The current mortgage market is in turmoil. Like any industry we go through Fad's. A mortgage Fad is a mortgage product that gains enormous popularity, then fades into the background for many various reasons. An example of this would be what we now fondly call "Liar" loans. Stated programs have actually been around for a long time, but their popularity soared when lenders began offering high LTV stated loans, and it exploded when lenders dropped credit requirements to attain these loans. Now the 100% Stated Loan with a 620 Fico is thankfully gone! But loan programs come and go.
One mortgage program that is gaining momentum is that of Reverse Mortgages. A reverse mortgage is less a mortgage in the traditional sense and more of a interest free annuity. Reserved for senior homeowners, age 62 years or older, a reverse mortgage is actually one of the first bank programs that PAY YOU!
There are many myths and misunderstanding in regards to reverse mortgages. Reverse mortgages have been around for some time, but has taken a while to catch on in main line lending circles. Part of this is the demographic that could be marketed, but with the baby boom generation nearing retirement, this wealth management product is one that will become more popular as time goes on.
According to USE YOUR HOME TO STAY AT HOME study (published in 2005 by the National Council on Aging)
- "....older Americans are struggling to live at home at a time when they currently have more then $2 trillion in untapped housing wealth..."
- "....over half the net worth of seniors is currently illiquid in their homes and other real estates"
- "of the 21 million elder homeowner households, 15 million would meet the eligibility requirements for FHA-endorsed reverse mortgage."
Whats even more exciting is that over 78 million "baby boomer's" are yet to retire, and the first wave of boomer's reach age 62 in 2008. What this means is that reverse mortgages will be a critical product in any mortgage planners portfolio of products. It also means many Baby Boomer's may not be in as bad a shape as they thought. There are many great ways to add reverse mortgages to an overall wealth management strategy.
Karl Christen Credit & Liabilities Planner
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Countrywide is already preparing for the Reverse Mortgage Boom. I believe the conforming limits we were mirroring has been increased to $650,000 in certain high cost markets. (will have to verify) There is even talk of a Purchase Reverse Mortgage. Imagine selling a big home taking 50% down from the equity of the sale and buying a new home or condo (sizing down) and never making a payment and maybe even (depending on county) transferring the low taxes to the new home. Someone out there is very creative!