Do I even need to bring up the fact that we are still in a mortgage crisis? I think its pretty part of the landscape and the papers assume people don’t want to hear about it until its over.
Of course, many companies offering these mortgages have changed as well. Some have been sold for pennies on the dollar and have changed their names. Some are no longer in business at all.
Up until now reverse mortgages haven’t experienced any real hit because of all the hoopla.
Relative to the traditional mortgage counterpart the reverse mortgage has some very appealing traits for investors in mortgages.
The HECM is much less risky than the forward mortgage in that its structured to not accept interest payment until end of the mortgage. This greatly reduces the chance of default.
The problem is that some companies offering reverse mortgages also sell traditional loans and have lines of credit known as warehouse lines available to fund these loans.
There is no clear delineation between one source of money and another. As such the money comes from the same spot.
Is it possible that some of these lines of credit or warehouse lines are somehow affected by the mess in the traditional mortgage market? What happens then?
Of course the money made of available for the reverse mortgage gets severely limited. This is currently happening.
The lousy part of this is for the people currently in escrow planning on closing on their reverse mortgage. They are being told to hold on while the broker transfers the loan to a new lending institution.
The consumer can take a hit in that it is taking much longer to close a loan being transferred to another lender. We are in an increasing interest rate environment contrary to what you’re reading elsewhere. When rates go up mid stream the consumer can realize less money.
Unlike forward mortgages where one can lock in an interest rate for extended periods, reverse mortgage don’t have that. Therefore rate increases can severely limit borrowing power.
How can this affect someone? It can constrict the loan amount enough to the point where a borrower can no longer pay off a big bill or a forward mortgage currently sucking away most of the disposable income.
We hope this is a temporary problem. Just be careful of this if getting a HECM and dont spend the money until you have it.
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