Why Your Reverse Mortgage May Have Been Transferred in Process
Do I even need to bring up the fact that we are still in a mortgage crisis? I think its pretty part of the landscape and the papers assume people don't want to hear about it until its over.
Those institutions offering forward or traditional mortgages have changed dramatically. If they are still in business without the help of government bailout money they are doing pretty well.
Thus far reverse mortgages have been fairly insulated from this whole fiasco.
Its pretty easy to see why. The reverse mortgage is structurally a very appealing investment to those who may want to invest in mortgages.
One of the most important differences between the reverse and the traditional mortgage is the HECM does not require periodic interest payments. This dramatically reduces risk.
Mortgage companies lend money out of lines of credit known as warehouse lines. This is the problem. Some lenders fund reverse mortgage and traditional mortgage out of the same line.
One would think that money necessary for such divergent products might come from different places, but it doesn't.
So, what happens if the entire warehouse line is restricted based upon events in the forward mortgage market?
Of course the money made of available for the reverse mortgage gets severely limited. This is currently happening.
This is a bad deal for the bank as it temporarily loses that stream of income. And its bad for the consumer who may be in the process of getting the reverse only to be told mid stream that his deal must be sent to a new lender.
The problem is its taking much longer to close loans. Rates are going up and many of these folks wont realize as much money as they were originally told they would get out of the mortgage.
Time is of the essence for reverse mortgages more so than under normal market conditions. Increasing lender margins effectively limit borrowing power if the loan doesn't close before the rate increase.
The results can be severe enough to completely take away the ability for a borrower to refinance his or her forward mortgage. This is a big deal because the borrower may no longer be capable of paying that mortgage.
Getting a reverse mortgage thus far has been a piece of cake. This new arrival has made things a little bumpy.
Those institutions offering forward or traditional mortgages have changed dramatically. If they are still in business without the help of government bailout money they are doing pretty well.
Thus far reverse mortgages have been fairly insulated from this whole fiasco.
Its pretty easy to see why. The reverse mortgage is structurally a very appealing investment to those who may want to invest in mortgages.
One of the most important differences between the reverse and the traditional mortgage is the HECM does not require periodic interest payments. This dramatically reduces risk.
Mortgage companies lend money out of lines of credit known as warehouse lines. This is the problem. Some lenders fund reverse mortgage and traditional mortgage out of the same line.
One would think that money necessary for such divergent products might come from different places, but it doesn't.
So, what happens if the entire warehouse line is restricted based upon events in the forward mortgage market?
Of course the money made of available for the reverse mortgage gets severely limited. This is currently happening.
This is a bad deal for the bank as it temporarily loses that stream of income. And its bad for the consumer who may be in the process of getting the reverse only to be told mid stream that his deal must be sent to a new lender.
The problem is its taking much longer to close loans. Rates are going up and many of these folks wont realize as much money as they were originally told they would get out of the mortgage.
Time is of the essence for reverse mortgages more so than under normal market conditions. Increasing lender margins effectively limit borrowing power if the loan doesn't close before the rate increase.
The results can be severe enough to completely take away the ability for a borrower to refinance his or her forward mortgage. This is a big deal because the borrower may no longer be capable of paying that mortgage.
Getting a reverse mortgage thus far has been a piece of cake. This new arrival has made things a little bumpy.
posted by Credit Counseling at
2:26 PM
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