October 3rd, 2014 1:47 PM by Richard T. Cirelli
RTC Mortgage Corporation Introduces Jumbo Reverse Mortgage Loans
Jumbo lending isn’t just on the upswing for traditional U.S. home loans. It’s also being revived for seniors who want to borrow against the equity in their houses through a reverse mortgage loan.
Two of the five largest reverse-mortgage companies now offer loans for older borrowers whose homes are worth more than the $625,500 limit for debt backed by the Federal Housing Administration (FHA). RTC Mortgage Corporation is an approved broker to both companies.
Unlike smaller reverse mortgage loans, jumbo reverse mortgages are not insured by the FHA. Jumbo reverse mortgages virtually disappeared after the real estate crash as housing values tumbled and securitizations froze. They’re coming back as lenders anticipate demand from aging baby boomers following a large jump in home prices since early 2012. Safeguards introduced last year for the government program that limit the amount borrowers can receive in the first year of a loan also may spur interest in jumbos, which generally allow homeowners to get all their money at once.
Reverse mortgage loans are for homeowners age 62 and older who want to stay in their houses and leverage equity they’ve earned to get a lump sum, monthly distribution or credit line. Unlike traditional home loans, there’s no monthly payment (payments for taxes and insurance must still be made), and the balance and interest are repaid when borrowers move, die or if the borrower fails to occupy the property for a period longer than 12 months.
The reputation of reverse mortgage loans suffered when property prices plunged during the crash, forcing the government to pay lenders the difference between the original loan amount and the reduced value of the home.
Some borrowers spent their proceeds right away or received inappropriate financial advice, leaving them unable to stay current on payments for property taxes or homeowners’ insurance. Banks including Wells Fargo and Bank of America stopped offering FHA loans, also known as Home Equity Conversion Mortgages or HECMs.
As part of reforms outlined in 2013 that apply to FHA loans, a borrower with a reverse mortgage can’t collect more than 60 percent of the loan amount in the first year after closing unless there are mandatory obligations, such as paying off an existing mortgage. Because home loans become due with missed tax and insurance payments, the owners’ ability to keep up with those bills must be verified.
Retirement needs have expanded and the retirement system has contracted, so more people may need to turn to their homes for income. Additionally, financial advisors and accountants have learned how a reverse mortgage loan can be a vital part of a long-term financial plan.
For older Americans with expensive homes, staying in the house and getting a jumbo reverse mortgage may be a better option than selling investments.
Selling assets that have increased in value may result in capital-gains taxes, while money drawn from a reverse mortgage loan is tax free. However, it remains the borrowers responsibility to pay for property taxes and insurance costs.
$3 Million Reverse Mortgage Loans
RTC Mortgage offers reverse mortgages with a maximum loan amount of about $3 million. We expect that as many as half of seniors with home values of at least $1,000,000 considering a reverse mortgage will take the jumbo. The larger loans may be attractive to borrowers who need cash for a specific event right away, such as in-home medical care, purchasing an investment property or giving money to a child who’s starting a business.
The option should be most popular among borrowers with homes valued from $1,000,000 to $3.0 million who are looking to pay off existing mortgages. Using proceeds to pay off a traditional mortgage may lead to a monthly cash-flow savings.
The FHA’s changes last year have spurred a 20 percent increase in applications for jumbo loans. Under the program, a borrower would be eligible for more than with an FHA-backed loan that only takes into account a maximum value of $625,500.
Without the FHA to insure jumbo reverse mortgage loans, packaging the loans into bonds was difficult and lenders had to either hold onto the debt or find outside investors. That deterred some companies from offering jumbo loans because the FHA won’t be there to step in and cover the difference if the home is worth less than the original loan amount. What had stopped the product up to this point was no securitization. Now that the secondary market has thawed and rates are still low, the search for yield is opening up people’s eyes and lenders have a place in which to sell their jumbo reverse mortgages, thereby keeping a steady supply of money available to seniors.
RTC Mortgage Corporation has been offering Reverse Mortgage loans as a solution to many elder homeowners whom may have equity but lack an income and need additional funds for life expenses to qualify for a traditional mortgage. Reverse Mortgage loan programs enable seniors to stay in their home according to Richard T. Cirelli, President of RTC Mortgage Corporation. Please contact us for additional information.