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Wednesday, February 4, 2009
At this point its almost boring to discuss the mortgage crisis. I'm not even sure if it will make the Monday morning paper today.
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 to this point those companies offering HECMs (reverse mortgages) have not seen any real issues.
Its pretty easy to see why. The reverse mortgage is structurally a very appealing investment to those who may want to invest in mortgages.
One of the most important differences between the reverse and the traditional mortgage is the HECM does not require periodic interest payments. This dramatically reduces risk.
Mortgage companies lend money out of lines of credit known as warehouse lines. This is the problem. Some lenders fund reverse mortgage and traditional mortgage out of the same line.
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?
That's right. The money available for reverse mortgages is thereby restricted. This is happening right now.
This stinks for the institution offering the reverse mortgage but it is just as bad for the poor soul currently looking to close his reverse mortgage. Hes being told to hang in there while his file is transferred to another lender.
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.
You see rate locks are not a reality in the reverse mortgage business and increasing lender margins will effectively reduce the amount a borrower qualifies to receive.
The results can be severe enough to completely take away the ability for a borrower to refinance his or her forward mortgage. This is a big deal because the borrower may no longer be capable of paying that mortgage.
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.
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 to this point those companies offering HECMs (reverse mortgages) have not seen any real issues.
Its pretty easy to see why. The reverse mortgage is structurally a very appealing investment to those who may want to invest in mortgages.
One of the most important differences between the reverse and the traditional mortgage is the HECM does not require periodic interest payments. This dramatically reduces risk.
Mortgage companies lend money out of lines of credit known as warehouse lines. This is the problem. Some lenders fund reverse mortgage and traditional mortgage out of the same line.
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?
That's right. The money available for reverse mortgages is thereby restricted. This is happening right now.
This stinks for the institution offering the reverse mortgage but it is just as bad for the poor soul currently looking to close his reverse mortgage. Hes being told to hang in there while his file is transferred to another lender.
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.
You see rate locks are not a reality in the reverse mortgage business and increasing lender margins will effectively reduce the amount a borrower qualifies to receive.
The results can be severe enough to completely take away the ability for a borrower to refinance his or her forward mortgage. This is a big deal because the borrower may no longer be capable of paying that mortgage.
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.
posted by Credit Counseling at
2:06 PM
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