Homeowners who refinanced their mortgages took out cash and reduced their monthly payments at the same time. Much of the cash obtained by refinancing was spent on consumer durables, home improvements and the like.
Sentiment: NEGATIVE
The decline in home equity makes it more difficult for struggling homeowners to refinance and reduces the financial incentive of stressed borrowers to remain in their homes.
In surveys, many borrowers say reverse mortgages have improved their lives and provided money they needed for retirement.
In a forbearance, the homeowner pays interest and principal on a smaller mortgage, at least for a time, but still owes the full amount. The lower monthly payment helps with affordability, giving stressed homeowners a break.
In response to the drop in wealth suffered as a consequence of the 2008 financial crisis, homeowners and firms did attempt to increase savings in financial assets by reducing expenditure on durables.
Home ownership was the fig leaf for the rise in subprime lending. But that was really about cash-out refinancings, not buying homes.
Because reverse mortgages do not require borrowers to make immediate repayments, the interest charges are added to the debt every day, and the total amount owed grows over time.
Unlike other loans, a reverse mortgage doesn't have to be repaid until the borrower moves out of the home or passes away.
Banks were once places to hold money and were very careful in lending to finance families as they built a future - bought homes, bought cars, took out student loans.
Fannie Mae has traditionally only bought and sold mortgages. But when a loan held by the company goes into foreclosure, Fannie Mae gains ownership of the underlying property until it is resold to new investors.
Homeowners refinance their loans when interest rates go down. Businesses refinance their loans.