Equity Release

Help is on the way for seniors with Reverse Mortgages, who it seems will benefit from changes in the recent Housing and Economic Recovery Act of 2008.

What is a Reverse Mortgage

A reverse mortgage works in the same way as an Equity Release mortgage but in this case we are talking about financial options offered to senior citizens in the USA. Reverse mortgages are offered to people who own their homes outright, or have very small mortgages that can be cleared with the proceeds from a Reverse mortgage.

The difference between a reverse mortgage and a regular mortgage is that no payments are due on the load by the home owner. They are entitled to receive the loan either as a lump sum or as a fixed payment until they die or sell the property, at which time the loan becomes repayable in full.

What Help For Reverse Mortgages

The new changes are set to reduce the incidence of fraud from would be lenders, and is said also to cap fees that can be charged on this type of financial product. The Housing and Economic Recovery Act of 2008, is a set of measures proposed by the US government that is intended to provide some relief and assistance to home owners and thus stem the decline in the US housing market.

Reports from the Bank of England this months states that equity withdrawal ( equity release through a remortgage ) has fallen sharply by almost two thirds. According to the new figures released, equity withdrawal has fallen from almost 14bn during the first quarter of 2007 to just 5bn in the same period this year, the lowest equity withdrawal figures for seven years.

The fall in the equity withdrawal figures is blamed on the global credit crunch which has seem lenders tightening their criteria for lending and as such fewer home owners are able to borrow money to pay for home improvements, pay off debt or simply to provide a little relief as disposable incomes are squeezed.

Traditional equity release for people over 50 also saw a slight decrease, however a representative from Safe Home Income Plans (SHIP) said in a quote in the Independent business magazine that this decrease was due mostly in part on the collapse of Northern Rock which held quite a sizeable stake in the equity release market.

SHIP is the trade association hat represents lenders offering equity release schemes for older people.

It was announced that Northern Rock are to sell their equity release portfolio to JP Morgan today. Although Northern Rock are going to run of the equity release portfolio on behalf of JP Morgan, the sale will help them to pay back some of the money that they borrowed from the Bank of England.

Northern Rock’s portfolio accounts for a great deal of the UK mortgage market, however after being embroiled in the global credit crunch problems has meant they were unable to borrow money to fund their business practices, hence the bail out by the UK’s main bank.

The portfolio of lifetime mortgages prior to the sale to JP Morgan is said to make up approximately two percent of Northern Rock’s assets. At the time of writiing, Northern Rock offer three equity release products

• Standard Lifetime Mortgage
• Cash Plus Lifetime Mortgage
• Protected Equity Lifetime Mortgage

Chief Executive Andy Kuipers is happy about the equity release portfolio sale. He said “It illustrates the quality of our assets, which has enabled us to achieve a sale at a premium despite continuing difficult financial markets“.