Across the country, more and more senior citizens are facing the conflict of living on a fixed income while having to pay rising costs for energy and other daily needs. Consequently, reverse mortgages are gaining in popularity as a way for senior homeowners to receive cash against the value of their home, but unlike other loans, they are not required to pay the loan back on a monthly basis – in fact, the loan doesn’t have to be paid back as long as they live in the home. Reverse mortgage leads are an up and coming segment of the market, but without the saturation facing the refinance area.
Reverse Mortgage Market Less than 1% Penetrated
According to a press release from Hollister Group, LLC & NRMLA, Americans age 62 or older hold an estimated $4.3 trillion of home equity. The index(RMMI) which was launched last week is the first market indicator to collect critical market, housing and demographic data, as well as track and project the market for reverse mortgages. According to the press release, in the first quarter of 2007, there was a $19 billion increase in senior home equity. This increase was reflected in a 0.4% increase in the RMMI to 205.6 from 204.7 in the prior quarter. The index will be updated to reflect the current value of senior home equity on a quarterly basis.
Interesting observations and statistics from the inaugural launch of the RMMI, include:
RMMI projects as much as $37 trillion in home value by 2030, from which home equity figures are derived, assuming historical appreciation and taking into account the demographic shift as boomers begin to turn 62;
The average home equity in a senior-owned household is estimated to be about $230,000 according to the Hollister Group;
Current $19B growth in Q1 2007 is the lowest increase of all quarters from 2000;
2004 and 2005 experienced the strongest growth in home equity — $464 billion and $600 billion respectively.
Reverse Mortgage Market Currently at $4.3 Trillion, Less than 1% Penetrated
Reverse Mortgage Leads
Homeowners who meet the eligibility criteria can complete a reverse mortgage application by contacting a FHA-approved lending institution such as a bank, mortgage company, or savings and loan association. If you need assistance locating a FHA-approved lender, you can request a listing of FHA-approved lenders from the HECM counselor or use HUD’s searchable listing.
Borrower Requirements:
Age 62 years of age or older
Own your property – Occupy your property as primary residence – Participation in a consumer information session given by an approved HECM counselor
Mortgage Amount Based On
Age of the youngest borrower – Current interest rate – Lesser of appraised value or the FHA insurance limit
Financial Requirements
No income or credit qualifications are required of the borrower – No repayment as long as the property is the primary residence – Closing costs may be financed in the mortgage
Property Requirements
Single family home or 1-4 unit home with one unit occupied by the borrower – HUD-approved condominiums – Manufactured homes and leased land – Meet FHA property standards and flood requirements
How the Home Equity Conversion Mortgage Program Works: Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining, and are currently living in the home are eligible to participate in HUD’s reverse mortgage program. The program allows homeowners to borrow against the equity in their homes. Homeowners can select from five payment plans:
Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term – equal monthly payments for a fixed period of months selected.
Line of Credit – unscheduled payments or in installments, at times and in amount of borrower’s choosing until the line of credit is exhausted.
Modified Tenure – combination of line of credit with monthly payments for as long as the borrower remains in the home.
Modified Term – combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
Homeowners whose circumstances change can restructure their payment options for a nominal fee of $20. Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the home is the borrower’s principal residence. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to the homeowner or to his or her survivors. You can never owe more than your home’s value. If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. HUD’s Federal Housing Administration (FHA) collects an insurance premium from all borrowers to provide this coverage.
The amount a homeowner can borrow depends on their age, the current interest rate, other loan fees and the appraised value of their home or FHA’s mortgage limits for their area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. For example, based on a loan with interest rates of approximately 9 percent, and a home qualifying for $100,000, a 65-year-old could borrow up to 22 percent of the home’s value; a 75-year-old could borrow up to 41 percent of the home’s value; and, an 85-year-old could borrow up to 58 percent of the home’s value. The percentages do not include closing costs because these charges can vary. There are no asset or income limitations on borrowers receiving HUD’s reverse mortgages.
There are also no limits on the value of homes qualifying for a HUD reverse mortgage. The value of the home will be determined by an appraisal. However, the amount that may be borrowed is derived from the lower of the appraisal amount or FHA mortgage limit for the area, which varies from $200,160 to $362,790. For Alaska, Guam, Hawaii and the Virgin Islands, the FHA mortgage limits may be adjusted up to 150 percent of the ceiling depending on the area. The FHA limits usually increase each year. As a result, owners of higher-priced homes can’t borrow any more than owners of homes valued at the FHA limit. HUD’s reverse mortgage program collects funds from insurance premiums charged to the homeowners. Homeowners are charged an upfront insurance premium, which is 2 percent of the maximum claim amount that may be borrowed, plus a .5 percent annual premium.
By: Joshua R. Conklin
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