Interview with Mark W. Seegmiller, loan officer,
Mark Seegmiller is a reverse-mortgage loan specialist with Mountain America Credit Union, Woods Cross Branch. He says the majority of reverse mortgages help pay health-care costs and are used for home repairs, and living expenses, and to repay existing mortgages.
Explain a reverse mortgage.
The formal term is Home Equity Conversion Mortgage (HECM). Reverse mortgages allow people who are at least 62 years old and who have equity in their homes to turn that equity into cash. Basically, you unlock equity in your home that you don’t have to pay back as long as you live there. The tax-free money from a reverse mortgage can be received as a lump sum, regular monthly payments, a line of credit or in any combination of these three options. There are very little out-of-pocket expenses, and most costs can be included in the loan. You, or your estate, pay the money back - plus interest - when you pass away, sell your home or permanently move out of your house. This government-backed program is supplementing seniors’ retirement incomes across the nation.
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Written by News & Feeds on November 26th, 2007 with no comments.
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Reverse Mortgages To Back Bond Issue,
Ginnie Mae Plan Is Designed to Raise Market’s Liquidity
Federal housing-finance agency Ginnie Mae plans to roll out as soon as today what it calls the first “standardized” bond issue backed by reverse mortgages, a move aimed at boosting liquidity for one of the fastest-growing markets targeting baby boomers.
The offering, expected to total about $120 million, consists of more than 1,000 government-insured reverse mortgages, which allow homeowners 62 years old or older to turn home equity into income they don’t have to repay until they sell their homes.
Such loans have grown rapidly in popularity in recent years, thanks to the nation’s aging population, a lack of retirement savings and the rapid house-price gains in the first half of this decade. At the same time, a lack of a liquid secondary market for reverse mortgages — where lenders can sell, as opposed to hold, the loans they make, just as what they do with traditional mortgages — has constrained this growth.
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Written by News & Feeds on November 26th, 2007 with no comments.
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Seek advice on reverse mortgage,
My mother recently handed her business down to my sister and is enjoying retirement.
And while my mom and her husband have enough savings to support their lifestyle, their beautiful mortgage-free large house is becoming more expensive to keep up. However, they don’t want to downsize yet.
So, when she asked me about accessing some of the money from the value of her house through a reverse mortgage, I told her to tread carefully.
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Written by News & Feeds on November 26th, 2007 with no comments.
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HECM or HELOC? A Tool to Help You Decide,
In a previous post we noted an important fact largely ignored in the plethora of recent books and articles on reverse mortgages: the majority of reverse mortgages (at least HECM reverse mortgages) terminate within seven years of their origination. For many of these borrowers, a standard home equity line of credit loan (HELOC) might have been a more efficient borrowing tool.
Of course no one can predict the future and we suspect many HECM borrowers entered into their loans with thoughts of staying put for ten years or more. But, as noted, data from actual HECM loans reveals that fewer than 50% of HECMs last beyond seven years. For shorter periods such as these, the HELOC option is certainly worth investigating.
How does someone decide which is better for them - HECM reverse mortgage or HELOC? Let’s start by reviewing the the main points that differentiate the two types of home equity borrowing:
HECM vs HELOC
1. Amount You Can Borrow
HELOC loans are not age-based and typically allow the homeowner to borrow 70% - 100% of available equity depending on household income, credit scores and similar factors. The amount you can borrow with a HECM loan is determined in large part by the age of the homeowner(s) with older homeowners eligible to borrow more. A HECM reverse mortgages generally will range between 40%-80% of available home equity. Advantage: HELOC
2. Closing Costs
Closing costs on a HELOC loan are quite reasonable, typically ranging between $400 - $1,500. Some lenders even offer zero closing costs. HECM closing costs, on the other hand, are quite steep largely because of the FHA insurance premiums charged to cover the risk of the loan balance growing in larger than the home’s equity over time. Expect to pay $10,000 - $20,000 in HECM closing costs, depending on the size of the loan. Advantage: HELOC
3. Term of Loan
A HECM reverse mortgage has no set “due date”. The loan is payable only when the homeowner dies, sells, or permanently moves out. HELOC loans typically are due at the end of ten years, after which the loan needs to be repaid or refinanced. Advantage: HECM
4. Required Loan Payments
The main selling point of HECM reverse mortgages is that no loan payments are required until the loan terminates - i.e. the homeowner sells, moves, or dies. Standard HELOC loans, on the other hand, minimally require payment each month of the interest accrued on the loan balance during the prior month. As the HELOC loan balance grows, the required monthly interest payments grow. Advantage: HECM
5. Qualifying
Because HELOC’s require monthly payments, lenders are concerned about the borrowers ability to pay as gauged by credit scores, household income, savings, etc. It is entirely possible that a retired senior homeowner on limited income can be turned down for a HELOC. HECM borrowing criteria are focused on two major factors: age of borrower and the amount of available home equity. Financial wherewithal and credit scores are not a consideration, though if money is owed to the federal government, it can be an issue. Advantage: HECM
6. Interest
Both HELOC and HECM loans are “adjustable rate” loans meaning the interest rate changes (up or down) at specified intervals. The most popular type of HECM loan is the monthly adjusting option while the most popular type of HELOC adjusts rates quarterly.
