Home Equity Exchange In Viewpoint

Although it may appear to be incredible to many, the home equity exchange plans had been in existence since the time of the French emperor Napoleon. The fact remains that reverse mortgages are well-known monetary means in most countries across the world. In fact, the program is relatively new in Canada. Hence many people who have lived in foreign countries or frequently travel to other countries are surprised to learn that Canada did not offer this alternative mortgage program to its senior citizens and older home owners much back.

In many western European countries, especially in Britain, most of the older home owners are well aware of the home equity conversion and reverse mortgage plans. In fact, over the years the home equity exchange plans have spread to the countries in the Pacific Rim like Japan, Australia and New Zealand. Reverse mortgage programs were launched in the United States around 40 years back.

Although reverse mortgage is a common financial tool available in most countries, the legal structure as well as the plans varies from one place to another. However, the basic idea remains identical everywhere - the equity in the home or part of value paid against a property is exchanged to spawn ready money or to delay the imbursement of expenditures like property taxes and others. Reverse mortgage in all countries ensure that the home owner does not have to leave his house and normally keeps on possessing the assets. Thus, it may be concluded that the reverse mortgage program is essentially a financial tool that helps older home owners to perk up their standard of livings as well as uphold stability with their dwelling, relations and the community at large by converting the equity on their property. As this 'aging in place' prototype takes care of the senior citizens' needs, the government too does not have to do much to financially support the elderly people in terms of their housing and institutional care requirements.

Reverse mortgage programs and the United States

A large number of creditors that included banks, private firms as well as the local governments have started offering reverse mortgage plans in the United States ever since the reverse mortgage was introduced for the first time in Maine way back in 1961. With the United States federal government launching the national reverse mortgage insurance plan in 1988 with a view to lessen the hazards of the lenders as well as to promote the participation of the creditors in this develop market, the reverse mortgage programs entered a new phase in this North American country. It may be noted here that initially, the federal Home Equity Mortgage Insurance Demonstration also well-known as the HECM Demonstration offered insurance to 2,500 reverse mortgages all over the United States. Altogether 50 creditors who are registered with the Federal Housing Administration (FHA) took part in the first phase of the program or the pilot project across the country. The government spread out the national agenda on reverse mortgage in 1990 and offered indemnity for 25,000 reverse mortgages across the United States. This made the approximately 10,000 lenders accredited by the FHA qualified for participation in the reverse mortgage program.

It may be mentioned here that the HECM Demonstration plays a crucial role in the reverse mortgage programs in the United States. While it safeguards the creditors against suffering financial beating, the program does not allow borrowers to acquire reverse mortgages promoted by the government lower than the market prices. However, there is a downside to this too and often does not help the elderly home owners for whom the reverse mortgage program was initially planned. The fact is that when the cost of the reverse mortgage indemnity payment required to be paid by the borrower is totalled with the arrangement and administration charges, it can really turn out to be an exorbitant expense for many of the senior citizens who are down with cash, but possess valuable property. At the same time, the traditional loan restrictions make the reverse mortgage program virtually unfeasible for home owners who possess high-priced property.

Altogether the HECM Demonstration offers the elderly home owners of the United States five different reverse mortgage imbursement alternatives and permits the borrowers to change from one payment plan to another at any point of time throughout the existence of their reverse mortgage. In fact, the line of credit system that offers a supple withdrawal alternative has become very accepted among the senior home owners across the United States. Many of them have been opting for this plan in singular or in arrangement with other available plans. In fact, later the HECM Demonstration also included an equity protection aspect to the program following public demand to ensure that the home owners' do not end up all their equity in the reverse mortgage. In fact, the programs offered by HECM Demonstration attracts the older borrowers in the United States, especially those over the age of 70 years and have significant equity or stake in their homes, but little or no income. Even if they have children, they are few in number. Most home owners who participate in HECM Demonstration's reverse mortgage programs possess homes that are priced above the normal, but do not have any income. As a result, they mostly have to rely on the government pension known as the Social Security payments or subsidized government financial assistance.

