For many older homeowners, reverse mortgages are an easy way to tap into their home’s equity. Despite many misconceptions about reverse mortgages, they may not even be as risky as many believe, according to experts, as more and more homeowners take advantage of the product.
An article from Bloomberg explores the recent movement to reverse mortgages. Despite the risk, such as taxes, insurance, maintenance, and utilities as well as a risk of foreclosure, reverse mortgages are still a viable equity alternative to selling and moving. Tightening rules after 2008, including requiring homeowners to show they can afford tax and insurance payments, has reduced the risks involved with reverse mortgages since then. However, some still note the risks involved
“The profits are significant, the oversight is minimal, and greed could work to the disadvantage of seniors who should be protected by government programs and not targeted as prey,” said Dave Stevens, CEO of the Mortgage Bankers Association on Bloomberg.
DS News reported earlier that, according to LendingTree and data from the Federal Housing Authority’s Home Equity Conversion Mortgage (HECM) program, HECMs originated in the 100 studied cities at an average rate of 7.1 loans per 1,000 homeowners over the age of 60 between 2012 and 2017. The top city, Virginia Beach, boasted a rate of 13.8 loans per 1,000 homeowners over the age of 60.
Government-back loans as a whole have seen a resurgence. Kroll Bond Ratings Agency reported 63 percent increase in residential mortgage-backed securities (RMBS) issued in 2018 over 2017. The report indicated that if the U.S. GDP was to grow at the steady pace it has this year, until July 2019, the year could see "another robust issuance year in 2019." However, factors such as higher interest rates, home price moderation, and widening spreads that have been experienced by the market in the last few weeks are likely headwinds that might pull down the performance of RMBS next year, the report revealed.
"Given the potential downside risks, we aren’t forecasting issuance growth in 2019, but believe issuance will be comparable to 2018 levels," KBRA stated in the outlook.