Index Highlights Best (and Worst) Areas For Reverse Mortgages

Index Highlights Best (and Worst) Areas For Reverse Mortgages,

The days of borrowing against ever-rising home equity and having home price appreciation cancel out the pain of loan interest costs appear to be over. Reverse mortgages are often described as “rising debt, falling equity loans”. Yet, for several years reverse mortgage borrowers in many parts of the country have enjoyed a “rising debt, rising equity” environment with home equity growth far outpacing the interest accruing on reverse mortgage debt.

Each quarter we compare the rates of housing value growth reported by OFHEO with average interest rates for HECM reverse mortgages over the comparable one- and five-year periods. The difference (variance) provides a simple measure of the best (and worst) areas for reverse mortgages borrowers. We call this the Reverse Mortgage Friendliness Index.

The most recent results from our quarterly Reverse Mortgage Friendliness Index shows only a small handful of U.S. states had positive variances (Home Value Growth minus HECM Interest Cost) in the twelve months ended September 30, 2007. The bulk of U.S. states experienced negative variances as shown in the heatmap below. The change is attributable to both generally higher HECM interest rates and to the dismal housing market as measured by OFHEO:

For the first time in nearly thirteen years, U.S. home prices experienced a quarterly decline. The OFHEO House Price Index (HPI), which is based on data from sales and refinance transactions, was 0.4 percent lower in the third quarter than in the second quarter of 2007. This is similar to the quarterly decline of 0.3 percent (seasonally-adjusted) shown in the purchase-only index. The annual price change, comparing the third quarter of 2007 to the same period last year showed an increase of 1.8 percent , the lowest four-quarter increase since 1995.

Nationwide, home values for the twelve months ended 9/30/07 increased 1.79% while interest on a standard HECM reverse mortgage averaged 6.37%.

State	Metro Area	Home Apprec	HECM Rate	Vari- ance	Home Apprec	HECM Rate	Vari- ance
		One-Year			Five-Year
All	All	1.79 %	6.37 %	-4.58 %	9.38 %	4.63 %	4.75 %

1-Year HECM Variance

1-yr HECM Variance Heatmap

5-Year HECM Variance

5-yr HECM Variance Heatmap

Following is a list of the ten most friendly and least friendly communities around the country for the twelve months ended 9/30/07:

Index of Reverse Mortgage Friendly Communities
		One-Year			Five-Year
Rank	Most Reverse Mortgage Friendly Communities:	Home Value Growth	Avgerage HECM Rate	Variance	Home Value Growth	Avgerage HECM Rate	Variance
1	Wenatchee, WA	15.70	6.37	9.33	15.80	4.63	11.17
2	Provo-Orem, UT	14.35	6.37	7.98	10.12	4.63	5.49
3	Grand Junction, CO	14.05	6.37	7.68	13.12	4.63	8.49
4	Ogden-Clearfield, UT	13.95	6.37	7.58	8.40	4.63	3.77
5	Salt Lake City, UT	13.37	6.37	7.00	12.03	4.63	7.40
6	Idaho Falls, ID	11.69	6.37	5.32	9.94	4.63	5.31
7	Austin-Round Rock, TX	9.67	6.37	3.30	5.76	4.63	1.13
8	Beaumont-Port Arthur, TX	9.44	6.37	3.07	6.65	4.63	2.02
9	Asheville, NC	9.44	6.37	3.07	11.09	4.63	6.46
10	Billings, MT	9.07	6.37	2.70	9.94	4.63	5.31

	Least Reverse Mortgage Friendly Communities:
1	Sacramento-Arden-Arcade-Roseville, CA	-8.41	6.37	-14.78	11.38	4.63	6.75
2	Palm Bay-Melbourne-Titusville, FL	-8.93	6.37	-15.30	16.23	4.63	11.60
3	Modesto, CA	-8.95	6.37	-15.32	14.21	4.63	9.58
4	Sarasota-Bradenton-Venice, FL	-9.63	6.37	-16.00	14.66	4.63	10.03
5	Cape Coral-Fort Myers, FL	-9.67	6.37	-16.04	16.28	4.63	11.65
6	Stockton, CA	-10.03	6.37	-16.40	13.01	4.63	8.38
7	Yuba City, CA	-11.13	6.37	-17.50	14.02	4.63	9.39
8	Santa Barbara-Santa Maria-Goleta, CA	-11.63	6.37	-18.00	11.16	4.63	6.53
9	Punta Gorda, FL	-11.79	6.37	-18.16	14.21	4.63	9.58
10	Merced, CA	-13.00	6.37	-19.37	14.51	4.63	9.88