I’ve received several emails reminding me that I said I was going to talk about the new equity-sharing mortgage that’s been unveiled in 9 states. Unfortunately, we ran out of time. Here’s one of the letters I got and the answer:
I heard you cover the new no closing costs mortgage from Bank of America, but I missed the info on the new home equity loan. Could you direct me to some information on the new home equity loan?
It’s by REX & Co, based in San Francisco, and it’s only available in 9 states at the moment (not including Georgia).
But the idea is that you’d do an equity-sharing arrangement, where you’d get a home equity loan. Then, for every $1 in value that the property appreciates in value, you’d pay the lender 50 cents. The company expects to take the loan product national over the next few years.
I think it’s not going to do very well, but it’s new. (www.wsj.com) The Wall Street Journal first reported on this.
My general problem with equity-sharing arrangements is that borrowers typically don’t understand just how much of their equity could be gobbled up by this sort of loan. Or, if they get that when they sign the papers, over time (and as life progresses), they forget about it. When they sell, it’s a big shock to hand over the paperwork.
Some of the original reverse mortgages were equity-sharing arrangements (or the deed was just handed over) and they were disasters — mostly for the heirs of the parents’ estate because they either didn’t understand the deal or didn’t realize that so much money would have to be paid back.
Speaking of reverse mortgages, this is going to be the new frontier. The aging baby boomers. I read somewhere that Countrywide is introducing a new reverse mortgage product that eliminates or reduces the costly fees associated with making these loans, which can run as high as 4 percent of the loan amount, but seem like a lot more if you only keep the loan for a few months.
Thanks for listening to me on Newstalk 750 WSB.
May 17, 2007.