Reverse-Mortgage-Truth.com

Wow, have interest rates gone up this week! The fixed rate HECM is up 0.3% and the LIBOR-based products are up 0.33%.

Jumbos:
Cash Account Advantage jumbo reverse mortgage: 6.52% (Index is 6 month LIBOR at 3.02% [rounded] plus margin of 3.5%)
Independence Plan 210 jumbo reverse mortgage: 5.12125% (Index is 6 month LIBOR at 3.02125 plus a margin of 2.10%)
Independence Plan 360 jumbo reverse mortgage: 6.62125% (Index is the 6 month LIBOR at 3.02125 plus a margin of 3.6%)

Conforming FHA:
HECM Reverse Mortgage rate: 3.17% (Index is the 1 Year CMT at 1.67% plus a margin of 1.5%)
Fixed rate Reverse Mortgage - HECM: 6.30% to 6.81% (depending on the lender)

Rates are not APR’s and include no closing costs. Click here for a reverse mortgage quote.

In the last two years we have seen lots of new reverse mortgage programs introduced to the marketplace. Countrywide Bank started offering both the government-backed reverse mortgages and their own version of the jumbo reverse mortgage to compete with Bank of America and Financial Freedom.

Earlier this week, they stopped taking applications for their jumbo reverse mortgage. The decision was probably driven by investor sentiment as reflected in their stock price and of course, mortgage-backed securities overall. Countrywide rocketed up the ranks to become the top lender for reverse mortgage loan volume for the month of March so their loan volume was probably not the issue.

Countrywide will likely continue to offer the FHA Reverse Mortgage, known as the Home Equity Conversion Mortgage (HECM). The HECM is sold to Fannie Mae, though the lender usually retains the servicing, so there is no lack of funds available for the program.

The loss of Countrywide's program to California reverse mortgages will be felt across the state. With fewer programs available, the existing programs will be in greater demand, probably resulting in a migration to less favorable terms. Still, seniors have decent choices in other California reverse mortgage lenders.

Jumbo reverse mortgage lenders who offer mortgages in California have almost universally reduced their initial loan amounts that they are offering to senior homeowners.

At first, it was just Financial Freedom who instituted an automatic 6% reduction in loan amount for jumbo reverse mortgages in most California counties. Then, a couple weeks later, Bank of America followed suit with their new jumbo reverse mortgage guideline that automatically reduced initial loan amounts by 5% for most of California.

In the latest development, LLS Financial a wholly owned subsidiary of KBC Bank (and known to seniors who have their reverse mortgage product as Vertical Lend), has also reduced loan amounts on California properties. Though LLS Financial has not issued any official statements to date, California reverse mortgage lenders have recently reported loan amounts reductions after a review of their submitted jumbo reverse mortgage file. In one case, LLS responded with a 12% reduction in the initial loan amount as compared to their reverse mortgage calculator software output for the loan application.

While five and six percent reductions in loan amount were common among jumbo California reverse mortgage lenders, those reductions were reasonable and understandable given the declining real estate market in California. But, the 12% reduction by LLS Financial is over the top. To add insult in injury, LLS has also eliminated their broker rebate compensation on jumbo reverse mortgages, which effectively increases the borrowing costs to the senior homeowner.

I will continue to track changes in the reverse mortgage marketplace and report them here on this reverse mortgage info blog.

Last year, Bank of America bought out Reverse Mortgage of America (formerly Seattle Mortgage) becoming an instant player in reverse mortgages for seniors. With perhaps the largest brand of any bank in the business, they brought instant credibility and a wide distribution channel through their retail and reverse mortgage wholesale divisions.

With such size and market clout, Bank of America because an immediate competitor to Financial Freedom, the largest reverse mortgage bank and to the newly formed Countrywide reverse mortgage program. In fact, Bank of America’s reverse mortgage jumbo program was, at least until recently, arguably the most competitive program in the business.

But the credit crunch has had battered all mortgage lenders over the past 6 months and Bank of America is no exception. Reverse mortgage lenders have, one by one, recently been making their jumbo reverse mortgage programs more restrictive and less competitive. Bank of America has now followed suit with their announcement this month to their brokers that jumbo reverse mortgage loan amounts will be reduced by 5% is most major California markets. The move applies to many other markets across the country that are deemed to be declining in value.

This means that seniors will be able to take out 5% less cash, or have a 5% lower credit line on their jumbo reverse mortgage than they could last month. In addition, Bank of America will no longer offer the no-fee reverse mortgage option that was available to seniors who had a large initial loan balance.

I will keep an eye on new developments in the reverse mortgage marketplace and report them here on this reverse mortgage blog. You can also check here for more info on California reverse mortgages.