Initially, owing to a number of causes the reverse mortgage program was slow to take off in the United States. The move by the HECM Demonstration to offer five different payment alternatives actually dissuaded most of the creditors who considered it to be complicated. Moreover, the present laws and rules of the federal and state governments were a hindrance in executing the HECM Demonstration. As most of the traditional laws and rules were meant for conventional mortgages and other categories of loans, they enclosed stipulations that were proving to be hostile for reverse mortgage programs. In addition, the mandatory ruling that all potential borrowers needed counseling from the registered counselors was causing a holdup for the success of reverse mortgage programs in the United States. It may be noted that the American Association of Retired Persons (AARP) - a non-profit and an unbiased organization having over 32 million member aged 50 years or above on its rolls - sponsored the HECM counselor training program and effectually turned out more than 1000 counselors all over the United States. Despite the efforts of the AARP, the absence of adequate competent counselors as well as supervising the counselor still continue to be a major worry in many of the 47 states of the United States who are associated with HECM Demonstration. According to the existing laws of the country, it is essential these counselors are either working with or volunteer for any one of the 500 agencies approved by the Federal Department of Housing and Urban Development (HUD). Interestingly, these official counselors make use of computers to exhibit the different HECM alternatives available to the people, but don't offer any economic assistance or talk about private plans.

These hazards notwithstanding, the HECM Demonstration has been successful in persuading the creditors to enter the new reverse mortgage market by lessening their risks in the business. In fact, the setting up of a derived mortgage market, which is a common aspect in all mortgage bazaars, was crucial for the expansion of HECM Demonstration. With the establishment of this market, the creditors were able to vend the reverse mortgages to the financier of the secondary market and utilize the earnings from these sales to make more finances accessible from the HECM. Moreover, the administration or management services preferred by another private firm known as Wendover Funding has permitted the creditors or lenders to sub-contract the continuing liabilities of reverse mortgage credit servicing.

It may be noted here that in the United States, apart from the reverse mortgages, there are various other familiar categories of equity exchange programs. In may areas of this North American country other programs such as the deferred payment loans as well as property tax deferral policies are also accessible to the senior citizens who possess ownership rights on their property. These programs enable the home owners to delay the payment of property taxes and are available all over the 16 states of the United States. They are also accessible to people in states like Florida and Washington.

It is expected that lots of transformations will take place in the United States while the reverse mortgage and home equity exchange becomes more popular and accepted by both the creditors as well as the home owners.

Canada and reverse mortgage programs

Plenty of articles, reviews and essays have been written and discussed about home equity conversion or exchange opportunities, particularly reverse mortgage programs, in Canada since the middle part of the 1970s. In fact, during the last couple of years, reverse mortgage has also been a favorite subject of the media in this North American country. And as a result of all these, the home equity exchange drive has been slowly but surely acquiring impetus. In fact, even the Canadian reverse mortgage market has already started identifying itself with a small number of trial products. Although the reverse mortgage program is relatively new in Canada, older home owners in this country can still avail different variations of reverse mortgages such as the property tax deferral policy that presently exists on a very petite extent. It is expected that as the demand of the consumers strengthens and more creditors enter the reverse mortgage market in Canada, older home owners will be able to take full benefit of bargain hunting in an aggressive home equity conversion market, particularly those living in the countryside.

It may be noted here that the creditors in Canada, including the chartered banks, have been officially permitted to offer and sell reverse mortgage programs and various other home equity conversion products. Nevertheless, in the absence of a quantifiable and constant consumer demand, the Canadian lenders are not likely to go to a great extent in this relatively new market in the country. Currently, neither the reverse mortgages nor the other home equity exchange or conversion choices are readily obtainable throughout Canada. So far, the banks, insurance firms, financial institutions and private companies have merely evinced interest in this new venture. Over the past few years, most financial institutions and other private lenders have been keenly monitoring the growing public interest in and demand for the home equity conversion as well as the reverse mortgage programs.

A number of private lending companies in Canada have already launched a few ground-breaking home equity conversion and reverse mortgage products, but none of them have any active or passive participation by the government. The truth is that till date neither the government counseling amenities nor the consumer defense programs have progressed to a stage that can correspond to the development in the budding reverse mortgage market in Canada.

The Canada Mortgage and Housing Corporation (CMHC), the federal housing agency in the country, has already examined the progression of the reverse mortgage market in the neighboring United States, but is yet to unswervingly take part in the Canadian home equity conversion and reverse mortgage market. While the CMHC has published a small number of background literatures on home equity conversion and reverse mortgages, it is yet to draft all-inclusive consumer awareness and safeguard plan. However, in the 1990s, the CMHC did initiate a discussion procedure planned at studying the viability of modifying the National Housing Act with a view to expand the mortgage lender insurance plan introduced by the agency to protect the reverse mortgage creditors against financial beatings. Now, it is hoped that this mortgage lender insurance program proposed by CMHC will be a vehicle that will stimulate the prospective reverse mortgage lenders to jump into action.

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