Posturing for Progress

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The Latest SERVICING A new report forecasts trouble in the reverse mortgage sector. of borrowers under the age of 70 have some kind of debt to pay; 72 percent are dealing with mortgage debt (with or without other debts). About 62 percent of borrowers age 70 and older had mortgage debt to contend with. expects the "troubling trend will increase as more baby boomers enter retirement with mortgage debt than previous generations." What's more, Villarreal says that many lenders aren't doing enough to properly educate "If lenders cannot and will not bear the risk, the reverse mortgage market should not exist in the first place." consumers on their rights and responsibilities regarding reverse mortgages. An audit of 15 lenders performed by the Government Accountability Office (GAO) found that none of the audited firms covered all of the required Mortgage Conditions Ease Recent signs point to lenders slowly loosening their purse strings. W hile mortgage credit conditions remain in a viselike state, Capital Economics says recent signs indicate a loosening market. In a recent "US Housing Market Update," the firm points to Federal Reserve's latest Senior Loan Officer Survey (SLOS), which showed a net balance of 8 percent of banks loosening mortgage credit conditions in the three months to April. While that may seem a small share, Capital Economics notes conditions have now either loosened or held constant in eight of the past nine quarters. In addition, a net balance of 27 percent of banks intend to increase their residential mortgage assets over the next year—a sign that they may be willing to loosen their purse strings. Also promising is the fact that an increasing share of applications is being approved. Data from Ellie Mae shows 60 percent of home purchase applications in March were approved—down a bit from February but up from 55 percent a year earlier. Still, though, conditions are very tight, as evidenced by a special set of questions in the latest SLOS, which revealed banks are reluctant to make loans to borrowers with "anything less than healthy credit ratings." Many lenders are also looking for a 20 percent deposit as well, which would certainly keep many borrowers out. Put-back risk from Fannie Mae and Freddie Mac is the most important factor constraining lending, followed by the profitability of lending and borrowers' difficulty obtaining insurance. "In this respect, the increase in mortgage delinquencies reported by the MBA [Mortgage Bankers Association] in Q1 is bad news as it will exacerbate all three of these problems," the firm said. "But these constraints should fade as the labor market recovery continues, helping mortgage credit conditions to loosen further." The M Report | 43 se c on da r y m a r k e t In addition, the MetLife survey found that one-third of homeowners using reverse mortgages have a mortgage balance that is at least half of their home value. Pamela Villarreal, a senior fellow and retirement expert at NCPA, a na ly t ic s —Pamela Villarreal, NCPA s e r v ic i ng W hile reverse mortgages can be a boon to seniors as they head into retirement, a new report from the National Center for Policy Analysis (NCPA) says recent trends show trouble in the market that may cost taxpayers billions of dollars. One major problem, the group notes, is that borrowers are now applying for reverse mortgages at earlier ages. According to a 2012 MetLife survey, the average borrower is now 71.5 years old; however, one in five borrowers is between the ages of 62–64, putting them at the low end of the eligibility range. Moreover, two-thirds of borrowers are now using reverse mortgages to pay down debt—including conventional mortgage debt. Approximately 84 percent Or ig i nat ion Report: Reverse Mortgage Trends Show Problems topics, and seven did not offer any information on other, less complicated financial products. Fourteen of the 15 lenders failed to ask homeowners if they had signed a contract or agreement with an estate planning service—a question required by the Federal Housing Administration (FHA), which insures and regulates reverse mortgage products. In light of this fact (and the fact that 9.4 percent of reverse mortgages are at risk of default, according to a report from the Consumer Financial Protection Bureau), Villarreal suggests FHA should step back from the market altogether, especially considering the agency's shaky financial status. (FHA has taken steps in recent months to reform its reverse mortgage pricing, citing the considerable damage its old program caused.) "With a much higher default rate than traditional mortgages, reverse mortgages and their inherent risks should be left up to the market, not the Federal Housing Administration," Villarreal said. "If lenders cannot and will not bear the risk, the reverse mortgage market should not exist in the first place."

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