As uncertainty over the future outlook of the U.S. economy looms, the Federal Housing Administration (FHA) worries that inflated home values will create market turbulence.
Cezary Podkul of the Wall Street Journal writes, “the FHA insures about 11% of all U.S. single-family residential mortgage debt.”
Of this debt, reverse mortgages, formally known as Home Equity Conversion Mortgages (HECMs), are a chief concern. A recent in-house analysis revealed to the FHA that 37% of 134,000 reverse mortgages are overvalued by 3% or more.
In a reverse mortgage, homeowners receive money over time for the equity they own in a home. But if homes are overvalued, then lenders are at risk of paying out more money to homeowners than they will receive when the home is sold.
Podkul reports, “Reverse mortgages constitute only about 6% of the insurance portfolio [for FHA], yet they’re responsible for all of the fund’s expected future losses.”
To respond to such risk, the FHA announced in September that it would require a second appraisal for certain reverse mortgages.
Looking ahead, housing prices should be watched carefully as they are a key indicator in the confidence of the U.S. economy. The National Association of Realtors recently reported, “Existing-home sales declined in September after a month of stagnation in August.”
Much of the problem stems from the industry’s avoidance of professional appraisal reports covering subject market value….reliance on artificial valuation data banks at minimal cost to lender will undo the lending business big time. In many cases, no human being has even inspected the reverse mortgaged residence where many red flags may exists as to condition. When owners pass on and bank gets the property, it”s run down condition can be appalling to the extent the lender has a loss on their hands.
The initial and ongoing reverse mortgage concept was never intended for kindly bankers to give our nation’s seasoned citizens a financial leg up in order for our seniors to live the good life in their golden years as the sappy warm & fuzzy advertising on TV has been successfully implemented to make the gentle reader feel.
The intent of the concept has always been to make money by hooking into senior’s basic worries and fears, to disenfranchise the seniors heirs to the property, and quite likely there are some hidden trap doors in the contracts to accelerate the eviction of Mom & Pop if they continue to live too long.
Of course the bankers are squealing now that rising market values are killing this concept of inter-generational property theft and their financial elder abuse scheme AKA “The Reverse Mortgage”.
So what it boils down to is this:
Do we “need more government” meddling to bail out the bankers? Or do we just allow the market to sort out the banker’s initial greedy scam of a program of elder abuse AKA “The Reverse Mortgage”?
Percentage to value is about 60% (did some ‘curiosity’ research) and the statistics on foreclosures show that it is quite high.