Lenders Move In On Unclaimed Equity
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(Mortgage lenders have not exactly been able to take month-long vacations to exotic destinations lately as high interest rates and higher home prices has caused their business to be the slowest in nearly a decade.)
Even though housing prices and mortgage interest rates have decline in the past few months, buyers are not yet sold, reluctantly waiting for bigger price decreases.
But there is hope for lenders to salvage something while they wait for buyers to become active and create a stir. The article, “‘Borrowable’ home equity makes a tantalizing target,” written by Neil J. Morse and posted on the November 1, 2006 edition of Inman News, provides information on how lenders may be able to focus their attention on the home equity built up in elderly homes.
“Despite worries about adjustable-mortgage resets next year that will hit more than 10 percent of all households with outstanding home debt and a fear of government pressure to limit so-called "exotic products," lenders still like the "LTV," or loan-to-value, odds, which have 51 percent of all equity in American households untapped.”
So, just over half of all equity that has the ability to be borrowed is up for grabs sort of speak. During a time when overall mortgage originations are down 20 percent, lenders hope to have their hands close enough to the grabbing action.
“‘Fifty-one percent: that's an enormous amount of home equity,’ declares IndyMac Bank CEO Michael Perry, who notes that most of this available cash is ‘skewed toward seniors.’ This makes Perry bullish on reverse mortgages, so far a niche product for older homeowners (age 62 and up), who meet a list of protective conditions.”
A reverse mortgage allows seniors to receive monthly cash payments which are deducted from the equity built up within their house. These mortgages have been increasing in popularity over the last few years.
“Last year, more than 43,000 seniors took out reverse mortgages insured by the federal government -- about 95 percent of the market and a six-fold jump since 2000. The loans are usually worth some fraction of a home's value, and must be repaid, with interest, only when the house is sold or the borrower dies.”
Reverse mortgages is the one thing mortgage lenders are targeting wile they wait for home-buying mortgages to rebound.
“‘The name of the game is to triple, quadruple, quintuple, whatever, the market,’ Perry says of reverse mortgages. IndyMac is a top-10 mortgage originator, which expects to originate $80 billion in all mortgages this year.”
Lenders are seeking out a few reverse mortgage originations to have some extra income before the end of the 2006 year, since there is no telling what will happen in 2007. Buyers should emerge, but then again, if you asked experts last year, this correction was supposed to be over by now.
“‘There is going to be some dislocation,’ Fannie Mae's CEO Daniel Mudd warns. ‘There are going to be some unforeseen twists and turns in the market in 2007, because the ‘pressure dome’ is just too big for that not too happen.’”
