More Seniors Turn To Reverse Mortgages Due To Lost Dividend Income and Investment Assets

Sunday, October 12, 2008

posted by N. Sioris

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The unprecedented plunge of the U.S. stock market during the past week has unnerved every American regardless of age, or economic status. Anxiety is running high. No one seems to know what shoe will drop next. Each attempt by the Federal Reserve, the Secretary of the Treasury, the Congress, the coordinated interest rate cuts from the United States and other nations have not inspired the confidence needed to restore the paralyzed credit markets and get the cash flowing back into the banks and the economy.

Most of the talking heads on the financial news channels and most print reporters have been afraid to use the terms, "depression," "crash," or even admit that we are all ready in a recession. Some news organizations and investors have hesitated to use these words to describe Wall Street's terrifying sell off because they are afraid of causing panic.

However, by the end of the market close on Friday, October 10th, some notable statements were surfacing among analysts that were brave enough to speak frankly.


Is It A Crash?

A crash is commonly defined as a 20 percent decline in a single day or several days. The drop over the seven days ending Thursday, October 9, 2008 lopped 20.9 percent off the Dow Jones industrial average. On Friday, October 10th, after wildly whipsawing over 1000 points, finally settled down 128 points, or 1.5 percent for the day. For the eight day period the cumulative loss was 22 percent.

Howard Silverblatt, senior index analyst at Standard & Poor's, said "This quick, this amount, in these few days, obviously is a crash. The crash deals with the speed as well as the intensity of it."

CNBC host Dylan Ratigan was among those uttering the word "crash" on Thursday, calling the decline, "a cascading crash." The Wall Street Journal, the most influential publication in the financial world, hedged somewhat on Friday's front page, saying the scary drop over the past several days "amounts to a slow-motion crash."

Bob Doll, chief investment officer of BlackRock, Inc., the largest publicly traded U.S. money manager, being interviewed by CNBC anchor, Maria Bartiromo responded to her question about whether he thought this is a crash, replied: "Yeah, I guess we have to call it that, Maria. That's a lot of percents in a short period of time. We're down a bunch, and it's been relentless."

Johnathan Wald, senior vice president for business news at CNBC, said on Friday, "Anytime you do the math, when the Dow is down that much over a period of days, it's a crash. It's a word we don't like to use very often because nobody likes to see it, but when it happens, you can't avoid it."


How This Affects Seniors In Particular

If you are a senior currently in retirement or someone on the verge of retiring and have money in the stock market, pension funds and or 401K plans, you have been slamed by sharp losses in those portfolios. The total loss in the Dow over the last 12 months has been about 40 percent. Depending on your own personal diversification, your losses may be more or less than 40 percent. A top congressional budget analyst said that pension plans have lost as much as 2 Trillion dollars over the last 15 months.

Dividends which many retirees rely heavily upon for income, will be sharply lower starting right now and in the near term future. The latest quarterly statements have shocked many seniors who thought they had planned well and put in place a solid retirement strategy that would last them their lifetime. For some, the shock of seeing their lives suddenly altered regardless of careful planning is devastating.


Home Equity: A Partial Solution

Tapping home equity through the use of a reverse mortgage might become an option exercised for many who never thought they would consider using this type of financial instrument before. One of the payment options offered through a reverse mortgage allows for steady tax-free monthly supplemental income that can help offset stock market losses and keep a senior's household budget steady and manageable.

If you think a reverse mortgage might be right for your situation, you should consider looking into it sooner rather than later. A perfect storm has been brewing for quite some time now, and could get worse. What I mean by that is that home values across the entire country have been in a steady downward spiral, while market pressure has been affecting interest rates in an upward direction.

Reverse mortgage benefits are largely based upon the current market value of your home and the current interest rates. Consequently, you will receive less money from the equity in your home if housing values continue to decline and interest rates climb.

Seniors that closed a reverse mortgage a couple of years ago at the top of the housing market bubble, are sitting very pretty right now. Their monthly benefits or line of credit were locked in based upon the market value of their homes at the time they closed and the interest rates that were in effect at that time as well.

Sitting on the fence and doing nothing based upon fear and uncertainty is probably not the best decision if you are a person that feels that a reverse mortgage might benefit you.

