NCOA to Congress: Take Note of a New Trend in Reverse Mortgage Borrowers

While some lenders are now marketing to the reverse mortgage borrower who is not looking for a long-term financial fix, some industry affiliates are also beginning to note the potential for a new type of borrower to emerge.

During a Congressional hearing last week, a National Council on Aging representative spoke of the “new trend” toward using home equity for shorter term cash shortfalls.

“Reverse mortgage borrowers are at the leading edge of a new trend to use home equity to deal with cash shortfalls,” said NCOA’s Barb Stucki, in testimony before a subcommittee of the House Financial Services Committee. “The reverse mortgage marketplace is very dynamic and must be understood within the broader perspective of our nation’s current housing and economic situation.”

NCOA counseling sessions have indicated a shift toward solving short term debt rather than enhancing lifestyle, Stucki said, with only 27% of borrowers today using reverse mortgages for the latter purpose. 

The consequences of the shift is still unclear, however. 

“On one hand, as the Baby Boomer generation ages, reverse mortgages may be part of a growing trend to include home equity as part of retirement planning,” Stucki said. “For some older homeowners, orderly liquidation of home equity could be a better option to sustain community living than preserving this asset for financial emergencies. On the other hand, using a reverse mortgage to address income shortfalls can also increase financial risks if borrowers do not manage their spending or if they rapidly draw down their home equity.” 

Written by Elizabeth Ecker

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