Reverse mortgages are available to persons age 62 or older, who have
either paid off, or nearly paid off, their mortgage, and who are
"house rich, cash poor." *Most* people who apply for reverse mortgages
do so when they find their pension, Social Security, and savings, fail
to provide sufficient income during retirement, yet they don't wish to
move to a smaller or less expensive home.
A good definition can be found at Wikipedia:
http://en.wikipedia.org/wiki/Reverse_mortgage
Although reverse mortgages have gained in popularity, unfair
assumptions persist that such a mortgage means you are selling your
house to a bank or to the government, or that you won't be able to
bequeath your home to your children.
Essentially, reverse mortgages are home equity loans and are a viable
consideration for seniors who are struggling to pay their bills.
Counseling is mandatory for U.S. seniors who apply, and for good
reason, as these loans aren't completely without risk (they have high
upfront fees and aren't financially feasible as short-term vehicles),
so pros and cons should be weighed carefully.
Here are the market leaders I found:
REVERSE MORTGAGE MARKET LEADERS
UK:
According to this June 2004 abstract from Datamonitor:
http://www.market-research-report.com/datamonitor/BFFS0312.htm
"Norwich Union is the leading player in the UK [reverse mortgage] market."
http://www.norwichunion.com/
See the full membership of directory of UK providers at SHIP (Safe Home
Income Plans):
http://www.ship-ltd.org/members/index.shtml
Canada:
CHIP is only the provider:
http://www.chip.ca/
USA:
Two Government-Sponsored Programs:
HUD's HECM (Home Equity Conversion Mortgage):
http://www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm
NHA offers the HomeKeeper Loan:
http://www.fanniemae.com/global/pdf/homebuyers/homekeeperstriper.pdf
U.S. Private Lenders:
NRMLA (National Reverse Mortgage Lenders' Association) appears to be
the most authoritative source for U.S. private lending institutions
that provide reverse mortgages:
http://www.nrmlaonline.org/Home/tabid/173/Default.aspx
Go to this page:
http://www.reversemortgage.org/Default.aspx?tabid=255
Then select a state from the drop-down menu to review NRMLA members in all
50 states.
According to this October 28, 2005, press release from NRMLA" . . .the
nation's top three reverse mortgage producers - Financial Freedom
Senior Funding Corporation, Seattle Mortgage Company, and Wells Fargo
Home Mortgage. . . ."
Links to those three companies:
http://www.financialfreedom.com/
http://www.seattlemortgage.com/revmort.html
http://www.wellsfargo.com/mortgage/articles/reverse_mortgage.jhtml
According to this February 21, 2005 press release from NRMLA, HUD's
HECM program is the single most popular reverse mortgage program in
the U.S.:
http://nrmlaonline.org/NewsCenter/NRMLANewsReleases/tabid/220/ctl/Detail/mid/631/xmid/250/xmfid/3/Default.aspx
New Zealand:
From a Datamonitor abstract published June 2005:
http://www.datamonitor.com/~e662a123863b49979e5a7c6aca3875ba~/Products/Free/Brief/BFFS0399/010BFFS0399.pdf
"Sentinel is the largest provider of reverse mortgages in New Zealand [more
than 90%] followed by SAI Life and Lifestyle Security."
Australia:
According to this Datamonitor abstract dated 17-Jun-2005
"The Australian reverse mortgage market now hosts ten providers, up from six
in June 2004 . . .Bendigo Bank has entered the equity release market with a
home reversion product."
Also see Senior Australians Equity Release Association of Lenders (SEQUAL) "
a not for profit association supported by Australia's leading providers of
Equity Release products":
http://www.sequal.com.au/
Member Directory:
http://www.sequal.com.au/members.html
DEVELOPMENT/POPULARITY OF REVERSE MORTGAGES
A Brief History of Reverse Mortgages:
"Reverse mortgages provide option for funding retirement," by John W.
Gilbert, San Antonio Business Journal, April 16, 2001:
http://www.bizjournals.com/sanantonio/stories/2001/04/16/focus5.html
" . . .Reverse mortgages first came onto the scene in Great Britain in
the early 1930s. The transaction was called a home-equity reversion.
This financial practice prospered as a family business until 1970 when
outside investors took control of the home-equity company renaming it
Home & Capital Trust Ltd.
"Following its success in Great Britain, the reverse mortgage concept
appeared in other parts of Europe during the 1970s. Finally, during
the 1980s, it made its way across the Atlantic Ocean and arrived in
the United States.
