John Weicher looked like accountant who couldn’t believe his own numbers.
Weicher, HUD’s assistant secretary for housing who oversees all FHA programs in his role as Federal Housing Commissioner, told the 400 lenders gathered for the recent National Reverse Mortgage Lenders Association’s annual meeting in Chicago that the number of federally insured reverse mortgage loans had doubled 2003’s volume, surprising his department and prompting the need to add personnel to handle the flow.
“When you close more than 36,000 of these loans in one year in excess of $6 billion, you stop considering it a little something on the side,” Weicher said.
The numbers on Weicher’s bar graph showed only significant leaps, leading the FHA commissioner to state he would have to “create a whole new slide for 2005 if this volume of business continues.”
Reverse mortgages are similar to home-equity loans in that homeowners at least age 62 can borrow against the equity they have in their home, and receive income as long as they live in their homes. Reverse borrowers make no monthly payments on a their mortgage during its term. The loan comes due when the borrower permanently moves out of his or her home.
HUD, through FHA, backs the most popular reverse program, known as the Home Equity Conversion Mortgage, which accounts for approximately 90 percent of all reverse loans in the U.S. The agency had insured a previous record 18,097 of those mortgages during fiscal 2003. The federal fiscal year ends Sept. 30.
Reverse mortgage representatives from around the country agreed with Weicher that phenomenal growth of the industry could be attributed to consistently low interest rates, effective marketing, the aging population and strength of the housing market.
Ken Sawan, vice president of retail sales in the Chicago office of Financial Freedom Funding, said loan volumes had doubled not only in the Chicago metro area but also in his six-state Great Lakes region.
“There really has been no typical customer,” Sawan said. “We are doing reverse mortgages for people with $65,000 homes in outlying areas to $2 million properties along the lake shore here in town.”
Other new borrower data that Weicher presented included showed that the average age of a reverse mortgage borrower shifted slightly from 76 in 2000 to 74 in 2004, and that the proportion of women receiving the loans fell to 48 percent in 2004 from 57 percent in 1990. During that period the average value of property involved in reverse mortgages rose from $142,000 to $214,000.
Though a reverse loan comes due when the borrower permanently moves out of his or her home, the homeowner cannot be displaced and forced to sell the home to pay off the mortgage, even if the principal balance grows to exceed the value of the property. If the value of the house exceeds what is owed at the time of homeowner’s death, the rest goes to the estate. (For more information, visit www.reversemortgage.org)
To qualify, consumers must be at least 62 years of age and own their own home. The home does not have to be paid off entirely but the greater the equity, the greater the reverse loan amount. Age, location and loan type also factor into the reverse mortgage amount. Reverse mortgages are available in a variety of programs including a lump-sum draw, monthly payment, line of credit or a combination of the above. Funds remaining in the line of credit continue to grow over time at a rate half a percentage point greater than the prevailing interest rate on the loan.
“This is what I believe to be the remarkable feature of the reverse mortgage,” said Richard Garrigan, author and professor of finance emeritus at Chicago’s DePaul University. “No other mortgage that I know allows this type of growth in a line of credit. It’s going to make a lot of people feel better about paying the fees to obtain the reverse mortgage.”
Sarah Hulbert, vice president and national director for Seattle Mortgage and the conference’s co-chair, said members of the reverse lenders association are pushing for a single national loan limit. HUD’s current guidelines tie loan limits to average household incomes in specific counties. Typically, major metropolitan areas have higher loan ceilings than rural areas, regardless of the value of the home. A “jumbo” reverse mortgage, offered by Irvine, Calif.-base Financial Freedom Funding, does not have the geographical restriction.
