Reverse Mortgages and the Sub-prime Mortgage Financial Crisis  

By Tommy Whitley
Great Oak Mortgage Corp.

As you surely are aware by watching the news or reading your daily newspaper, there was a subprime mortgage financial crisis that took root in the U.S. in the fall of 2006. It soon spread, causing just about everyone to take note.

Subprime loans, by their very nature, are somewhat risky for all parties involved, because of various combinations of bad credit history, the inability to prove sufficient income to support a proposed monthly mortgage payment, higher than normal interest rates, and bad financial situations conjured up by subprime applicants.

Let's add two more factors to this crisis equation: the bursting of the housing bubble in the U.S. and loan incentives with "interest-only" repayment terms and low initial teaser rates that would later reset to higher adjustable rates. Most borrowers were not fazed by these proposals, believing they would be able to simply refinance more favorably at a later date.
However, once housing prices began dropping at a rapid pace from fall 2006 through 2007, refinancing with little or no documentation became much more difficult. As of October 2007, 16% of subprime loans with ARMs (adjustable rate mortgages) were three months into default or in foreclosing proceedings ­ up nearly 300% from 2005.

This mortgage financial crisis isn't going away any time soon. Many more subprime mortgages are due to adjust to higher interest rates during 2008. This has caused Capitol Hill and the U.S. Treasury Department to take action by putting a systematic program into place that limits or defers interest rate adjustments in order to soften the blow for many homeowners.

To find out more information about the ongoing collaborative effort between the U.S. government and private industry to help some subprime borrowers, homeowners can call the Hope Now Alliance at 1-800-995-HOPE.

For years, reverse mortgages have been a tremendous tool in helping people 62 and older access a good portion of the equity in their homes without having to concern themselves with credit scores or any asset and income verification, which would affect the interest rate charged on a traditional refinance. This is not so with a reverse mortgage.

This alone protects seniors from predatory lenders with inappropriate mortgage incentives, rising adjustable rate mortgages based on unstable indexes, and just plain old bad loans because of poor judgment by either borrowers, lenders or both.

When you get a reverse mortgage the accrual of interest is based on a very stable index, the U.S. Treasury Bond Index. Historically, FHA reverse mortgage rates have averaged 5.72% for the last 15 years. When you acquire a reverse mortgage, you are guaranteed to have no more monthly mortgage payments for as long as you declare that home as your permanent residence.

Only when the last borrower permanently moves away from the home is repayment of the mortgage due. At this point the mortgage may be settled by payment from family or personal funds, refinancing, or through the sale of the home. All remaining equity after settlement of the Reverse Mortgage goes to the estate of the borrower(s).

Also, in this current environment of declining home prices and a difficult housing market, seniors are rethinking the decision to try to sell their homes at reduced values and face the stress of moving and relocating to unfamiliar surroundings. Another cause for peace of mind with a reverse mortgage is that the balance owed can never exceed the value of the home no matter what the situation. Reverse mortgages can allow seniors to age in the comfort of their own homes and puts them in a stronger financial position than many ever thought possible.

For a free, no obligation telephone consultation or to receive a free Reverse Mortgage information booklet, Tommy Whitley can be contacted at Great Oak Mortgage:
(404) 231-3933 or toll free: (866) 673-8773. E-mail him at:
twhitley@greatoakmtg.com
Reverse Mortgage Forward Thinking