"Although reverse mortgages were commonplace everywhere in the United
States in the early 1990s, they were banned in Texas because of a
constitutional prohibition against home equity lending. The ban was
removed in 1998 after the voters approved a constitutional amendment
allowing lump-sum home-equity loans. Now, after three years of delays
caused by legal and regulatory tie-ups, reverse mortgages are now
available in Texas."
Current Trends:
U.S.
NRMLA press release, dated October 28, 2005: "Reverse Mortgage Volume
Increases Fifth Consecutive Year. Top Four Markets in the Country Located in
California":
http://www.nrmlaonline.org/NewsCenter/NRMLANewsReleases/tabid/220/ctl/Detail/mid/631/xmid/358/xmfid/3/Default.aspx
"For a fifth consecutive year, lenders originated a record number of
federally insured reverse mortgages, and the volume of borrower
applications being processed is even higher, according to the National
Reverse Mortgage Lenders Association.
"During the most recent federal fiscal year, ending September 30, the
Federal Housing Administration (an arm of the Department of Housing
and Urban Development), insured 43,131 Home Equity Conversion
Mortgages (HECMs)
compared to 37,829 the prior year. HECMs account for 90 percent of all
reverse mortgages made in the U.S.
" . . .Although national volume increased by only 14 percent (compared
to 109 percent between 2003 and 2004), the number of seniors applying
for reverse mortgages remains substantially higher.
"An informal poll of the nation's top three reverse mortgage
producers-Financial Freedom Senior Funding Corporation, Seattle
Mortgage Company, and Wells Fargo Home Mortgage-shows an average
increase of 56 percent in the number of loan applications that are
being processed now compared to last year at this time.
"According to HUD, the number of 'unendorsed' reverse mortgages in the
pipeline awaiting insurance at the end of September 30 totaled 36,952,
compared to 21,838 a year earlier. Typically, there is a 4-6 week
delay between the time a loan closes and is insured."
UK:
Abstract from Datamonitor report "UK Mortgages 2004," published February 14,
2005:
http://www.marketresearch.com/researchindex/1089022.html
"Affordability levels have got slightly worse through 2004 as
successive base rate rises have increased debt servicing cost.
However, while annual mortgage repayments are currently high compared
to historic figures, as a proportion of take home pay they are still
considerably lower than their previous peak at the end of the 1980s.
"The market could enter a period of consolidation as lenders are
forced to adjust to the realities of competing in a stagnating market,
where margins are contracting and consumers are increasingly
footloose. We could also witness a move towards a more fragmented
marketplace, with specialist lenders concentrating on mortgage
origination or servicing."
Also check out Britain's Council of Mortgage Lenders (CML):
http://www.cml.org.uk/cml/media
You can download a few reports (from early '00s) on reverse mortgages
there by typing "reverse mortgage" or "equity withdrawal mortgage"
into the search box at top right.
Australia
"Managing reverse mortgage risk. Is it a journey without risk?" from
Deloitte Touche Tohmatsu
http://www.deloitte.com/dtt/article/0,1002,sid%253D5850%2526cid%253D86027,00.html
"Australia is on the verge of a boom in the supply of reverse mortgage
products. An aging population, significant increases in property
prices, low fixed interest returns and ever increasing life expectancy
mean that the market is now ripe for the increased use of this
product.
". . .Apart from the social and economic changes listed above, the
size of the potential market for this product in Australia is
significant. Current estimates of the amount of equity held by over
60s in houses range from $340bn to $450bn. Given the above trends and
market size it is unsurprising that there is increasing interest in
this product from both providers and
customers. Further evidence of this interest is in the number of
providers,which has increased substantially this year."
You can download the full brochure by clicking on:
"Managing reverse mortgage risk (1187 KB)"
HOW REVERSE MORTGAGES ARE STRUCTURED
"Get cash from your home," by Jeanne Sahadi, CNN, February 22, 2000:
http://money.cnn.com/2000/02/22/senior_living/q_retire_mortgage/
" . . .To qualify for one, you must be age 62 or older, your home must
be your principal residence and you must own it in full or have a
relatively low balance left on your mortgage.
"How much you can get is calculated by a formula that takes into
account, among other things, your life expectancy, the value of your
home and current interest rates.
"The federally insured 'Home Equity Conversion Mortgage' and Fannie
Mae's 'HomeKeeper Mortgage' - the most widely available programs -
also apply 'maximum claim amounts' on your home's value to determine
the loan for which you qualify. So even if you live in an $800,000
house, it may be valued at no more than $200,000.
" . . With a regular mortgage, you pay the lender on a monthly basis.
