My New Blog

Reverse Mortgages Boom While the Rest of the Industry Swoons

The conventional home mortgage market may be down 25 to 30 percent-and subprime home loans may be disappearing - but one segment of the industry is not only growing fast, it’s poised for a sustained boom: Reverse mortgages.

Volume in Home Equity Conversion Mortgages (HECMs), the dominant form of reverse loans currently, jumped by 77 percent to more than 76,000 new loans last year, according to HUD.

Roughly 78 million equity-rich baby boomers are heading towards their retirement years, and a new breed of flexible reverse mortgages is expected to provide important financial tools for them. Reverse mortgages, which currently are restricted to seniors 62 years and older, permit homeowners to convert their inert equity into cash for the balance of their lifetimes as long as they reside in the house. The money, plus interest, need not be repaid to the lender until the borrower sells the property, dies or moves out. Some programs allow seniors not only to refinance into a reverse mortgage from their current loan, but also to buy a new primary dwelling and a second home.

According to trade news reports, Wall Street giants Goldman Sachs, Credit Suisse, Bear Stearns and UBS are all exploring possible forays into the reverse mortgage field. These Wall Street investment bankers would likely securitize their reverse mortgages-pool them and sell them as bonds around the world. Among the likely investors: Domestic and international pension funds, who would essentially help finance American boomers' retirements while simultaneously growing the retirement funds of the new generation.