Reverse Mortgage Counseling on the Rise
February 22nd, 2008 by Kenneth Long
In 2000, there were 7,000 reverse mortgages sold. By 2007, that number had risen to over 107,000. There are a couple of reasons for the increase in reverse mortgages.
Baby Boomers Reaching Retirement
Home equity conversion mortgages, or reverse mortgages have increased as more Americans have reached age 62. Although some private banks have begun to allow reverse mortgages as early as age 60, most still require that both applicants be age 62 or older. The government will only insure these loans when both borrowers are at least age 62. Uninsured loans will likely be more expensive.
Many banks understand that as interest in these products increase, so can their profits. These types of loans are more lucrative and generally carry much less risk for the lender.
Private Sector Expansion
Reverse mortgages were actually created by the Department of Housing and Urban Development (HUD). In the last couple of years, several big banks began getting in on the action.
One bank that jumped into the game head first was Bank of America. Today, they provide reverse mortgages in a number of states, and they are expected to expand into more markets.
Other banks are also following suit. They see an opportunity to cash in on the equity that Seniors have built.
Risk vs. Reward
Reverse mortgages provide lenders with a more diverse loan pool. It is likely that reverse mortgages will prove to be just as profitable or more so than conventional mortgage sales, and with a lower risk factor.
Since reverse mortgages are a relatively new phenomenon, it may take a number of years to truly measure their value to lenders. For instance, some homeowners that buy a reverse mortgage may potentially still live in their homes for 30-40 years. It could take decades to get accurate data on their cost.
Still though, there is evidence that reverse mortgages are a better value for lenders, hence the increased interest in providing these products. Competition is also heating up, with many lenders hinting that they will be able to reduce the roughly 5 basis points charged up-front.
This is good news for Seniors that are considering a reverse mortgage. Lower costs could leave more of their equity available to cash out.
This entry was posted on Friday, February 22nd, 2008 at 5:38 pm and is filed under Reverse Mortgage. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
