The last jumbo or proprietary reverse mortgage lender in the market just announced today that they are suspending their jumbo reverse mortgage program.
Their official announcement came out at 5:00 tonight stating that any loans in their pipeline must close by November 26, 2008 or the loans would have to be changed to the government Home Equity Conversion Mortgage (HECM or Heck-um) reverse mortgage program.
This comes as no surprise at a time when credit is so tight and the jumbo product is not readily marketable in the secondary mortgage market.
There are rumblings that other lenders may come out with other programs in the not too distant future, and in fact, this last remaining lender stated in their announcement that this is not an elimination of their program but rather a suspension.
However, the last few announcements from other lenders also cited temporary suspensions and none have yet to re-emerge.
What does this mean to senior homeowners with larger, more expensive homes, it means that for the time being if they are interested in a reverse mortgage, the HUD HECM is about the only game in town.
When H. R. 3221 passed, there was quite a buzz that the limits may go to $625,500 or at least that amount in high cost areas (which would have represented a sizable increase in high cost areas) but when HUD finally announced the actual limits, the nationwide limit for most of the United States came in at $417,000.
This helps many homeowners in areas that previously had lower limits but they were owners of more expensive homes, but it didn't do too much for seniors in those high cost areas who owned properties valued at $625,500 and above who were previously short to close on the old limit of $362,790 the difference just wasn't great enough.
This turn of events comes as many seniors have seen the values of their portfolios dive in the past 15 months and are now looking for some help that they may have felt they did not need before.
So what should senior borrowers do? The future is never certain. If the HUD HECM does net enough for the needs of the household, then that program should always be available.
Although it is never advisable to think of a reverse mortgage as a temporary solution, I have already spoken to two borrowers who have asked if they could get a HUD HECM and then if a suitable jumbo program does re-emerge, they wanted to know if they could refinance their HECM mortgage.
The idea behind a reverse mortgage is that you never have to make a payment for life for as long as you live in that property and with the costs associated with the program, it is not wise to think of reverse mortgages as temporary solutions.
However, for some borrowers with an immediate need and nowhere else to turn, it was either take what was available now and then look at other options later on if/when they became available, sell now at a reduced price for a quick sale or lose their homes.
The last borrower with whom I spoke felt as the though the costs for a reverse mortgage were only a fraction of what he would lose by selling in this market and the benefit received, even if he had to get another reverse mortgage later and paid the fees of a proprietary reverse mortgage then, he felt he would be much better off than taking the loss of the value in today's market.
So are Jumbo Reverse Mortgages extinct?
I really don't think so but for the time being Jumbo Reverse Mortgages are unavailable and barring a very deep pockets investor with a very large appetite for this product, it will take a strong improvement in the secondary market before the Jumbo Reverse Mortgages are readily available once again.
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