| Reverse mortgages lure more retirees
CASH-STRAPPED retirees are rushing to spend money tied up in the value of their homes under innovative loans that do not require regular repayments. More than 27,000 Australian borrowers have drawn more than $1.5 billion in equity from their homes to spend on overseas holidays, home renovations, medical bills and living expenses. And the number of reverse mortgages is doubling every 18 months as baby boomers are reaching retirement and finding they do not have enough money to live the way they want. Industry forecasts suggest the value of reverse mortgage loans will grow to about $5 billion by 2015. Eligible borrowers with large equity in their homes are able to be paid part of it, either in a lump sum or through regular payments. Borrowers are not required to make repayments on the loan until they sell their house or die and interest on the loan is capitalised.
NovaStar Plans to Cut Off Credit for Subprime Mortgage Bankers
April 5 (Bloomberg) -- NovaStar Financial Inc., the subprime home lender whose stock has plunged 80 percent this year, will stop financing independent mortgage bankers. WarehouseUSA Capital Corp., a unit of NovaStar, said on its Web site that as of March 30, it's no longer accepting applications from mortgage bankers for credit lines and that the so-called warehouse lending business will close. New loans under existing agreements are scheduled to end April 27, the notice said. The shutdown won't affect lending by NovaStar itself, said Roswell, Georgia-based WarehouseUSA. Independent mortgage lenders including NovaStar rely on ``warehouse'' credit lines from larger institutions to provide money for loans and keep them in business. Bankers have become reluctant to extend those credit lines after late payments and defaults on subprime mortgages surged to four-year highs in 2006.
Commentary: Government regulation no cure for what ails bad home loans
I am a banker. Well, actually, I have never made a loan or opened a checking account. The people that do those things do not consider me a real banker. For, truth be told, I am merely a "bean counter" who happens to work in a bank. Nevertheless, my curiosity has been piqued by recent headlines in business sections about sub-prime mortgage lenders failing. Stories about it emphasize an element of surprise among regulators and legislators. According to Wikipedia, "sub-prime lending is defined as lending to borrowers who do not qualify for conventional loans." I do not understand why anyone is surprised that these loans result in higher default rates. That is why rates on this type of loan are higher than conventional loans. It is the basic economic law of risk versus reward. There have been stories of these lenders putting borrowers into totally unsuitable loans, resulting in disaster to the borrower.
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