If there is no other good news at least we can pick up the news paper every morning and watch interest rates drop.
I'm getting calls from would-be reverse mortgage customers asking me how the dropping interest rates affect the amount of money a lender would lend to them.
Much to their shugrin I explain that rates have gone the other way.
What is going on here is two different forces. The first is truly declining interest rates. The main index used in the reverse mortgage industry for the ARM product is down to .44% this last week.
The part not talked about on the news is that investors in reverse mortgage backed securities are backing off purchasing these securities.
So, Fannie Mae has increased their profit margins by 1% in the last two weeks. This is not a minor change.
The former margin was set at 1.75%. Currently at 2.75% and probably going up. That is a 36% increase.
The higher interest rate results in a couple different effects. The first being the reverse mortgage borrowers loses equity in the home that much quicker.
And secondly, would-be borrowers will receive smaller loans.
The very fact that higher interest rates for the reverse mortgage takes away equity quickly is the reason lenders lend less money.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
How mortgage companies go out of business, as we know from recent financial trouble, is when more is owed than the home is actually worth.
If the mortgage company is ever in this position it is totally out of luck. It must accept the sale price of the home as repayment for the loan.
Those who will receive the biggest surprise due to the new interest rate increase are those planning on closing on their reverse mortgage in the next month.
A good number of these people are in difficult financial positions and are attempting to pay off their forward mortgage with a reverse. This may not happen now.
We'll see how this plays out, but it's pretty tough right now. - 15224
I'm getting calls from would-be reverse mortgage customers asking me how the dropping interest rates affect the amount of money a lender would lend to them.
Much to their shugrin I explain that rates have gone the other way.
What is going on here is two different forces. The first is truly declining interest rates. The main index used in the reverse mortgage industry for the ARM product is down to .44% this last week.
The part not talked about on the news is that investors in reverse mortgage backed securities are backing off purchasing these securities.
So, Fannie Mae has increased their profit margins by 1% in the last two weeks. This is not a minor change.
The former margin was set at 1.75%. Currently at 2.75% and probably going up. That is a 36% increase.
The higher interest rate results in a couple different effects. The first being the reverse mortgage borrowers loses equity in the home that much quicker.
And secondly, would-be borrowers will receive smaller loans.
The very fact that higher interest rates for the reverse mortgage takes away equity quickly is the reason lenders lend less money.
The home's equity is the lender's financial security. This being the case they have to loan less when rates are higher.
How mortgage companies go out of business, as we know from recent financial trouble, is when more is owed than the home is actually worth.
If the mortgage company is ever in this position it is totally out of luck. It must accept the sale price of the home as repayment for the loan.
Those who will receive the biggest surprise due to the new interest rate increase are those planning on closing on their reverse mortgage in the next month.
A good number of these people are in difficult financial positions and are attempting to pay off their forward mortgage with a reverse. This may not happen now.
We'll see how this plays out, but it's pretty tough right now. - 15224
