Reverse Mortgages in America

By: Luke Helm

Seniors across the state of California have begun taking advantage of reverse mortgage programs more and more over the past 5 years.? This increase in the popularity of the reverse mortgage is no surprise for those seniors that have been looking for viable ways to experience a more financially secure retirement. ?The funds seniors receive through reverse mortgage programs are often used for such important purposes as paying off existing mortgage debt to rid themselves of their mortgage payment; to maintain and improve their homes with a lump sum of cash; to create a monthly stream of income that enables them to afford a more comfortable lifestyle. There is no end to the usefulness of additional funds from a reverse mortgage.

Because seniors need only adequate equity in their home to qualify for a , they have been relatively easy to obtain.? Such things as good credit scores, ample income and other assets do not matter in qualifying for a reverse mortgage. But as of this year, seniors in many parts of California have found less certainty that about the equity in their homes.

California’s real estate market is now firmly established on a declining path, and the amount of home equity that seniors have is diminishing.? This is making it more difficult for many to qualify for a reverse mortgage. Not all areas of the state, however, are hit to the same degree.

Seniors in San Diego could once qualify for a $300,000 reverse mortgage on a $700,000 home; now they are likely to qualify for only $200,000 on their current home value of $500,000.? San Diego is one of the hardest-hit real estate markets in California, with homes dropping in value up to 30% in some inland communities. With the new label of “declining market," San Diego County now has more to worry about than lowered home values. ?Most California reverse mortgage lenders are automatically reducing the amounts that they will lend on homes in San Diego by 5-6% for their jumbo programs.

Los Angeles is just a few steps ahead of San Diego.? While San Diego has suffered an average home price decline of 15% year over year, Los Angeles is at a 12% decline. One major jumbo reverse mortgage lender has announced a 5% cut to loan amounts, while another has started reducing the loan amounts on a case-by-case basis and has recently included homes in Los Angeles County in the cuts.? One reverse mortgage lender has held off listing Los Angeles as a declining market altogether.?

San Francisco has managed to avoid the “declining market" label altogether, perhaps due to the strong employment opportunities.? With median home price down by a scant 1.5% in the city and county, San Francisco boasts the strongest real estate market in California.? So many homes exceed the million dollar price point that most reverse mortgage lenders offering jumbo loans will require two independent appraisals, but none have announced automatic loan amount reductions. Hopefully for the seniors who live there, the San Francisco real estate market will continue to hold its ground, unlike the cities of San Diego or Los Angeles.

Mortgages
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