Another thing to keep in mind is that if you get a reverse mortgage and your home increases in value in the future, you can always choose to refinance your reverse mortgage in order to access more funds at a later time. In the meanwhile, locking in a value and interest rate today, could be a lifesaver during this unprecedented economic meltdown.

Find out how much money you are eligible for by requesting a personalized reverse mortgage quote here.

AARP Reveals Impact of Mortgage Crisis On Senior Homeowners

Tuesday, October 07, 2008

posted by N. Sioris

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AARP purchased a random sample of 2.5 million people from the credit reporting agency, Experian. Of that sample, approximately 1 million are age 50 or older. The objective for AARP was to determine the impact of the mortgage crisis on older homeowners.


The sample data covered a six month period from July through December 31, 2007. The data did not include historical data and does not shed light on what has happened since December, 2007.


Americans age 50 and over hold about 41 percent of all first mortgages. The data showed that more than 684,000 homeowners aged 50 and over were either delinquent in mortgage payments or actually in foreclosure at the end of 2007. This number represented 28 percent of the total delinquencies nationwide for that period.


The foreclosure rate among first mortgage holders age 50 and older in this sample is 0.24 percent. This compares to a rate of 0.50 percent among Americans under the age of 50, and to a nationwide average of 0.39 percent.


Foreclosure rates are higher for African-American and Hispanic homeowners than for Caucasian homeowners, in all age brackets. Among mortgage holders age 50 and over, African American and Hispanic borrowers both have foreclosure rates of 0.51 percent, compared to a rate of 0.19 percent for Caucasians. So while the elderly generally have lower foreclosure rates than younger households, rates among elderly minorities are quite high.

Subprime Loans

Having a subprime loan is associated with higher rates of delinquencies and foreclosures for all age groups, however, the negative impact of subprime lending appears to fall disproportionately on borrowers over the age of 50. Older borrowers of subprime first mortgages are 17 times more likely to be in foreclosure than older borrowers of prime loans.

High loan to value loans were prevelant among subprime loan offers. Consequently, as home values have fallen dramatically in many housing markets, the incentive to default has increased. When the owner's equity position is either at zero percent or negative, borrower's options for selling or refinancing out of a toxic subprime loan becomes nearly impossible. For Americans over the age of 50, a loan-to-value ratio that exceeds 100% is associated with a foreclosure rate that is roughly double that of the national average for all other borrowers.

The Foreclosure Impact

The impact of a foreclosure is often more significant for older households because the owners have less time and ability to recover from the financial losses associated with a foreclosure. This problem is likely to grow over time, because homeowners increasingly are carrying mortgage debt into their retirement years. By 2007, 53 percent of all owners with a head of household age 50 or older had a mortgage, up from 34 percent two decades ago.

*The above data was published in a recent report by AARP Public Policy Institute and written by Alison Shelton.

FHA/HECM Reverse Mortgage Loan Limit Increased To $417,000.

Thursday, October 02, 2008

posted by N. Sioris

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The long awaited announcement from HUD regarding what the national loan limit will be for federally insured HECM reverse mortgages, was finally announced this morning. The new loan limit will be $417,000. and will be the same throughout the country. Previously, every county was subject to different lending limits.

This is welcome news for not only the industry as a whole but for seniors that may have been a little bit short of equity to qualify previously. The national HECM loan limit simplifies the program for lenders as well as borrowers. The new limit of $417,000. is expected to become effective on November 1, 2008. Since it usually takes about 30 days to process and close a reverse mortgage, it is not too early to begin your application if you are interested and will now benefit from the revised lending limit.


An example of how a senior borrower may benefit from the loan limit increase is illustrated by this profile of a homeowner that previously did not qualify but now does.

Estimated Home Value: $290,000.
First Mortgage Balance: $139,000.
Borrower's Age: 69
Location: South Carolina

Previously this borrower did not have enough equity to qualify for a reverse mortgage. With the old lending limit in South Carolina of $220,160. this borrower would have had an equity shortfall of over $20,000.

Today this borrower is eligible to pay off the entire first mortgage balance of $139,000. plus have access to an additional $36,870., which can be taken as a lump sum, a line of credit, monthly supplemental income or a combination of these options.

*The above illustration is based upon the borrower obtaining the monthly adjustable HECM reverse mortgage loan at today's initial interest rate.