But a reverse mortgage pays you in one of several ways: as a lump-sum
cash advance; a line of credit; a monthly cash advance; or any
combination of these methods.
"The method you choose may greatly affect how much money you will get
- and owe -- so it pays to explore all your options. In fact, with
most programs, you are required to get housing counseling, which is
available free or at low-cost from several sources, including the U.S.
Department of Housing and Urban Development (1-888-466-3487).
"And, as with all loans, there comes a day when the money plus
interest is due. Under a reverse mortgage, that day is when the last
surviving borrower dies, sells or moves away for good, meaning you
live elsewhere for a year.
HOW INTEREST IS CALCULATED:
From the NEA's (National Education Association) Home Financing Program®:
http://www.neamb.com/loans/hmfrvq.jsp
"What are the rates?
The interest rates are calculated using a formula set by the federal
government. The interest rate at the time of closing is the initial
rate for the loan. Members have the option of choosing a monthly
adjustable rate or an annually adjustable rate. All interest rates for
reverse mortgages are adjustable."
HCEM, the most popular reverse mortgage program in the U.S., has a
lifetime cap on interest rates. See this February 21, 2005 press
release from NRMLA:
http://nrmlaonline.org/NewsCenter/NRMLANewsReleases/tabid/220/ctl/Detail/mid/631/xmid/250/xmfid/3/Default.aspx
"Standard & Capped Interest Rates. The interest rate is the same no
matter which lender a senior chooses. On HECM, interest rates are
adjusted either monthly or annually (the borrower chooses) and based
on an index called the 1-year U.S. Treasury Constant Maturity Rate
published weekly by the Federal Reserve. Both the monthly and annually
adjusted rates have lifetime caps. On other products, different
indexes are used."
RISKS
"Selection and Moral Hazard in the Reverse Mortgage Market," by Thomas
Davido and Gerd Welke, Haas School of Business UC Berkeley, published
August 23, 2004:
http://emlab.berkeley.edu/users/bhhall/others/DavidoffWelke04_RMpaper5.pdf
" . . . An important element of reverse mortgage design is that in no
event does the borrower or their estate owe the lender more than the
resale value of the home. This design feature gives rise to concerns
of adverse selection and moral hazard. . . .More generally, the rate
of price appreciation (in Figure 1) is likely to be smaller than the
opportunity cost of funds for
lenders.
"Depending on maximal loan amounts, borrowers who remain in their
homes for a long time may thus enjoy a long
[effectively] interest free period of default, in which the bank is,
by construction, unable to evict. Adverse selection arises if
consumers expecting an unusually long life or low mobility enter into
reverse mortgages with strategic default
in mind.
"Reverse mortgage design might invite two dimensions of moral hazard.
. . a mortgagor facing default has no incentive to maintain property
values. The second moral hazard issue is that by giving funds to an
older homeowner, life in the home is made relatively more attractive
than life after moving or death, and so the act of giving a borrower a
reverse mortgage may extend the borrower's stay in the home beyond the
optimal length for an otherwise identical non-mortgagor."
"Understand pros, cons of using reverse mortgage," by SCOTT HANSON, April
13, 2005, Chicago Sun-Times:
http://www.findarticles.com/p/articles/mi_qn4155/is_20050413/ai_n14594998
"Reverse mortgages do have some drawbacks. First of all, they are not cheap.
The interest charged is comparable to a traditional mortgage, but the
startup costs are steep, in part to insure the loan."
"Cashing out. Reverse mortgages are becoming more popular with older
Americans looking to tap their home equity," by Sarah Max, CNN,
January 27,2005:
http://money.cnn.com/2005/01/26/real_estate/financing/thursday_revmortgages/
" . . . High up-front fees . . . 'This is not a loan you would want to
get for the short term,' said David Carey, senior product manager for
Fannie Mae's HomeKeeper. 'If you don't hold this loan for five or 10
years you're going to pay a lot of money for it.'
"Up-front costs for the HECM include:
"Origination fee equal to $2,000 or 2 percent of the loan whichever is greater.
"Mortgage insurance premium equal to 2 percent of the maximum claim
amount or home value, whichever is less. (This up-front insurance is
waived only if the all of the loan is used to pay for long-term care
insurance.) There also is an ongoing annual premium equal to 0.5
percent of the loan balance.
"Other closing costs, such as title insurance, and fees for appraisal,
credit reporting, escrow, document preparation and recording vary
depending on the size of the loan but $1,700 is typical according to
Carey.
"Servicing fees of $30 to $35 a month, added to the balance of your loan.
