HOUSINGNEWS REPORT
REVERSE MORTGAGES: CAN FINANCING FOR SENIORS CHANGE WITH THE TIMES?
If you look at the amortization schedules for typical forward and reverse mortgages you can see what’s happening. The forward loan balances decline every month even as reverse mortgage balances grow. While reverse mortgage balances increase each month there’s no guarantee that property values will also grow. Real estate is a localized commodity; prices can both rise and fall — and they do. Median home prices in the third quarter increased from a year ago in 143 of 150 U.S. metropolitan statistical areas analyzed by ATTOM Data Solutions, but they decreased in 7 of those 150 metro areas. Assuring Repayment Under the FHA program, reverse mortgages must be repaid when the borrower leaves the property, sells, or passes away. Since appreciation by itself cannot guarantee repayment, HUD has taken additional steps to limit its risk. HUD has established Principal Limit Factors (PLFs) which determine how much equity borrowers can extract from their properties. In October 2017 HUD reduced PLFs, meaning that in the event of default, more equity remained in the property to shield the FHA from losses. “At current rates,” said HUD, “PLFs will be lower compared to prior levels. As was the case with the prior PLF schedule, PLFs generally rise with borrower age and decline for higher interest rates.”
fair market value, more if you’re older and less if you’re younger — “younger” in this case meaning at least age 62, the minimum qualifying age for an FHA- backed reverse mortgage. Mortgage Insurance Premiums With forward FHA programs the upfront mortgage insurance premium (MIP) —
typically 1.75 percent — is based on the amount borrowed. An annual mortgage insurance premium (the annual MIP) is also charged, a fee generally equal to 0.85 percent of the loan amount.
With HECM financing there are also insurance fees, but the basis is different.
FHA REVERSE MORTGAGE CLAIMS BY CLAIM TYPE
CLAIM TYPE 1 : PROPERTY SOLD AT LOSS (LOAN NOT ASSIGNED TO HUD)
CLAIM TYPE 2 : LOAN ASSIGNED TO HUD WHEN LOAN AMOUNT REACHES 98% OF MAX CLAIM AMOUNT
$7,000,000,000
$6,000,000,000
$5,000,000,000
$4,000,000,000
$3,000,000,000
$2,000,000,000
$1,000,000,000
$0
2009 2010 2011 2012 2013
2016 2015 2014 2017 2018
CLAIM FISCAL YEAR
SOURCE: U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
$100,000 MORTGAGE AT 5% MONTHLY BALANCE
MONTH MONTH 1 MONTH 2 MONTH 3 MONTH 4 MONTH 5 MONTH 6 MONTH 7 MONTH 8 MONTH 9 MONTH 10 MONTH 11 MONTH 12
FORWARD MORTGAGE
REVERSE MORTGAGE
$99,880 $99,759 $99,638 $99,516 $99,394 $99,272 $99,148 $99,025 $98,900 $98,776 $98,650 $98,525
$100,417 $100,835 $101,255 $101,677 $102,101 $102,526 $102,953 $103,382 $103,813 $104,246 $104,680 $105,116
In effect, you can get a reverse mortgage for a portion of a property’s
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DEC 2018 | ATTOM DATA SOLUTIONS
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