Traditional Mortgage Negatively Affecting Reverse Mortgage
You don't need to pick up the paper anymore or read the news to know that traditional forward mortgages are dramatically changed.
Those institutions offering forward or traditional mortgages have changed dramatically. If they are still in business without the help of government bailout money they are doing pretty well.
Thus far reverse mortgages have been fairly insulated from this whole fiasco.
Relative to the traditional mortgage counterpart the reverse mortgage has some very appealing traits for investors in mortgages.
The biggest being the reverse mortgage does not require monthly repayment which essentially eliminates risk of default for these loans.
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.
One would think that money necessary for such divergent products might come from different places, but it doesn't.
Since we are seeing so much trouble in the forward mortgage arena it goes to follow that these warehouse lines might be affected negatively. What happens if the line gets temporarily or permanently shut off?
Naturally, reverse mortgage take a hit and through no fault of their own.
This is a bad deal for the bank as it temporarily loses that stream of income. And its bad for the consumer who may be in the process of getting the reverse only to be told mid stream that his deal must be sent to a new 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.
Time is of the essence for reverse mortgages more so than under normal market conditions. Increasing lender margins effectively limit borrowing power if the loan doesn't close before the rate increase.
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.
Those institutions offering forward or traditional mortgages have changed dramatically. If they are still in business without the help of government bailout money they are doing pretty well.
Thus far reverse mortgages have been fairly insulated from this whole fiasco.
Relative to the traditional mortgage counterpart the reverse mortgage has some very appealing traits for investors in mortgages.
The biggest being the reverse mortgage does not require monthly repayment which essentially eliminates risk of default for these loans.
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.
One would think that money necessary for such divergent products might come from different places, but it doesn't.
Since we are seeing so much trouble in the forward mortgage arena it goes to follow that these warehouse lines might be affected negatively. What happens if the line gets temporarily or permanently shut off?
Naturally, reverse mortgage take a hit and through no fault of their own.
This is a bad deal for the bank as it temporarily loses that stream of income. And its bad for the consumer who may be in the process of getting the reverse only to be told mid stream that his deal must be sent to a new 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.
Time is of the essence for reverse mortgages more so than under normal market conditions. Increasing lender margins effectively limit borrowing power if the loan doesn't close before the rate increase.
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.
About the Author:
Learn the most prevalent seven myths regarding the California Reverse mortgage here. Also, your questions about the HECM in California found here.
posted by Debt Consolidation Loan at
2:49 PM
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