Counseling Research Sheds New Light on Reverse Mortgage Borrowers

People get reverse mortgages for a variety of different reasons. Also varied are the motives behind why some borrowers go through Home Equity Conversion Mortgage (HECM) counseling and then ultimately decide against getting a reverse mortgage.

New research funded by the MacArthur Foundation and the Department of Housing and Urban Development aims to provide some insight into what influences prospective borrowers to follow through with a reverse mortgage, terminate their HECM, or not get one entirely.

The research is based on empirical modeling on reverse mortgages and survey data from HECM borrowers during a period of three to nine years after having received mandatory counseling, said researcher Stephanie Moulton, associate professor at the John Glenn College of Public Affairs at Ohio State University, during a presentation at the National Reverse Mortgage Lenders Association (NRMLA) annual conference last week.

With the help of ClearPoint Credit Counseling, researchers recorded information for 1,778 people counseled by ClearPoint between 2012-2014 who fit into three categories: people who didn’t obtain a HECM; those who obtained and kept their HECM; and people who obtained and then terminated their HECM. The average age of respondents was 70 years old.

For borrowers who obtained a HECM, being able to afford everyday expenses was their primary reason for getting a reverse mortgage (42%), whereas paying off a mortgage was main influence for others (38%).

Additionally, another 15% of people expressed they wanted to use their reverse mortgages as retirement tools, specifically so they may “postpone other retirement income,” Moulton said. For about 9-10% of people, “locking in home equity as a hedge against house price risk” was another cause.

Researchers then looked at people who didn’t get a reverse mortgage—those who did HECM counseling and did not “pull-through.”

Of this population, a sizable share attributed their reasons to a perceived ineligibility, thinking that they were personally ineligible (17%) for a HECM, or their property didn’t meet standard requirements (22%).

“Only about 28% are saying ‘costs are too high,’ which I know has been one of the big things that we all believe is what deters people [from getting a reverse mortgage],” Moulton said.

About one-third of respondents cited “the amount of money they can get is too low” as their main reason for not obtaining a HECM, whereas interestingly enough, selling the home and moving was the driver for only 6% of people for why they didn’t get a reverse mortgage. Only 2% of respondents said their reason for not getting a HECM was because “a financial advisor advised against it.”

The vision of the FHA’s Home Equity Conversion Mortgage program is to enable senior homeowner to age in place, essentially giving them a better quality of life and overall well-being as a result of being able to continue living in the home. But is this concept actually happening for borrowers who obtained HECMs, and how does their satisfaction compare to the lives of borrowers who decided not to get a reverse mortgage in the months following counseling?

Even among those two populations, those who got the reverse mortgage rate certain aspects of their current situation significantly higher than those who didn’t get a HECM, Moulton said.

“Those who got the reverse mortgage rate the condition of their home statistically higher than those who did not get a HECM,” she said. “They also rate their satisfaction with their city or town higher, along with daily leisure, family life and their present financial situation.”

But that is not to say the “terminated” group—those who got a HECM then terminated it—was an unhappy bunch.

“The ‘terminated’ group are really not unhappy or disgruntled, which was a surprise because we thought these are going to be our grumpiest folks,” Moulton said. “We thought they would be the ones to say [getting a reverse mortgage] was a mistake. We did not find that.”

The results of the survey served as a sneak peek to the actual study, which Moulton said would be formally released early next year.

Written by Jason Oliva

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