Reverse Mortgages Continued Annual Growth in FY2008
but Just Barely
Higher loan limit of $417,000 for reverse mortgages
may start around November 1
Growth
Reverse Mortgage Loans
Loans
% Ch.
FY 2008
112,154
4.3%
FY 2007
107,558
40.9%
FY 2006
76,351
77.0%
FY 2005
43,131
Oct. 15, 2008 Growth in the number of reverse
mortgage loans being made to senior citizens may have slowed,
temporarily, according to the National Reverse Mortgage Lenders
Association, but the 2008 fiscal year ending September 30 closed the
books on another record year of growth for this special loan. Growth,
however, was only 4.3 percent over FY2007.
The industry closed 112,154 reverse mortgages (Home
Equity Conversion Mortgages, or HECMs is the official name), in Fiscal
Year 2008, which ended September 30, surpassing the record loan volume
for FY 2007, according to data provided by the Department of Housing and
Urban Development (HUD).
The growth rate, however, slowed to 4.3% after a
robust 40.9% in FY2007.
This current loan volume does, however, continue growth for the
industry each year since 2001. Most recently, loan production has grown
from 43,131 in FY 2005 to 76,351 in FY 2006 before climbing to 107,558
in FY 2007.
The Homeownership and Economic Recovery Act of 2008
may have dampened growth temporarily as it is likely many prospective
borrowers have been waiting for HUD to implement new provisions that
among other things will allow borrowers to receive a higher benefit and
pay a lower origination fee, according to the association.
Reverse mortgages are really one of the only
positive stories in financial services this year because they provide a
safe, proven solution to many Americans retirement funding needs,
especially during the current financial crisis, said Peter Bell,
President of National Reverse Mortgage Lenders Association.
We expect the growth of reverse mortgages to
accelerate as seniors look for additional sources of income and because
the new provisions of the Homeownership Act of 2008 broaden the market
for reverse mortgages while making them more attractive.
New Loan Limits
As part of the Homeownership Act of 2008, The
Department of Housing and Urban Development (HUD) recently approved a
single national loan limit of $417,000 for federally insured Home Equity
Conversion Mortgage (HECM) reverse mortgages. HUD is expecting the loan
limit to be effective around November 1.
The new, higher lending limit will enable borrowers
to obtain a greater benefit if their home value is higher than the
previous HUD limit. Previously, the HECM program assigned different
lending limits by county ranging from $200,160 in rural areas to
$362,790 in the highest home value areas.
Similarly, existing borrowers whose home value is
greater than the new HUD limit may be able to increase their benefit by
refinancing their reverse mortgage and are encouraged to contact their
lenders.
HUD is expected to implement the other reverse
mortgage provisions from the Homeownership Act in the coming months. For
a complete list of provisions, visit www.nrmlaonline.org.
About Reverse Mortgages
A reverse mortgage is a unique loan that enables
senior homeowners to convert part of the equity in their homes into
tax-free income without having to sell the home, give up title, or take
on a new monthly mortgage payment. Reverse mortgages are available to
individuals 62 or older who own their home. Funds obtained from the
reverse mortgage are tax-free.
Borrowers can choose to receive the reverse
mortgage funds as a lump sum, monthly income (for up to life), or line
of credit, or as a combination of monthly income and line of credit. No
mortgage payments are due during the life of the loan.
Borrowers can use the funds anyway they wish for
home repairs and improvements, medical costs, in-home care, education,
and supplemental retirement income. Borrowers make no monthly payments
on a reverse mortgage during its term. The loan becomes repayable when
the borrower sells the home or permanently moves out. In addition, the
repayment amount can't exceed the value of the home.
Reverse mortgages are originated largely by private
lenders. The most popular is the Home Equity Conversion Mortgage (HECM),
which is insured by the Federal Housing Administration, an arm of the
U.S. Department of Housing and Urban Development (HUD). More than
450,000 HECMs have been made since 1989.
Critics of the loans primarily complain of the high
costs attached to the loans.
About NRMLA
NRMLA is a nonprofit trade association, based in Washington, DC, whose
mission is to support the continued evolution of reverse mortgages as an
important financial option for senior homeowners while educating both
its members and consumers about the varied applications of this unique
loan. Members sign a Code of Conduct pledging to abide by guidelines
that assure fair, ethical, and respectful practices in offering and
making reverse mortgages to seniors. Details on NRMLA, reverse
mortgages, and a list of reverse mortgage lenders in each state are
available on NRMLAs Web site, at
http://www.reversemortgage.org.
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