The interest rate on a HECM loan is capped whereas interest rates on HELOCs generally are not capped. The lifetime “cap” for a monthly HECM is 10%, so a 6.5% original rate could rise to 16.5% before being capped.
Both HELOC and HECM interest rates are determined by adding or subtracting a “margin” to a specified index rate such as the “1-year US Treasury Constant Maturity”, “prime rate” or the “London Interbank Offering Rate (LIBOR)”. With HECM reverse mortgages, there is limited rate competition - lenders apply the same margins to the same indexes (although there now is more variety in margins). There is strong rate competition in the HELOC market among lenders.
Historically, average interest rates on HECMs have tended to be lower than rates on HELOC’s
Interest paid on a HELOC is tax deductible which can substantially reduce the effect rate paid. HECM interest is deductible in the year it is paid (i.e. at loan termination) which may be of limited value.
Slight Advantage: HECM
7. Unused Line of Credit
With both HELOC and HECM loans, interest accrues only on amounts actually drawn down (borrowed). Since most HECM borrowers finance loan closing costs, they carry a substantial loan balance from outset that accrues interest. However, the unused portion of a HECM line of credit has a unique feature: it actually earns interest for the borrower. HELOC loans do not have this feature. Advantage: HECM
Additionally, here’s a more detailed comparison of HECM and HELOC loans.
When all is said and done, the key factor to consider in weighing the HECM vs HELOC loan decision is “how long will the homeowner be able (or desire) to remain in the home?” As a general rule, the longer the period, the more advantageous a HECM looks; the shorter the period, a HELOC may be the better option.
With these facts in mind, we developed the HECM or HELOC Calculator that provides users with side-by-side comparisons of the HELOC and HECM options. Using the calculator will require you to obtain information from an online reverse mortgage calculator. We’ve provided step-by-step guidance to assist.
Please contact us if you have questions or idea on how to make the calculator better.
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Written by News & Feeds on November 26th, 2007 with no comments.
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HECM Mortgage Payoff Types by Borrower Age,
We came across this table that was part of a presentation at the Mortgage Banker’s Association 94th Annual Convention. The table shows, by borrower age, the cause for HECM reverse mortgage loan payoffs.
We’ve previously written about the surprising fact that the majority of HECM loans are paid off within seven years. This chart expands on this showing the general reasons why HECM loans are paid off.
Most notable is the fact that less than 1/3 of HECMs terminate due to death. Overall, the vast majority of HECMs terminate because the borrower sells and/or moves out - not because the borrower dies while living in their home.
Age, of course, is a major factor with loan terminations among older borrowers more likely to be due to death. But even up to age 90, “mobility” surpasses “mortality” as a cause for HECM loan termination.
This is useful information that potential reverse mortgage borrowers should understand before making a decision. Someone considering a reverse mortgage would do well to mull over these statistics and weigh their expectations against the reality of borrowers who have gone before them.
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Written by News & Feeds on November 26th, 2007 with no comments.
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HECM Lender Comparison 10/31/2007 vs 10/31/2006,
In a prior post we examined evolution of the HECM market over the past two years (ended 10/31/06 and 10/31/07) focusing on the geographic location of HUD home equity conversion mortgage endorsements. The table below examines the evolution of lenders’ HECM market shares and growth over the same time frame.
Some observations:
Market share among the “top 50″ lenders has shrunk from 73.2% to 63.1%. Most of this shrinkage is explained by the drop in market share experienced by Wells Fargo (rom 30% to 21%).
Seven of this year’s Top 10 lenders were also in the Top 10 one year ago. Three new members of the Top 10 (Vertical Lend, Omni home Financing, and Urban Financial all had HECM activity growth in excess of 100% during this period.
BNY Mortgage saw HECM activity fall 22.7% and its Top 10 ranking go from #5 to #8 despite being the originator of the HECM 100 which was very popular earlier this year.
Overall, Top 50 lenders saw HECM activity grow 15% while lenders not in the Top 50 saw overall growth of 84%.
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Written by News & Feeds on November 26th, 2007 with no comments.
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As we have discussed for sometime here at Reverse-Loans.net, the reveres mortgage market is getting highly competitive. A recent report from the WSJ discusses just that same point:
It may sound hard to believe, but one part of themortgage market is hot: reverse mortgages. And that’s giving older homeowners more options to tap the equity in their homes — but also opening the door to more confusion and mistakes. Only a year ago, homeowners interested in reverse mortgages had little to choose from beyond the plain-vanilla, government-backed products that have long dominated the market. Such mortgages essentially allow homeowners at least 62 years old to sell a large chunk of their home equity back to a…… Read the rest
Written by charles dennis on November 21st, 2007 with no comments.
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