"Also keep in mind that because you don't pay down your debt until you
sell, move or die, the interest you owe could add up to quite a bit
over time. Mandatory mortgage insurance ensures that you (or your
heirs) don't end up owing more than the house is worth. But it's
entirely possible to drain all or most of your home's equity."
"Get cash from your home," by Jeanne Sahadi, CNN, February 22, 2000:
http://money.cnn.com/2000/02/22/senior_living/q_retire_mortgage/
" . . .Despite their advantages - letting you remain in your home and
giving you the security of a cash reserve -- reverse mortgages have
not been as popular as once was expected.
" 'I don't see a lot of people doing it unless there's a need ...
(unless) they're not making ends meet,' said Patti Wallace, a reverse
mortgage counselor at ECHO Housing, a HUD-approved counseling agency
in California. Wallace said that if a person is willing and able to
move to a less expensive home, that is usually the first option she
discusses with them.
"For those who might simply wish to live less frugally, the temptation
to take a reverse mortgage is often tempered by a distaste for IOUs.
" '(Reverse mortgages) don't seem to have a very wide appeal,"
[certified financial planner Phil Storms] said. 'Often the people who
would benefit from them have an aversion to debt.' And many senior
would rather leave their house to their kids free and clear, he said.
" . . .Indeed, with a reverse mortgage you are the one who benefits
from the cash in your walls, not your children. But there are some
loan features that protect your heirs and your remaining assets.
According to the NCHEC [National Center for Home Equity Conversion],
the mortgages are generally lower than the value of your home when the
loan is made to account for the fact that your loan balance grows over
time. . . And it allows for the possibility that your house may
decline in value.
"Secondly, you will never owe more than the value of your home when
the loan is repaid, even if you have outlived your life expectancy and
the total payments you received exceed the amount your house fetches
on the market. If your loan is less than the market value at the time
of sale, you or your estate only pay the lender what is owed and keep
the rest. . . "
HELPFUL FAQs/NEWS REPORTS:
Financial Freedom Senior Funding Corporation's FAQ:
http://www.financialfreedom.com/ReverseMortgage/FAQs/
"Older Americans turn to reverse mortgages, by Anne Thompson, Feb. 28, 2005,
NBC News, archived at MSNBC.com:
http://www.msnbc.msn.com/id/7047332/CE=3032618
?More Retirees Pay the Bills With Reverse Mortgages,?by Tatsha
Robertson, Boston Globe, April 25, 2005:
http://www.boston.com/business/personalfinance/articles/2005/04/25/more_retirees_pay_the_bills_with_reverse_mortgages/
Search Strings:
firms +originate +service reverse mortgages
banks +originate +service reverse mortgages
"reverse mortgage" AND Great Britain
"Council of Mortgage Lenders" AND "reverse mortgage"
reverse mortgage lenders + [name of country] market leaders
reverse mortgage trends AND [name of country]
reverse mortgage + interest
I hope my research is of help to you. If you have any trouble
navigating any of the above links -- or if you need me to clarify
anything -- please post a "Request For Clarification," and I will
assist you.
Best regards,
nancylynn-ga
Google Answers Researcher |
Clarification of Answer by
nancylynn-ga
on
24 Nov 2005 11:17 PST
Hello again adiyg-ga:
Regarding Market size and Interest rate calculation in the U.S., I
think you missed these sections of my Answer:
"Current Trends:
U.S.
NRMLA press release, dated October 28, 2005: "Reverse Mortgage Volume
Increases Fifth Consecutive Year. . .":
http://www.nrmlaonline.org/NewsCenter/NRMLANewsReleases/tabid/220/ctl/Detail/mid/631/xmid/358/xmfid/3/Default.aspx
"For a fifth consecutive year, lenders originated a record number of
federally insured reverse mortgages, and the volume of borrower
applications being processed is even higher, according to the National
Reverse Mortgage Lenders Association.
" During the most recent federal fiscal year, ending September 30, the
Federal Housing Administration (an arm of the Department of Housing
and Urban Development), insured 43,131 Home Equity Conversion
Mortgages (HECMs) compared to 37,829 the prior year. HECMs account for
90 percent of all reverse mortgages made in the U.S.
" . . According to HUD, the number of 'unendorsed' reverse mortgages
in thepipe line awaiting insurance at the end of September 30 totaled
36,952, compared to 21,838 a year earlier. . . ."
For interest rate calculations in the U.S., please see this section of my Answer:
"HOW INTEREST IS CALCULATED."
