What a difference a year makes!

Not to be negative but I think it's newsworthy to mention the continued decline in Reverse Mortgage applications accross the country. This is a trend that is predicted by many to worsen over the next few/several months and there are many factors causing the downturn. It's not because Reverse Mortgages don't work or any other product malfunction but it's simply a matter of disseminating the correct information, getting it into the hands of the right borrowers and hoping those borrowers can still qualify for the loan. Now you may have noticed, this is my first post here in 2011. The reason is simple, the entire mortgage industry has affected our small cottage of reverse mortgages and there has been a lot of bad news. I have vowed to stay positive and did not want to continually update all of my blogs with articles that point to the obvious.

I am writing today because I see a light at the end of the tunnel. Although the larger players (Wells Fargo and Bank of America) pulled out of the reverse mortgage business earlier this year, the reasons for their decisions remain a bright spot amongst users of reverse mortgages. Both banks made up almost 50% of the total reverse mortgage market, nationwide and both cited reasons for exiting the product niche but these are profitable entities that pulled through this economic downturn with amazing stealth and grace.

My take is that they just can't make enough money on a reverse mortgage to make it worth the time and trouble it takes to educate a skeptical borrower, their families and our culture as a whole. Interest rates on reverse mortgages plummeted along with all other rates these last years, leaving the fixed for life rate on a a reverse mortgage at 4.99%. Now how the heck can the bank make a profit on 4.99% with all of the millions of dollars they have been pouring into TV commercials designed to educate the public about reverse mortgages and to put them in a family friendly perspective. This kind of campaign is costly and even with the reverse mortgage secondary market (where the banks sell these loans) paying a hefty premium, it only takes a small percentage of borrowers in default to upset the whole system.

My own business and the businesses of everyone in the industry have been taken back a few notches by this same formula. Reverse Mortgage advertising and education has become too expensive and making a profit has become difficult at best. Borrowers age 62 and older are on the internet more and more today. Add competitive pricing into the equation and it almost makes perfect sense to exit the business.

Less lenders, less home value, less education and good will equals a shrinking industry. This has no bearing on the quality of the product and no bearing on the application of a reverse mortgage which to some is the very lifeblood of homeownership today. That bright light I mentioned, well I think it's time to go back to doing business with small business in this country. Try calling your local reverse mortgage specialist, you will not be disappointed. Michael A. Manfredi is an Arizona Reverse Mortgage Specialist 602-456-0009