Jumbo Reverse Mortgages - a Dying Breed
Michael G. Branson (CEO - ARMC) 9/25/08 4:14pm
By now, if you have been watching the
news at all you've either read or heard all about
the bankruptcy of Lehman Brothers and the Sale of Merrill Lynch to Bank
of America. Many senior homeowners can find relief in the
fact that any of the funds that they may have had on deposit with
Lehman are protected by the Securities Investor Protection Corp., but
that certainly doesn't help them with any Lehman
stock they may have owned and it
doesn't help them if they were in the process of or
contemplating obtaining a jumbo reverse mortgage with a company who sold their product to Lehman.
You see, Lehman was the source for one of
the two remaining proprietary or jumbo reverse mortgage loan programs
in the market for senior borrowers, age 62 and over.Just
as 2006 and 2007 saw the birth of many new jumbo products, 2007 has
seen the exit of all but one proprietary program.Several
years ago, if a senior borrower with a high value home wanted a reverse
mortgage, the Financial Freedom Cash Account product was about the only
game in town.
With all the liquidity issues in the secondary markets and the failures of IndyMac Bank and Lehman Brothers (the sources for two of the prominent jumbo reverse mortgage programs), the future of the jumbo reverse mortgage may be at risk, at least in the short run. The remaining programs were already automatically cutting the property value and lending at greatly reduced rates and with only one program left standing (and the conventional wisdom wonders for how long), many high value homes may have to be limited to the government Home Equity Conversion Mortgage (HECM or "Heck-um"¯).
The only ray of sunlight in this cloudy scenario for senior homeowners is the recent passage of the Housing and Economic Recovery Act, H.R. 3221 By all accounts, the bill will raise the limits of the HECM loans but there is some confusion as to what the limits will ultimately be.There are interpretations out by the National Reverse Mortgage Lenders Association (NRMLA), that the national limit will go to $417,000 with the ability to go to $625,500 in high cost areas or a national limit of $625,500.
However, in a letter received by this author from Barbara Boxer, United States Senator from California dated September 12, 2008, she states I am pleased to report that the Housing and Economic Recovery Act of 2008 which passed Congress and was signed into law on July 30, 2008, permanently raises the HECM loan limit to $625,500. This letter was sent in response to inquiries made regarding H.R. 3221.
If the Federal Reserve cuts rates in
their meeting again today (there seems to be about a 50/50 split
between economists as to whether the Fed will take that action based on
the instability in the financial markets and
Monday's worst drop on the stock market since 9/11 (FED Article - Associated Press)
then seniors will again see a drop in their interest income from money
in bank accounts. Falling stock prices have impacted many
as well. With the proprietary reverse mortgage programs
all but gone (at least for the time being), senior homeowners with
higher valued properties really need the new provisions of H.R.
There are other options for seniors with higher net worth, multiple or high value properties and who are medically insurable. But for those who really need a reverse mortgage and have a home valued greater than the current HUD lending limit for the area (currently anywhere from $200,160 to $362,790), the new provisions cannot be implemented by HUD quickly enough.
If Ms. Boxer is correct and the national limit is now $625,500.00, that would fill the need of many borrowers currently seeking proprietary products and soften the effect of the disappearing jumbo product. Now we just need the division of HUD, the Federal Housing Administration (FHA) to issue the Mortgagee Letters to the lenders indicating they are ready to implement all the changes of this sweeping legislation and senior borrowers will be able to begin utilizing the higher limits.
If you, client or family are looking for an Alternative to the Jumbo Reverse Mortgage you may find yourself a good candidate for the Equity Key Program or may find new possibilities with the upcoming HECM Limit Increase.
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