When is Competition Unhealthy?
When it doesn’t benefit the consumer…
Is competition healthy for the economy? Of course it is. It offers consumers a variety of products and prices and forces companies who charge higher prices to either lower them or create a more affordable line of products.
If this is true, why is the reverse mortgage market so exclusive?
The answer is that reverse mortgage are an niche market in and of themselves. They are only available for homeowners 62 years of age and older, who live in their primary residence and have enough equity in their home.
“What this niche, but growing market, needs is more non-government-backed lending. Competition will drive down costs for consumers. In order to accomplish this, the regulatory environment for originating and servicing must become more investor-friendly or they will continue to sit on the sidelines. “
The problem is that private lenders are practically obsolete since the 2007-2009 recession because they couldn’t handle the weight of a newly raised loan limit and the credit crunch. The whole idea behind a Federal Housing Administration-insured reverse mortgage is that it is a non-recourse loan. In other words, you never have to pay more than the value of your home. If the loan amount rises above the current value of your home, the difference is cover by the FHA’s Mortgage Insurance Premium.
Private lenders, however, are more cautious because they don’t have insurance premiums available to cover the loan difference (if there is any). Therefore, private lenders might take a more cautious approach and set the principal limit available to the borrower much lower than in an FHA-insured reverse mortgage. Not to mention, there you would be responsible for the full loan amount if the property were to go belly up. Compare paying the full loan amount with a private lender to FHA’s MIP where the borrower must pay a 2% maximum claim and an annual premium, which is charged monthly at the annual rate of 1.25% of the outstanding loan balance.
One option from private lenders is the Jumbo Reverse Mortgage, which is proprietary to 1 lender and offered by PS Financial Services, but your home must be valued at more than 1.5 million for it to be beneficial. What about consumers whose homes are valued lower than 1.5 million?
Government backed lending has managed to push through the recession, however, because it protects homeowners during retirement. New regulations are coming to reverse mortgages in order to continue protecting homeowners and $40 million dollars has been provided by the Department of Housing and Urban Development for mandatory reverse mortgage counseling.
The safeguards are in place for government backed lending so if you think the Reverse Mortgage Program is right for you, PS Financial Services know at (888) 845-6630 or via email at info@PSReverseMortgage.com.