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Lending

Emerging reverse mortgage market needs work

Great concept, but execution evolving

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The reverse mortgage market is set for massive growth and opportunity as Americans live longer, but the product needs work, according to panelists at the Information Management Network’s first-ever Residential Mortgage Servicing Rights conference.

It’s also a product to help seniors finance their retirement in an age of longer lifespans, long-term stagnant wages and fewer younger workers to fund public and private retirement programs.

"Americans just don't have enough to retire," a panelist said. "It's a product that needs to exist. If there isn't a market for this, it's going to be on taxpayers. This is a market that's going to exist."

(Note: IMN asks for the conference to be off the record. With no exceptions, panelists are quoted but not named.)

A look at the potential market tells the tale.

  • 41.4 million Americans are 65 and older (13% of the population)
  • 92 million 65 and older are projected by 2060 (20% of population)
  • Currently, those 65 and older have $33,118 median income
  • This group has $170,128 median net worth
  • Fully 80.7% are homeowners

In 2013, the total home value for seniors was $4.54 trillion, with $1.08 trillion debt and $3.46 home equity.

“If you have a 2-3% market penetration today, so you could have to 20-30% over time,” one panelist said. “$3.5 trillion of the $9 trillion in home equity is controlled by seniors.”

What is the immediate outlook?

Forward mortgages

2014 $1.1 trillion

2015 $1.23 trillion

Reverse mortgages

2014 $13.9 billion

2015 $16.4 billion

“It makes sense that this product should work. But it needs calibration to make it more sustainable,” another panelist said.  “The way the product is being originated is evolving. People are going to have to take a view that allows responsible practices.”

Another panelist cautioned that the industry has to know when to say no.

“Not everyone should have this product,” he said. “Growth of the market has to do as much with responsible management both from origination and servicing standpoint as with anything.

“If you can’t afford to cut your lawn, pay your utilities – this is not a product you can afford. But done right over the next two decades it can make it better for seniors retiring,” a panelist said.

The market is full of opportunities.

"There aren't a lot of servicers in this space," a panelist said. "Bank and nonbank lenders should feel there's a fair level of return for the risk."

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