Reverse mortgages are a small – and, it appears, increasingly shrinking – piece of the proverbial mortgage pie. Recent data reveals that endorsements have dropped to a low the industry hasn’t seen in 13 years.
The slump is a result of changes issued last fall by the U.S. Department of Housing and Urban Development that effectively limited the amount of proceeds available and the number of people who could benefit from the loan.
The new guidelines were a blow to an industry that has long struggled to gain traction.
Since the Home Equity Conversion Mortgage program started under President Reagan’s watch in 1989, the industry has originated just over one million of these federally insured loans – a measly number compared to the traditional mortgage market.
Over the years, the industry has suffered reputation issues, battled inaccurate news coverage and adjusted (again and again and again) to new regulations. Yet, the industry persists.
If you talk to a reverse mortgage professional – or anyone, frankly, who has been working in this space for the last couple years – you’ll start to understand why – why this product still matters, why mortgage lenders should care, why consumers should care.
In the six-plus years that I have been covering this market, I have yet to meet a reverse professional who is not passionate about their job and adamant about the importance of this loan. And all of them will tell you the same thing: It’s the demographics. The numbers don’t lie.
According to the U.S. Census Bureau, there are more than 77 million Baby Boomers who are turning 65 at a rate of 10,000 each day, and it is expected to continue at this rate for the next 15 years. By 2030, more than a quarter of the U.S. population will be older than 65.
“The demographics speak for themselves,” said David Peskin, president of Reverse Mortgage Funding. “The number of people over age 62 continues to grow; people are living longer and longer; and people who have depleted their savings are looking to age in place. What better way to age in place and take care of yourself in retirement than letting the equity in your home work for you.”
Mike Kent, president of Liberty Home Equity Solutions, echoed this sentiment. “The potential customer base is huge, and we have such a small penetration that it’s hard to see a market that doesn’t grow on some level,” he said. “We believe there are a significant number of professionals who are looking to provide seniors with the ability to leverage and access their home equity for a better retirement.”
But in order to reach those seniors, the industry may need to get creative. Under its current structure, the reverse mortgage makes sense for fewer people than it used to. To fill the void, lenders are introducing proprietary reverse mortgage loans that can offer greater proceeds.
Kent said he thinks this diversification of products is essential for the industry’s success.
“For the reverse mortgage industry to thrive, we need to expand our product offerings and give seniors more responsible options and different ways they can access their home equity,” he said. “We do not believe that putting your future in just a single, FHA-insured product is the answer.”
Peskin said that while he hopes HUD will improve its product so that it can continue to be useful to consumers, he also predicts a growing market of non-agency offerings.
“I envision more proprietary products coming into the market,” he said. “I see the market itself broadening in terms of what’s out there and available to the customer.”
In the meantime, Kent said he expects to see volume slowly rebound as lenders adjust to the new normal.
“We anticipate that over the remainder of this year and into next year we’ll see a fairly steady recovery in volume. Our focus today is to not only access more customers, but the right customers, who can benefit from our knowledge, products and customer-centric approach.”