My Financial Healthcheck

Their are several interesting trends in reverse mortgages that are coming to a head here at year end.

It is largely anticipated that the FHA may move to effectively curtail equity releases by as much as 5%.  Different reasons have been provided included the lack of home price appreciation, and the insurance fund that stands behind these loans needing to be more conservative.  There has been no announcement, but the buzz is that an announcement will be made on October 1, 2009.  There has been a SURGE of activity in NEW applications that are hoping to beat this date and squeeze the most equity out of a house, even though there is no specific guidance that lenders or the FHA have provided.

Also of note is that the $625,500 limit is still set to expire on 12.31.09.  So there has been a SURGE in higher balance applications for reverse mortgages as well, also looking to beat that date.  Sort of like cash for clunkers, and the FTHB Credit expirations, this expiration is forcing people into the market based on an expiration date that may or may not be extended.  Borrowers have decided not to wait and to apply now.

Reverse mortgages continue to be a giant "door opener" with financial planners.  This product now features larger loan or line amounts (in the high 400k’s), fixed rates as low as 5.5%, the highest equity releases in the history of the product, greatly reduced fees (2% on the first 200k, 1% on everything over that capped at $6000 in total origination fees), and substantially more expedient home buyer counseling options.  There is only one prohibition which is that the proceeds of a loan can not go to purchase an immediate annuity.  But, essentially there are no strings attached to the money released outside of paying off all liens of record.  So, rather than selling stocks at a loss, or withdrawing funds from retirement accounts, this seems to be a very attractive tool for financial planners to go "find some money" to tide retirees over while they wait to see their accounts go up rather than down in value.  Whether its the cash-out, or the elimination of a mortgage payment, or both….the time is finally here for planners to appreciate this product.