Magazine article American Banker

Reverse Mortgage Popularity Falls on Home Price Woes

Magazine article American Banker

Reverse Mortgage Popularity Falls on Home Price Woes

Article excerpt

Byline: Glenn McCullom

Once booming, home equity conversion mortgages have begun a slowdown that could continue until home prices stabilize.

In the year ended Sept. 30, mortgage lenders funded 114,692 reverse mortgages under the Federal Housing Administration's HECM program, an increase of 1,336% compared with 1999. Five years ago, just 43,000 reverse loans were written.

Until a year ago, the reverse mortgage niche looked like a safe bet for mortgage bankers seeking a haven from the carnage in the industry.

After all, what could be safer than lending money to a generation known for strong savings habits and who had plenty of equity in their homes?

But now - with home prices still under pressure and fears of a double-dip recession growing - reverse mortgages no longer look like a safe bet.

Moreover, new government underwriting guidelines that took effect Oct. 1 are likely to crimp the reverse mortgage market's stellar growth.

According to a survey released this month by the National Reverse Mortgage Lenders Association, of the loans booked so far this year by the three largest portfolio lenders of reverse mortgages, had the new underwriting guidelines been in effect all year, one out of five HECM borrowers would have been unlikely to qualify for their loans because the home equity available to them would have been less than what was owed on the property.

Declining home prices have had a major impact on the reverse mortgage industry - and on seniors who are considering their financial options. …

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