Add one more business trend to the rising number of products and services attributable to aging baby boomers reverse mortgages. With seniors living longer and home values escalating, a growing number of retirees are opting for reverse mortgages to help them to continue to live in the style to which they’ve become accustomed in their golden years, and as they do, more investment firms are buying reverse mortgage loans and more lenders are offering them. Countrywide Financial Corp. became the latest major mortgage lender to enter the arena when it rolled out its reverse mortgage product, SimpleEquity, nationally earlier this year. But Countrywide is not alone. Financial Freedom Senior Funding Corp., Seattle Mortgage Co., IndyMac Bancorp Inc. and Wells Fargo Home Mortgage among others are all reporting dramatic increases in their reverse mortgage lending. Last month, in a further sign of the increasing attractiveness of the niche, Bank of America Corp. agreed to acquire the reverse mortgage business of Seattle Mortgage Co. At the same time, major financial services companies like Lehman Brothers Holdings Inc., UBS AG and Deutsche Bank AG are all purchasing these loans from lenders for resale to investors, marking a major shift from years past when Fannie Mae was the dominant buyer of these loans. Reverse mortgage programs essentially allow seniors to borrow against the equity in their homes and receive monthly payments from the lender for as long as they remain in their home. If they move or sell their home, borrowers must repay the loan, but many times, the lender is repaid upon the death of the borrower from the proceeds of the house sale. “A major reason people get a reverse mortgage is to get rid of their current mortgage payment,” said Kathy Meyer, director of Pacific Coast Lending’s just opened reverse mortgage division. “If someone has a $150,000 mortgage and they are paying $1,200 a month, if they do a reverse mortgage, we pay off the regular mortgage and they have an extra $1,200 a month. “It’s just like a regular mortgage, the only difference is the loan is paid off when they move, sell or die. There’s no monthly repayment.” The loan can be paid in a lump sum, monthly installments or as a line of credit. Countrywide’s SimpleEquity program goes one step further, eliminating the origination fee and closing costs for borrowers who opt to withdraw the entire loan at closing. Calabasas-based Countrywide is targeting those whose homes are valued at $500,000 and more. “There weren’t a lot of options for people who had higher-value homes,” said D. Steve Boland, managing director, reverse mortgages at Countrywide. “We felt this was a very natural progression to now be the leader in enabling homeowners to stay in their homes and retire comfortably.” Reverse mortgage loans have increased dramatically in recent years. In 2006 reverse mortgage loans insured by the Federal Housing Administration increased 77 percent to 76,351 loans, up from 43,131 in the prior year, according to data from the National Reverse Mortgage Lenders Association. Several factors are fueling the trend, including high home appreciation rates of recent years. Since lenders don’t know what the life of the loan will be, they tend to be extremely conservative in assessing the amount they will lend. In the past, that meant that those with a moderately-priced home might not receive enough cash to make a reverse mortgage worthwhile. But as home values have escalated, so too has the amount available to borrowers. At the same time, the graying of the baby boom generation is creating a much larger market for lenders and many more are jumping into these products. “We’ve looked at the demographic shift that is on the horizon, and seniors are going to grow as a percentage of the population in unprecedented numbers,” said Boland. “It was very important to make sure we had reverse mortgage as part of our offering to meet their needs.” Pacific Coast Lending, which works through CPAs to provide a variety of mortgage lending, began to see increased interest in reverse mortgages as CPAs counseled their clients in areas such as estate planning. As the product selection for reverse mortgages expanded, CPAs are increasingly recommending the option for some of their clients. “The programs have changed a lot in the last six to 12 months,” said Meyer. “Reverse mortgages have really improved and expanded so they really offer flexibility with regard to what people can use products for.” Lenders and brokers note that reverse mortgages can offer a number of different solutions for everything from supplementing monthly income to funding college education for grandchildren and helping with unforeseen medical expenses. “A reverse mortgage is not for everyone, but we think it meets the needs of a number of senior homeowners looking for additional income in retirement,” said Boland.
