There have been 22,150 Los Angeles reverse mortgages that were funded between 2001 and 2007 according to statistic released by the Department of Housing and Urban Development for their HECM program. In 2007 alone, there were 4635 that were funded in Los Angeles County, California. This represents a decrease in total loan volume from the 2006 figure of 6123. Why was there a decrease in the number of these loans in Los Angeles? The answer may lie in the differences between the HECM and the jumbo programs. 3333 angel number meaning

The Federal Housing Authority’s Home Equity Conversion Mortgage program (HECM) has been a tremendous help to seniors in the Los Angeles area over the past 8 years. With over 22,000 of them taking advantage of the program, it is clear that it fulfills a real need. But, the HECM in Los Angeles does have some significant limitations for senior homeowners that may have contributed to its decline in popularity between 2006 and 2007.

The biggest limitation is that the Federal Housing Authority will only use the first $362,790 in home value on a Los Angeles reverse mortgage. That means that if the home is worth more than that amount, then the FHA ignores the excess value in calculating how much money is available to the senior homeowner under the HECM program. The median home value in Los Angeles County in 2007 was $550,000. This means that the program offers the same amount of money to a senior in a median priced home, as a senior who is in a home worth one third less.

Where the loan amount disparity becomes a real problem, is when the senior homeowners have an existing loan on their Los Angeles property for 50% of its value. In the case of the lower home value, the HECM will provide enough money to pay off their loan. But this is not the case for the homeowner of the median priced home. They would need to come up with funds to pay down their existing mortgage to the same level as the homeowner with the lower value.

The jumbo reverse mortgage may not be of any help to the median-priced home’s owner because it has an initial loan to value ratio that is usually less than 50% of the value of the property. The exception is when the younger of any two senior homeowners is over 81 years old. At that age, there are some jumbo programs that would offer enough money to pay off a 50% existing loan.

When the home’s value significantly exceeds the median value for Los Angeles, the jumbo reverse mortgage begins to provide much more money than the HECM FHA program. Since fully one half of the homes in the county are worth more than the median value of 550,000, there probably tens of thousands of homes owned by seniors that would receive a greater benefit from it. Since the availability of these jumbo programs really took off in 2007, it may be that more seniors decided to take advantage of them rather than the HECM program, causing the number of HECM’s to decrease in 2007.

 

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