Rising Senior Home Equity and Reverse Mortgage Volume Remain Far Apart

As noted by the most recent tabulation conducted by the National Reverse Mortgage Lenders Association (NRMLA) and data analytics firm RiskSpan, homeowners aged 62 and older saw their collective housing wealth increase in Q4 2020 by 3% compared to the previous quarter. This constitutes an increase of approximately $234 billion to a record of $8.05 trillion, according to the Reverse Mortgage Market Index (RMMI).

However, in spite of that rise in home equity for seniors, reverse mortgages themselves “remain unpopular,” according to a column published at the Boston College Center for Retirement Research (CRR).

“The total value of the equity in older Americans’ homes has doubled since 2010, hitting $8.05 trillion at the end of last year,” the column reads. “The irony is that federally insured reverse mortgages, which allow a long-time homeowner to cash in on tens of thousands of dollars of equity, aren’t very popular. Last year, only 42,000 Home Equity Conversion Mortgages (HECMs) were sold – half as many as in 2010 – according to the U.S. Department of Housing and Urban Development (HUD).”

One possible reason for this according to CRR is a basis in a 2017 report on reverse mortgages conducted by the Consumer Financial Protection Bureau (CFPB), which said that certain homeowners may just find the reverse mortgage arrangement incompatible with plans they may have for their property.

“Homeowners who wish to sell their homes after taking out a reverse mortgage are particularly at risk because the loan balance is likely to grow faster than their home values will appreciate,” the 2017 CFPB report said. “This could limit options for moving or handling a financial shock.”

However, according to a study authored by CRR co-founder Alicia Munnell in January 2020, most retired homeowners simply choose not to move out of their homes, and a HECM is a potential option that an aging-in-place senior could potentially choose to create additional cash flow in later life.

“We accept it as ‘normal’ to spend-down 401K funds, yet somehow home equity is sacrosanct,” said Dave Gardner, a former part-time reverse mortgage broker to CRR. “[Retirees should ask themselves:] could you achieve a better result and extend the lifespan of your nest egg with a reverse mortgage?”

Home equity remains one of the largest assets that retirees have access to, according to research by CRR conducted in 2017. This may indicate that a reverse mortgage should at least be on the proverbial table of options, according to CRR.

“If you’re struggling to cover your retirement expenses, a reverse mortgage is something to consider,” the column reads.

Read the piece at the Boston College CRR.

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