Poor 401(k) Performance Causes Increase in Reverse Mortgages Issued


Let’s face it. The current economic atmosphere is almost absent of 401(k) gains. The massive losses taken in the 401(k) arena is leaving senior homeowners struggling financially.

Home Equity Conversion Mortgages, or HECMs, have been around for over 20 years.

In those years, 637,000 have been granted and by July 2010, over 500,000 were still active. That is over 7 percent of the almost 7,000,000 owner-occupied homes that people age 65 and older are occupying (recorded by the U.S. Census Bureau survey in 2008). Approximately 99 percent of the reverse mortgage market is represented by HECMs. Each is insured by the Federal Housing Administration (FHA).

Rising Demand

Lower upfront costs for HECM borrowers and the need for additional income indicate that demand for HECMs will rise for the foreseeable future. As many borrowers prepare for decreased income, statistics show that most borrowers of HECM loans are 62 and 63 years old.

At the close of 2008, individuals between 55 and 64 years old showed a median value of $56,000 for 401(k)s/IRAs, 30% down from $78,000 by the close of 2007, states the Federal Reserve’s Survey of Consumer Finances

What’s New

HUD introduced the HECM Saver on October 4, 2010.  The HECM Saver deeply cuts the upfront costs for borrowers needing loans smaller than standard HECMs.  With a mortgage insurance premium of .01% (rather than the standard 2% of the loan value), the HECM Saver offers trade off in exchange for reducing the loan size.

HUD is also improving the counseling process by offering alternative benefits to HECM loans as well as hearing verification to ensure the borrower completely understands what is being discussed.

Investor demand for securitized pools of HECMs is increasing. This is leading to more competitive interest rates.  Lenders are also waiving upfront mortgage insurance premiums for fixed-rate mortgages.  At 2% of the first $200,000 of the home value plus 1% of the remainder (up to $6,000), the savings are dramatic.  Many lenders are also waiving origination fees, which can be 2% of the appraised value of the home.

Next Step

For a comprehensive analysis of your ability to qualify, contact our office today to speak with a professional HECM specialist. If you don’t qualify, or if a HECM is not right for you, we will be the first one to let you know. If you do qualify, we can help you achieve the best rates available.


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