Financial Freedom, the reverse mortgage subsidiary of mortgage lending giant Indy Mac Bank, has dramatically increased the interest rate on its fixed rate reverse mortgage.

As many brokers discovered recently when they updated their Reverse Mortgage Analyzer (RMA) software with Financial Freedom, the leading lender has bumped their fixed-rate reverse mortgage interest rates from the mid 5% range up to 6.81% (rate current as of Friday).

Other reverse mortgage banks are still offering the fixed rate reverse mortgage below 6%, though their rates have recently been increasing too.

With all the recent turmoil in the credit markets, it is no wonder that lenders are tightening their belts and increasing the rates that they offer to consumers. As their balance sheets bleed red ink and their stock prices drop, lenders are forced to make up their losses wherever and however that they can. So they have turned to their reverse mortgage programs to find more profit. As such, even the adjustable rate reverse mortgage programs have seen an increase in the margins – the profit margin – to the lender.

A few months ago, a 1% margin added to the treasury bill rate was common for the FHA Home Equity Conversion Mortgage (HECM). Today, a 1.5% margin is standard. This situation is likely to continue, and perhaps even get worse, until banks are able to recover. And that is not likely to happen until the real estate market recovers – a turning point in the future whose timing is anyone’s guess.

•  Email This Post

Trackback URI | Comments RSS