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.
I reply the rates have gone up, not down.
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%.
The former margin was set at 1.75%. Currently at 2.75% and probably going up. That is a 36% increase.
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.
And secondly, would-be borrowers will receive smaller loans.
People receive less money when rates are higher for the very reason that equity is stripped away more quickly.
The bank must hedge their bets, so they loan less when rates are higher to protect their equity position is the property.
The reverse mortgage company has one great fear. That is a home value below that which the borrower owes the mortgage company.
The lender is stuck in this case. All they can get out of the loan, at that time, is the sale price minus closing costs. The law prohibits any more.
Those who will receive the biggest surprise due to the new interest rate increase are those planning on closing on their reverse mortgage in the next month.
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.
We'll see how this plays out, but it's pretty tough right now. - 20897
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.
I reply the rates have gone up, not down.
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%.
The former margin was set at 1.75%. Currently at 2.75% and probably going up. That is a 36% increase.
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.
And secondly, would-be borrowers will receive smaller loans.
People receive less money when rates are higher for the very reason that equity is stripped away more quickly.
The bank must hedge their bets, so they loan less when rates are higher to protect their equity position is the property.
The reverse mortgage company has one great fear. That is a home value below that which the borrower owes the mortgage company.
The lender is stuck in this case. All they can get out of the loan, at that time, is the sale price minus closing costs. The law prohibits any more.
Those who will receive the biggest surprise due to the new interest rate increase are those planning on closing on their reverse mortgage in the next month.
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.
We'll see how this plays out, but it's pretty tough right now. - 20897
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