the mortgage industry from Seattle to Phoenix and east into Texas. All of their respective mortgage businesses are down. Some are down as much as 75%.
And they all seem to have one thing in common. They are all in the forward mortgage market. The reverse mortgage end is doing quite swimmingly.
The question is why? First, since banks on the forward end are so hesitant to lend out money one can see how a reverse mortgage, which does not require monthly interest or principal payments, might be a healthier investment for a bank or the banks investors.
The one real risk to the reverse mortgage involves a negative equity position for the bank. To combat this the bank lends with relatively low loan to value ratios, which in turn give it the security its investors desire to fund the loans.
Additionally, and I say this facetiously, the senior population might be on a growth spurt. In the fall of '07 the first Baby Boomer turned 62, with I suspect a few others on the way.
Coupling with the growing senior population is the ever increasing cost of living. Invevitably a segment of the fixed income seniors are faced with a choice between selling the home or using the home's equity as a financial tool.
And lastly, to a lesser extent, the current state of the stock market is simply making my phone ring. Many seniors have lost much of their net worth in the last year. Many are not feeling so financially comfortable.
This group must be feeling like they just got punched in the stomach. The safety net, which they've been building over the years, just had a bunch of holed cut out of it. These folks are looking for patches.
Where things go, economically, in the coming years in anyone's guess. Home values are falling with no real end to the recession in sight.
Reverse mortgage lenders could see real issues if home values drop drastically from here, but barring that event the sun appears to be shining on this business.
About the Author:
A thorough reverse mortgage explanation is given in this 11 page Texas Reverse Mortgage Report. For the 20 most commonly asked question regarding California and reverse mortgage issues, click here.
Posts
No comments:
Post a Comment