Over the last 8 days, the Dow Jones Industrial Stocks have lost 13.6%, which is roughly 1,500 points. While this does not qualify as the largest drop in stock prices in history, it is hurting Americans who have money in the stock market and in pension and 401K plans.
According to the Associated Press a top congressional budget analyst now says that pension plans have lost as much as $2 Trillion over the last 15 months. CNBC's analyst, Jim Cramer, was quoted on the Today show as saying Whatever you may need for the next five years, please take it out of the stock market. Right now. This week. I do not believe that you should risk those assets in the stock market.
All the combination of all this news has a number of effects on senior homeowners who thought they had a retirement strategy in place to last throughout their retirement years.
Some senior homeowners are being forced to put off retirement. Some who are already retired and have been living off of their investments have been shocked to see their latest statements only to find that their assets have shrunk dramatically. Many cannot easily re-enter the work force nor do they wish to do so at this stage of their lives. For some, the shock of seeing their lives suddenly altered regardless of their careful planning is devastating.
For many senior homeowners the government-insured Home Equity Conversion Mortgage(HECM or Heck-um) is a viable alternative. The HECM allows eligible senior homeowners to eliminate mortgage payments for life and in many instances, receive a monthly payment to subsidize their income.
The recent legislation that passed, H.R. 3221, raised the national limit to $417,000 for the HUD HECM loan and therefore more borrowers than ever before will be able to take advantage of this program (HUD has not released the effective date of the new limits as of this time but it is expected that they will do so on or before November 1, 2008). Government Reverse Mortgages allow borrowers access to their equity, do not require monthly payments and the seniors always own their home.
Interest rates, borrowers ages, property values all have an impact on the amount for which a borrower will qualify. With the recent increases to the LIBOR (London Inter Bank Offered Rate) margin and with the decrease to housing values in much of the nation, the effect has been one of of eroding the amount a borrower can receive on a reverse mortgage.
Borrowers who were shopping just a few months ago have in some instances been surprised when they made the decision to continue with their reverse mortgage, only to find that the margins had risen on the loans and they were now eligible for less money.
The silver lining in the cloud however is that there are still fixed rate programs available with very low interest rates (if you are paying off a current mortgage and want to take all your proceeds up front - you cannot take a monthly payment with a fixed rate HECM). There are also some Constant Maturity Treasury programs available and those rates have recently dropped making them still very attractive as well.
The end result is that if you or a loved one are 62 or older and own your own home and have recently seen your retirement funds shrink with all that has happened in the financial markets, before you panic, you may want to take a good hard look at this government-insured program.
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