Here’s a quiz question for anyone who thinks they know reverse mortgages. What’s the biggest financial obstacle preventing seniors from acquiring such funding on their homes?
No, it’s not a lack of good health or a promise to stay in the house forever. And, it’s not about getting permission from family members or having a current income.
Believe it or not, says Ralph Rosynek Jr., president, 1st Reverse Financial Services, Westmont, Ill., it’s delinquent student loans.
Few phrases are as less likely to be linked than “senior citizen” and “student loan,” but Rosynek says the elderly often co-sign for student loans on behalf of their grandchildren. That creates problems in the reverse-mortgage process for grandma and grandpa, explains Rosynek, “because the lender must be in the primary lien position on the property.”
He and colleague David Cesario, the company’s executive vice-president, recently held court in a room packed with eager mortgage brokers who wanted to learn more about reverse mortgages.
After two hours of presenting the granular details involved in originating, servicing and securitizing reverse mortgages, it was apparent just how complicated — and daunting for novice brokers — the product sector will be for all those hoping to capitalize on this growing area. There were 90,000 reverse mortgages originated in 2006, roughly twice the volume of the previous year.
And, with the baby boom generation beginning to hit the 62-year-old trip wire for reverse mortgages next year, many lenders want to jump on the bandwagon.
Americans 62 or older hold an estimated $4.3 trillion of home equity and, while the reverse mortgage industry has grown rapidly in the past five years, only about 300,000 reverse mortgages have been originated in total, representing less than 1 percent market penetration.
“We’re still at the beginning of this trend,” says Cesario, who concedes that “these are high-cost, expensive loans (to originate). But,” he asks, “compared to what?” noting that there are fewer restrictions than found in so-called forward mortgages. “The rates really don’t matter — what matters is the amount of money to be accessed.”
An image problem
Citing an image problem, Rosynek describes reverse mortgages as “an education product,” and firmly tells originators: “I don’t care how good a salesman you are — this can’t be ‘sold.’ You have to educate (consumers).”
Seniors most frequently voice fears that “the lender will take my house!” or “my house is my children’s inheritance.”
HUD-approved counselors educate them about eligibility as well as the financial implications and alternatives. The percentage of funding available is determined based on a formula that includes such factors as the age of the youngest owner (if jointly titled), the current interest rate and the value of the residence. The older the owner, the higher the percentage of equity, up to the maximum that is governed by locale.
More good news for lenders: A current HUD appropriations bill increases the loan limit on Federal Housing Administration-insured multifamily mortgages and suspends for one year a cap on the number of reverse mortgages the FHA can insure.