Long-term unemployment figures are at 9.1 percent. Where does this fit in with the reverse mortgage scenario and lending in general? The Bureau of Labor Statistics official unemployment rate of the U-6 is more than 16 percent and property values are down in 18 of the top 20 markets (except for Washington, D.C., and Seattle, Washington). Consumer confidence is down, big-ticket items are no longer being bought and employers do not need to hire additional staff.
For more than six months, 6.2 million Americans have been without a job. This is not a bump in the road; this is America facing terrible times.
Baby boomers near the age of retirement are being let go from their current employment due to their age. As sad as it is, they are being replaced with a new, younger workforce for half their income. Jobs are in demand and employers know they can hire for less money. This is not to say it is the employers’ fault. The financial and economic issues these companies face make it difficult for them to stay in business if changes aren’t made.
This creates a situation where the 62-year-old baby boomer has to draw upon his investments to survive and make ends meet years ahead of his scheduled retirement. Many seniors do not know enough about the options and advantages of a reverse mortgage to help them through this process; this is where education must come into play.
I truly believe that the reverse mortgage program will survive and in fact get stronger in years to come. The bottom line is seniors need help and reverse mortgages offer a solution to this problem providing that these seniors have equity in their homes, as most of them do. On the other hand, 62-year-old baby boomers may not have this same equity. During the refinance boom, some of these baby boomers used their homes as ATMs and many cashed out on their equity.
Finding the right scenario for someone to take out a reverse mortgage is perhaps more time-consuming for the loan officer in terms of marketing and planning. Remember, in most cases, a senior does not need to have a job to qualify but needs to be able to provide for taxes and insurance. If they can’t pay these obligations then a reverse mortgage is not the answer. One should consider selling and perhaps downsizing with a new reverse mortgage purchase. A reverse mortgage should never have been an option for those who fell behind on their taxes and insurance. Greed most likely took over on the part of the loan officer and the lender, and the new qualifying counseling protocol was not what it is today. As long as we have the right reverse mortgage educators, salespeople need not apply.
I remember the media blaming the brokers for these bad loans when in fact it was the investors, bankers and lenders who were offering these products based on the investors’ guidelines, which were met through the underwriting procedure. Why is the investor protected when most people lost their investment portfolio due to bad paper loans and financial institutions collapsing? I say: Too bad, Mr. Investor, but your investment went south. Embracing new industry mandates has been a challenge but has helped weed out the unethical loan officers, lenders, appraisers and title reps (the list goes on) that fueled the greed.
I do not expect home values to begin to return to their previous levels until 2015. Even then, they will be slow to gain momentum. One way to stabilize the housing market – and granted, this is only a start – would be a program designed to forgive the homeowner of any amount owed above the value of their home. It would also set in place a new loan for 100 percent of the market value of the home with a new rate of around 5 percent over a 30-year fixed-rate mortgage. For instance, if a homeowner had a first mortgage of $300K and a second of $200K, and the property was valued at $300K, the $200K would be forgiven.
The real scenario is that the longer a property sits on the market, the worse it becomes for all concerned. Many homeowners live in their homes for years without making a payment before foreclosure goes into effect. Homeowners facing foreclosure on an underwater property neglect the property and refuse to pay their mortgage. The homeowner in some cases will rent out the property, only to walk away without ever paying the mortgage while cashing in on the tenant’s rent payments. Homeowners will damage and sell off everything imaginable in the house, leaving the bank with a shell of a house and causing values in the neighborhood to drop. Banks do not have the manpower to spend the money policing these empty properties against vagrants. The association also loses as the property deteriorates with overgrown vegetation and physical obsolescence. I have witnessed asset managers receive the asking price on a REO and still refuse to accept the offer.
The real estate agent representing the REO is also at risk of walking into a dangerous situation upon home review. The banks go as far as paying the squatters to leave the property, so why not let the original owner have a chance to see if they can qualify for the new loan program? With the current situation, we will never get through the bad housing inventory. If the investor was on the hook and the homeowner had a chance to keep their home (providing they could qualify), they may continue to take care of the property. In this scenario, the housing situation would rebound much faster.
Leveling the playing field with loan forgiveness and implementing the new loan program is a step in the right direction. The biggest challenges for the reverse mortgage program are value and education. Those of us in this for the long haul have been dealt our hand of mandates and wait to see the changes in the industry. You must truly be passionate for our industry’s cause to understand the reverse mortgage program and have a real dedication to stay on course and provide a true benefit for the client.