The Upside Down Housing Market Flips the Fortune forReverse Mortgages
For years, even decades, we havebeen hearing about the benefits of a reverse mortgage for retirees who havetons of equity in their homes and are looking for some extra cash to live outtheir sunset years
As the bulk of the American population (the baby boomer generation of the late 50s and 60s) heads towards retirement and AARP status, big banks still reeling from lost profits from the Wall Street debacle and mortgage market crash are doubling down on this growing revenue stream. With the housing market still struggling, and millions of Americans heading into old age, this seems like an obvious tactic.
It seems obvious: with little or no income, and hundreds of thousands of dollars invested in a home that they will soon leave behind, why not take out a loan against the equity of the house that will simply be paid off when the house is eventually sold off after they pass away?
Unfortunately, the mortgage market crash has taken the value of reverse mortgages down with it. Elderly homeowners are taking out reverse loans to later find out the value of their homes has dropped under the amount they now owe. Couples take out loans under one partner's name, and when that member passes away, the grieving survivor is left unable to access the funds, yet still owes the bank for the missing equity in the home.
In fact, due to the sharp decline in home values, almost 10% of the 775,000 reverses mortgages in the U.S. are delinquent, higher even than regular mortgages that have been suffering mass foreclosures since 2007. Still,with the various hits big banks have taken since the crash, they are unwilling to let go of yet another profitable venture.
Still, unlike other financial products in the United States, prospective reverse mortgage borrowers must meet with an independent, third-party HUD-approved councilor before they can even turn in an application. So we can all rest easy knowing that there are safeguards in place for our grandparents.
The Consumer Financial Protection Bureau is now looking into new rules and provisions to make the lending process more transparent and add more supervision for lenders.
By: Javi Calderon
