By JLP | November 13, 2007
Read the following paragraphs from an article titled Reverse Mortgages: The Choices Expand ($) that was in today’s Wall Street Journal:
In the past, the reverse-mortgage market has been constrained by having one main buyer, Fannie Mae. But a half-dozen investment banks, including units of Lehman Brothers Holdings Inc. and Bank of America, have started buying reverse mortgages in the past few years, with plans eventually to package and sell them.
On Thursday, Ginnie Mae, the federal agency charged with making real-estate investment more attractive to institutional investors, said it’s rolling out a standardized government bond issue backed by reverse mortgages — a key step in creating a secondary market that could help lower borrowers’ costs and increase the loans’ availability.
The result: The reverse-mortgage business is booming. Though reverse mortgages represent less than 1% of the overall U.S. home-loan market, valued at about $10 trillion, the number of federally backed reverse mortgages surged 41% in the year ended Sept. 30, according to the Department of Housing and Urban Development.
I don’t know about you but this concerns me. Isn’t the packaging of mortgages and selling them to investors one of the reasons we got into the subprime mess? Could the same thing happen to the reverse mortgage market? I can imagine that as demand from brokerage firms and investment banks for reverse mortgages increases, standards will be lowered, and we’ll see all sorts of shady practices take place.
The point of the article is that new reverse mortgage products are becoming available for people to use, which should be a good thing. However, like everything else, when you add lots of choices, making a decision as to which product to use can be confusing and difficult. It will be interesting to see how this plays out.