Not all of the online calculators have been updated yet, so if you would like to find out if the new lending limit will help you to qualify or offer you a higher benefit amount, please feel free to request a free reverse mortgage quote here.

Market Chaos and Reverse Mortgages

Tuesday, September 23, 2008

posted by N. Sioris

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We are witnessing an historic calamity in our financial markets that is unprecedented since the stock market crash in 1929, which was followed by the great depression.

The total affects of this meltdown are completely unknown to us as regular American taxpayers, and even more frightening, they are unknown to those "running the show" right now too. It's anybody's guess as to what all of the ramifications will be and how truly expensive it will be for us and for future generations.


Now Might Be The Time

If you have been looking into a reverse mortgage, but now you are second guessing yourself about whether this is a wise time to be making any financial decisions, here are some thoughts to consider.

Since the federal take-over of Fannie Mae and Freddie Mac, interest rates have actually come down. It's hard to say how long they will stay down or if they could possibly go even lower in the short term. However, with the proposed 700 billion dollar bailout being tacked on to our all ready massive national debt, it is highly likely that interest rates will have to go up in the future and inflation will rear its' ugly head.

As the government prints money and continues to spend like drunken sailors, the value of the dollar loses ground to other currencies. For example, not so long ago the Euro was worth less than a dollar. Today it takes $1.45 to buy 1 Euro.

Yesterday oil prices had its' largest one day increase ($16.00/barrel) in history. The reason oil prices have been soaring is because the oil producers require more dollars because currently the dollar has less purchasing power. In other words, the dollar is "worth less" than it was in the past.


The Affect of Inflation

In terms of all types of mortgages, inflation means higher interest rates. Higher interest rates for reverse mortgages in particular, means that you as a senior homeowner will have less money available to access through a reverse mortgage, because the accumulating interest will be charged at a higher rate going forward.
Additionally, as home values tumble across the entire country, your eligible loan amount also decreases. Less equity, means less cash to you from a reverse mortgage.

So if you think a reverse mortgage will benefit you, now is the time to take a serious look at whether you should act quickly while interest rates are low and home values possibly have not hit bottom yet. You may kick yourself later, if you wait.

HECM Reverse Mortgages Are Non-Recourse Loans

Tuesday, September 16, 2008

posted by N. Sioris

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HECM reverse mortgages, insured by FHA and backed by HUD are the most widely used reverse mortgages in the U.S. It is estimated that 85 to 90% of all the reverse mortgages originated are HECM reverse mortgages. (Home Equity Conversion Mortgage.)

The reasons for the popularity of HECM reverse mortgages are many. However, the purpose of this article is to define one of the major reasons for their attractiveness to consumers.

With Wall Street in turmoil from lack of regulation and financial titans like Bear Stearns and Lehman Brothers falling like domino chips, people are generally unnerved and seeking safety. Fear of anything financial or mortgage related is paralyzing people that might be in need of a mortgage product today.

If you are a senior homeowner thinking about obtaining a reverse mortgage in today's market, there is a safety feature built into FHA insured HECM reverse mortgages that is called "non-recourse." The term non-recourse, means that you or your heirs are not personally liable to the lender at the time your HECM reverse mortgage is paid off.


The House Stands Alone For The Debt

In its' most simple definition; your house stands alone for the debt. This means that at the time of repayment of the reverse mortgage plus interest, if your home cannot be sold or refinanced for the total amount owed on the loan, you, your estate or your heirs cannot be required to pay off any shortfall that may exist. The lender does not have "recourse" to anything other than your home. Not your other assets, not your income, or that of your heirs or estate.

Even if you live to age 112, and have received monthly loan advances throughout your lifetime, and your home declines in value between now and then, and the total amount of money that you have received plus interest from your HECM reverse mortgage is greater than the amount your house can be sold for, you or your heirs can still never owe the lender more than the value of your home. The pay off amount to the lender is limited by the net proceeds from the sale of your home.

At a time when home values are declining in most areas across the country and the economy is suffering from toxic lending practices and unregulated financial markets, it can be reassuring to have the "non-recourse" provision included as one of the safeguards for HECM reverse mortgages.

Click here to read about additional safeguards for HECM reverse mortgages.