Reverse mortgage market may be teetering on collapse – Orange County Register

Stocks are plentiful, but cash and income scarce, the 62+ is trying to survive. best cost of living Over 40 years.

Reverse mortgages, which typically provide monthly payments to homeowners, are designed to act as a mortgage safety net. seniors working hardto make available a mother load of home equity.

However rising mortgage interest rates, huge mortgage originator rebates, and high-priced Federal Housing Administration mortgage insurance could reduce or completely deplete tappable stocks. Huge transaction costs also end home payments and reduce the likelihood of cash in seniors’ pockets.

As of 2020, only 4 out of 100,000 mortgages were reverse mortgages.

“The reverse mortgage business is in danger of collapsing due to insufficient loan volumes,” said Ted Tozer, President of the Obama-era Ginnie Mae. , a secondary market for certain government-sponsored mortgage programs.

There are two main types of reverse mortgages. FHA Reverse Mortgage, or HECM (Home Equity Conversion Mortgage) so-called private label reverse, sometimes his FHA-like product for younger ages.

These loans are effectively amortizing fixed or floating rate mortgages. This means that your loan balance will grow every month. This is because a reverse mortgage eliminates the monthly mortgage.

Any outstanding payments will be added to your existing loan balance. A 3.5% balance growth is much smaller than when mortgage rates jumped to 6%. The more debt you have, the faster your mortgage balance grows. Think compound interest is going the wrong way.

The existing mortgage lien must be paid off through reverse refinancing, along with the FHA mortgage insurance upfront premium and all other closing costs and points.

The loan origination fee is calculated by charging 2% on the initial $200,000 home value, plus 1% on any amount above that, up to a maximum of $6,000, according to the National Reverse Mortgage Lenders Association. Chairman Steve Irwin said.

Variable rate reverse mortgages offer huge rebates to mortgage loan originators. I checked he was over 12 points maximum on one rate sheet. For a $750,000 loan, the rebate would be $90,000 plus a loan origination fee of $6,000.

All fees and loan originator rebates are the responsibility of the consumer. Higher rebates to originators result in lower maximum loan amounts and higher mortgage interest rates.

When I asked if the rebate should be reduced, Irwin’s reply was “no comment.”

Finally, there is the mortgage insurance premium. The prepaid premium for an FHA Reverse Mortgage is 2% of the home’s assessed value or 2% of $970,800, whichever is less. This means borrowers can pay up to $19,416 in advance for mortgage insurance. On top of that, there is a mortgage insurance premium, which adds another 0.5 points to the note rate. Oh.

FHA should significantly reduce mortgage insurance premiums.

Ginnie Mae should cap the purchase price of each closed loan at close to 102%, just like Fanny used to do. This eliminates the loan originator’s gouging.

And the FHA should open this up to senior-owned rental properties and amend the requirements.