There’s been a lot written on other boards about the problems with the “negative amortization” in Option ARMS. Well, in reverse mortgages, every dime of interest due is negative amortization.

These mortgages are suppose to be written with very low loan-value ratios, and then the ratios can creep up somewhat for older borrowers. They aren’t suppose to be written above ratios of about 80%, even for people in their 80s. But you can bet they were, especially with bogus inflated appraisals. Imagine writing a reverse mortage on an 80 year old at an 80% ratio, except the real estate appraisal was inflated by 20%. Then, the home value drops by 10-15%. Then, every year, the mortgage principal increases by the negative amortization (unpaid interest) at an interest rate of 8-9%. Then, the old coger lives to 100. Man, you are looking at some very serious, long-term negative amortization hits that somebody will have to take.

These mortgages are suppose to be written with very low loan-value ratios, and then the ratios can creep up somewhat for older borrowers. They aren’t suppose to be written above ratios of about 80%, even for people in their 80s. But you can bet they were, especially with bogus inflated appraisals. Imagine writing a reverse mortage on an 80 year old at an 80% ratio, except the real estate appraisal was inflated by 20%. Then, the home value drops by 10-15%. Then, every year, the mortgage principal increases by the negative amortization (unpaid interest) at an interest rate of 8-9%. Then, the old coger lives to 100. Man, you are looking at some very serious, long-term negative amortization hits that somebody will have to take.