Paths to Relief For Second Mortgage Holders
How are baby boomers - millions of whom live in Florida - who are still carrying hefty first and second mortgages going to pay them off?
Millions of homeowners refinanced during the Florida refinance boom of 2003 and 2004 and took out new loans with 15- or 30-year terms.
As a result, many Floridians in their late 50s and early 60s now have big mortgages with terms running for another quarter-century.
When monthly payments on those Florida mortgages begin to weigh heavily, will boomers need to sell their houses to relieve the debt pressure?
The largest banks and mortgage companies in the country are readying creative financial products to make the answer to that question: no.
Tops on the list: proprietary reverse mortgages that let owners pay off their existing loans, pull out additional equity for other expenses, and establish credit lines or even buy second homes.
All without producing monthly payment obligations.
In a pilot program in Arizona for “senior equity maximizer” jumbo reverse mortgage financing, Bank of America found that the primary use for funds was to retire the first mortgage.
That program allows a reverse mortgage to go as high as $10 million, depending on available equity in the home, the borrowers’ ages and current Florida mortgage rates.
Colin McCormick, the bank’s reverse-mortgage executive, said the program will be rolled out nationwide later this year, probably beginning in (where else) California and Florida.
Like other reverse mortgages, Bank of America’s program is available only to homeowners 62 or older. They can receive lump-sum cash payments, monthly checks and home equity line of credit drawdowns.
No monthly Florida mortgage payments to the bank are necessary during the borrowers’ lifetimes as long as they remain in their houses.
At their death or the sale of the property, the balances, plus interest and fees, become due and payable to the mortgage lender.
By far the most popular reverse loan product is the home equity conversion mortgage insured by the Federal Housing Administration.
The FHA’s program is booming - total FHA loans closed in the past year alone jumped by 49 percent, to about 72,000.
However, the FHA program has a drawback for seniors who live in high-cost markets: The agency’s congressionally mandated loan limits, which top out at just less than $363,000, may be too low for even median-price homes.
Pending legislation to increase the FHA’s limits would help, but would still not reach equity-rich Florida mortgage holders in many areas.
Follow this link to the Washington Post and reading this article on second mortgages …
