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The reverse mortgages, will it be the next great credit disaster?
The loans designed and aimed at older homeowners could be targeting a vulnerable segment of the housing and credit market.
Top U.S. bank regulator John Dugan advised reverse mortgages could be the next subprime mortgage product to experience rapid growth while taking advantage of a vulnerable segment of the population.
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Regulators are currently crafting much needed guidelines to ensure that robust consumer protections are in place for reverse mortgages. .
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Reverse mortgages provide benefits to older homeowners, not the least of which is the ability for older people to remain in their homes while allowing them to live off of the equity which has accumulated in their home. While offering these benefits they also have some of the same characteristics as the riskiest types of subprime. .
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Reverse mortgages are complicated loans and should not be looked upon lightly by would be borrowers. While the great majority of reverse mortgages are insured by the Federal Housing Administration and pose limited credit risk a different class of reverse mortgages, “proprietary”, which offers much less consumer protections. .
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In an interview Dugan said that as the elderly American population grows there could be a significant pickup in demand for proprietary reverse mortgages, which he said bear significant similarities to the type of subprime products that helped fuel the housing boom and bust, resulting in a widespread credit crisis and recession. .
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A fact that has yet to be addressed is what is going to happen to all of these properties in 15 or 20 years when the equity in the home is used up and the elderly homeowner is unable to repay or has passed on and left the home to heirs. The mortgage companies could be looking at another round of foreclosures as bad if not worse than our current situation. .
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A critical lesson learned is to act early; regulators need to set more standards for reverse mortgages. Vigilance needs to be exercised in guarding the American public against misleading marketing and misrepresented products. In addition the consuming public be aware and protect themselves, “if it sounds too good to be true, it is”. While lenders say they are there to help consumers; and do, at the end of the day they are in business to make money. .
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Singer Homes Inc.
.June 8, 2009 |
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