Reverse mortgages are a great tool to help the elderly financially. The program, designed to be based off the availability of equity in the home at time of loan, has helped countless thousands of people. But this loan structure has taken its toll on the mortgage lenders since the down turn of the housing market. As home prices continue to fall, homes that come into possession of the lenders are not able to be sold for enough money to cover the debt. Reverse mortgage lenders are finding that they are quickly amassing more debt than profit, just like the sub prime lenders did.
Will the reverse mortgage program end because of this?
While there are no guarantees that reverse mortgages will remain available, it is quite possible that they may change to require home owners to purchase mortgage insurance. Mortgage insurance covers the amount of the debt that remains in the event that the sale of the home does not cover the balance. Currently mortgage insurance is only available through the federal government and is not a requirement to obtain a loan.
What happens if the reverse mortgage industry goes bust like the sub prime mortgages?
There are a few scenarios that could take place if the reverse mortgage program goes bust. First and foremost, there will be a dramatic change in the way an older home owner can access equity in their home. This could present a problem to many people. Next, you may see another bailout take place as the government steps in to try and cove the bad debts of these lenders. This will place a significant burden on all taxpayers. Finally, you will see another drop in the housing market because the market will be flooded, again, with too many available houses.
Related posts: