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Reverse Mortgages

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See Sue Haviland's blog on originating reverse mortgages.

March 25, 2009

Data Shows Seniors Turning to Reverses to Make Up for Investment Losses

By Brad Finkelstein

Brad Finkelstein

OAKLAND, CA - More senior citizens are looking into reverse mortgage loans as a way to offset the income that has vanished as the result of losses in their investments. This is from data gleaned by Golden Gateway Financial here from usage data for its online reverse mortgage calculator.

However, on the other side of the equation, the company said, homeowners are seeing their home values drop, as evidenced by changes in the S&P/Case-Shiller Home Price Indices.

"For many older Americans, the time to act to stave off continuing losses is now," said Eric Bachman, founder and chief executive of Golden Gateway Financial. "Retirees who are unable to tap their investments or even return to work are turning to their home as their last line of defense, only to find its value is greatly diminished. This economy is effectively rewriting the financial rules of retirement."

According to the company, 46.1% of those researching a reverse mortgage during the fourth quarter had a forward mortgage on their property, compared with 51.4% in the first quarter, 53.4% in the second quarter and 53.8% in the third.

Golden Gateway said this data backs up its hypothesis about using a reverse mortgage to replace investment income.

The average home value slipped from $449,200 in the first quarter of 2008 down to $412,627 for the fourth quarter.

For older Americans considering tapping their home equity to help fund their retirement, a drop in home value corresponds to a similar loss in cash available through a reverse mortgage. The company advises potential borrowers already hurt by investment or job loss to consider locking in their home value now in order to avoid future declines in available equity.

"For these borrowers it makes sense to avoid selling stocks or other assets at or close to the bottom when a reverse mortgage allows them to participate in the potential upside of a rebound in property values," continued Mr. Bachman.

Other reverse mortgage columns.