We keep hearing about a continuous drop in interest rates as the Fed desperately tries to keep liquidity in the marketplace.
Tons of senior borrowers call me daily asking about the lower interest rates. Some of them are currently in escrow and they want to know how the lower rate changes things for them.
I reply the rates have gone up, not down.
What is going on here is two different forces. The first is truly declining interest rates. The main index used in the reverse mortgage industry for the ARM product is down to .44% this last week.
On the other hand those that would invest in mortgage companies were not biting at the former profit margins offered.
How do get people to invest? You increase profit margins, which is exactly what Fannie Mae did. They increased the margin by 1%.
It's not a small increase, at least at one time. Margins have been creeping up at 1/4 point at a time.
The higher interest rate results in a couple different effects. The first being the reverse mortgage borrowers loses equity in the home that much quicker.
And secondly, would-be borrowers will receive smaller loans.
The very fact that higher interest rates for the reverse mortgage takes away equity quickly is the reason lenders lend less money.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
The worst possible scenario for those investing in reverse mortgages is to have loan amount which is greater than the actual value of the property.
Lending laws don't allow lenders to come after the owners or owner's heirs for the difference. They are stuck with the home value as collateral.
Reverse mortgage borrowers planning on closing in the next thirty days will be getting some bad news from their lender. They've already been assured about how much money they will get.
A good number of these people are in difficult financial positions and are attempting to pay off their forward mortgage with a reverse. This may not happen now.
No one seems to be immune to these tough financial times. - 16928
Tons of senior borrowers call me daily asking about the lower interest rates. Some of them are currently in escrow and they want to know how the lower rate changes things for them.
I reply the rates have gone up, not down.
What is going on here is two different forces. The first is truly declining interest rates. The main index used in the reverse mortgage industry for the ARM product is down to .44% this last week.
On the other hand those that would invest in mortgage companies were not biting at the former profit margins offered.
How do get people to invest? You increase profit margins, which is exactly what Fannie Mae did. They increased the margin by 1%.
It's not a small increase, at least at one time. Margins have been creeping up at 1/4 point at a time.
The higher interest rate results in a couple different effects. The first being the reverse mortgage borrowers loses equity in the home that much quicker.
And secondly, would-be borrowers will receive smaller loans.
The very fact that higher interest rates for the reverse mortgage takes away equity quickly is the reason lenders lend less money.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
The worst possible scenario for those investing in reverse mortgages is to have loan amount which is greater than the actual value of the property.
Lending laws don't allow lenders to come after the owners or owner's heirs for the difference. They are stuck with the home value as collateral.
Reverse mortgage borrowers planning on closing in the next thirty days will be getting some bad news from their lender. They've already been assured about how much money they will get.
A good number of these people are in difficult financial positions and are attempting to pay off their forward mortgage with a reverse. This may not happen now.
No one seems to be immune to these tough financial times. - 16928
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