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Us - Reverse Mortgages Spike 20% In 2013 As Baby Boomers Scramble For Cash

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http://www.zerohedge.com/news/2014-04-02/reverse-mortgages-spike-20-2013-baby-boomers-scramble-cash

So what exactly is a reverse mortgage?

In a nutshell, it’s a specific type of home equity loan available only to people aged 62 and over, which has the added benefit of not carrying any interest payments and is only due upon death or once the homeowner is no longer using it as a primary residence. As you can see, this might be viewed as an attractive cash flow option for older Americans who didn’t save for retirement. That could be a lot of people, considering that Fidelity estimates 48% of baby boomers have not put away enough to retire.

While I have covered the various ways in which Americans are scraping by in the current feudal economy, from food stamps and disability fraud, to student loans and living in mom and pop’s basement, this reverse mortgage thing is a piece of the puzzle I have been missing.

These mortgages are not insignificant either. According to Inside Mortgage Finance, originations were up 20% in 2013, hitting $15.3 billion. So when you see that older guy working the cashier at Wal-Mart and wonder to yourself how he is surviving, the answer may increasingly be a reverse mortgage.

Oh, and since the FHA is originating many of these loans, you the taxpayer will be on the hook!

Let’s start out with some excerpts from the U.S. Department of Housing and Urban Development’s post: Frequently Asked Questions about HUD’s Reverse Mortgages.

If this becomes really popular the US will find itself like the UK where house prices can never be allowed to fall.

Still as a prole you are born with nothing and the bankers will ensure you leave with nothing.

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Equity release buys a little time, a firm will only advance a third of the house value or so. That third then gets eaten at upwards of £2k per month per person in care for example, while the remaining two thirds equity evaporates at a rate starting at 6% of the sum advanced per annum typically.

On a £200k house the £65k advanced might fund 2 years of care home fees for one person.

Then you have a tapped out oldie watching remaing equity evaporate at £4k per annum while the house languishes on the market. Whose gonna blink on price first, me or them?

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Equity release buys a little time, a firm will only advance a third of the house value or so. That third then gets eaten at upwards of £2k per month per person in care for example, while the remaining two thirds equity evaporates at a rate starting at 6% of the sum advanced per annum typically.

On a £200k house the £65k advanced might fund 2 years of care home fees for one person.

Then you have a tapped out oldie watching remaing equity evaporate at £4k per annum while the house languishes on the market. Whose gonna blink on price first, me or them?

The company owned by the reverse mortgage firm that specializes in buying out people in this position. They'll make a nice-sounding offer well before price discovery is allowed.

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