Bear in mind that the U.S. federal government controls interest rates
for reverse mortgages, so these metrics are consistent across
federally and privately issued reverse mortgages.
As for the UK, it's much tougher to find numbers. Most reports on the
reverse mortgage market in the UK, such as Datamonitor, are priced at
$3,000-$4,000 dollars.
See this section of my Answer:
"UK:
Abstract from Datamonitor report "UK Mortgages 2004," published February 14,
2005:
http://www.marketresearch.com/researchindex/1089022.html
From "Elderly warned on equity release. Remortgaging should be a last
resort, say actuaries," by Phillip Inman, The Guardian, January 14,
2005:
http://money.guardian.co.uk/news_/story/0,1456,1390146,00.html
"The £1.2bn market is likely to grow to £5bn over the next couple of
years, after the government's decision to regulate all equity release
products."
Also check out Britain's Council of Mortgage Lenders (CML):
http://www.cml.org.uk/cml/media
You can download a few reports (from early '00s) on reverse mortgages
there by typing "reverse mortgage" or "equity withdrawal mortgage"
into the search box at top right."
(It seems to me that while "reverse mortgage" is the sole term for
this product in the U.S., that there are several different commonly
used terms for this product in the UK.)
I repeated that search at:
http://www.cml.org.uk/cml/media
and brought up a paper on "equity release schemes," which includes
reverse mortgages. " THE MARKET FOR EQUITY RELEASE SCHEMES. Rachel
Terry HACAS Exchequer Services and Philip Leather. Center for Urban
and Regional Studies, University of Birmingham October 2001."
"As there are no reliable statistics available about equity release
take up, this paper guesstimates the size of the current market. It
suggests that the current outstanding equity release market is almost
certainly less than £5 billion and has significant scope for growth if
safe popular products were more widely available.The analysis suggests
a potential market size of £28 billion in 1998, rising to over £50
billion by 2008. It would be possible for £4-£5 billion of new
business to be done each year for at least the next ten years."
For general information on the types of loans and general information
on interest rates, scroll down to the section "CURRENT EQUITY RELEASE
PRODUCTS" on page 6.
Again, to find that report at CML, just paste "equity release schemes"
into the search engine at top right at:
http://www.cml.org.uk/cml/media
And click on the 5th result, " ... The Market for Equity Release
Schemes Rachel Terry, HACAS Excheq ..."
At this fact sheet from the FSA (the UK's Financial Authority
Services), dated May 2005:
http://www.fsa.gov.uk/consumer/pdfs/raise_home.pdf#search='UK%20AND%20home%20reversion%20equity%20release%20AND%20interest%20rates'
Scroll down to pages 4-7 to see detailed explanations of the various
packages and interest rates.
Interest Rates -- UK
Unlike the U.S., there has never been abt sort of governance or
regulation of reverse mortgage interest rates in the UK.
However, reverse mortgages in the UK will soon be administered under
government regulations.
See "In October 2004, The Financial Services Authority (FSA) began
regulating all forms of mortgage business. This covered one aspect of
equity release products - the lifetime mortgage. It did not cover the
other aspect - the home reversion plan," from Norwich Union, which is
the market leader in reverse mortgages in the UK:
http://www.norwichunion.com/home-reversion-plan/plans-and-regulation.htm
Also see the previously cited "Elderly warned on equity release.
Remortgaging should be a last resort, say actuaries," by Phillip
Inman, The Guardian, January 14, 2005:
http://money.guardian.co.uk/news_/story/0,1456,1390146,00.html
"The £1.2bn market is likely to grow to £5bn over the next couple of
years, after the government's decision to regulate all equity release
products.
"Ministers initially resisted calls for the regulation of home
reversion plans, arguing they involve the sale of some or all of the
home rather than the sale of a financial product.
"Reversion plans remain a small part of the market and will not be
covered by the Financial Services Authority until 2005 or even 2006,
while mortgage-based products will be regulated from October 31.
"Equity release mortgages, which are sold by Prudential, Norwich
Union, Standard Life and Northern Rock, among others, charge a fixed
interest rate on the debt raised. The debt rolls up each year, which
could lead to large repayments on death. Most plans are less than 10
years old and have yet to be wound up. . . ."
For more on regulation of reverse mortgages in the UK, go back to CML:
http://www.cml.org.uk/cml/media
Paste in the term "equity release schemes" in the search engine, top right.
Then click on the third result, "CML - Regulate home reversion plans,
CML urges Treasury"
I hope this Clarification is helpful to you.
Best regards,
nancylynn-ga
Google Answers Researcher
|
