If all else fails in the economy at least we can turn the TV on and see how interest rate continue to decline in the Fed's effort to stimulate the economy.
Tons of senior borrowers call me daily asking about the lower interest rates. Some of them are currently in escrow and they want to know how the lower rate changes things for 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.
On the other hand those that would invest in mortgage companies were not biting at the former profit margins offered.
How do get people to invest? You increase profit margins, which is exactly what Fannie Mae did. They increased the margin by 1%.
It's not a small increase, at least at one time. Margins have been creeping up at 1/4 point at a time.
There are a pair of important affects the rate increase will have have. To begin higher interest rates increase the rate at which the homeowner loses equity.
The other affect is a lower loan size.
The very fact that higher interest rates for the reverse mortgage takes away equity quickly is the reason lenders lend less money.
The bank must hedge their bets, so they loan less when rates are higher to protect their equity position is the property.
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.
Reverse mortgage borrowers planning on closing in the next thirty days will be getting some bad news from their lender. They've already been assured about how much money they will get.
Some of them are planning to pay off mortgages in attempt to eliminate that high payment. Some of these folks won't be able to pay that mortgage off now.
No one seems to be immune to these tough financial times.
Tons of senior borrowers call me daily asking about the lower interest rates. Some of them are currently in escrow and they want to know how the lower rate changes things for 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.
On the other hand those that would invest in mortgage companies were not biting at the former profit margins offered.
How do get people to invest? You increase profit margins, which is exactly what Fannie Mae did. They increased the margin by 1%.
It's not a small increase, at least at one time. Margins have been creeping up at 1/4 point at a time.
There are a pair of important affects the rate increase will have have. To begin higher interest rates increase the rate at which the homeowner loses equity.
The other affect is a lower loan size.
The very fact that higher interest rates for the reverse mortgage takes away equity quickly is the reason lenders lend less money.
The bank must hedge their bets, so they loan less when rates are higher to protect their equity position is the property.
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.
Reverse mortgage borrowers planning on closing in the next thirty days will be getting some bad news from their lender. They've already been assured about how much money they will get.
Some of them are planning to pay off mortgages in attempt to eliminate that high payment. Some of these folks won't be able to pay that mortgage off now.
No one seems to be immune to these tough financial times.
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