Consumers Like Reverse Mortgages Better When They’re Called Something Else

Shakespeare once asked his audiences if a rose by any other name would smell as sweet. The National Council on Aging recently asked focus groups of consumers and financial planners if a reverse mortgage by any other name would sound like a better retirement option — and, perhaps not surprisingly, it did.

In a study supported by the Bloomfield, N.J.-based Reverse Mortgage Funding, researchers presented information about both the Home Equity Conversion Mortgage line of credit and a traditional “forward” home equity line of credit, but notably did not name either product. The groups were then asked which potential option best fit their retirement planning needs; 58% of consumers and 43% of financial planners selected the HECM line of credit option.

Separate focus groups of consumers and planners were then presented with the same information, but with both products clearly identified. Consumer sentiment swung wildly, with 68% of respondents saying they preferred the home equity line of credit, but only 37% of financial planners picking the traditional HELOC — a decline from the blind control group.


The researchers eventually unmasked the identities of the products to the control group, and a majority still preferred the HECM option despite knowing the name. But survey participants said they had a lack of understanding about the product, and said they’d prefer to learn more from “a trusted source” about using home equity to provide for them during retirement.

“The study demonstrates that greater education and guidance about home equity release solutions is needed to help consumers and financial advisors make the right choice for their individual and clients’ needs,” said Craig Corn, Reverse Mortgage Funding’s CEO, in a statement about the study results.

These results also echo what many in the industry know all too well: The “reverse mortgage” moniker remains stained by decades of shady lender and broker behavior, and recent safety improvements — from the Financial Assessment to draw caps — have yet to chip away at entrenched consumer sentiment. In a brief from the Center for Retirement Research at Boston College released Tuesday, research economist Steven A. Sass noted that older Americans remain reluctant to tap into home equity, in part due to “behavioral and informational impediments.”

Citing a 2016 study, Sass writes, “Only one third of the respondents, for example, knew that they could stay in their home even if they owed more than it was worth,” pointing out a need to explain the admittedly counterintuitive “non-recourse” aspect of HUD-backed HECMs.

“Reverse mortgage are also tainted by their earlier association with scammers, who tried to convince elderly homeowners to take out loans to buy overpriced investments or home improvements,” Sass continued.

In his paper, Sass breaks down recent research about seniors’ motives for remaining in their homes. In addition to usual suspects — including inertia and a desire to pass down the home to heirs — Sass explores the more subtle concept of “in-kind services,” positing that the subjective benefits of home ownership outweigh the hypothetical financial benefit of renting the property.

“These services continue for as long as the retiree remains in the house, which offers valuable protection against longevity risk and rent increases; maintains connections with nearby family, friends, and community amenities; and allows the elderly to modify their home to suit their changing needs,” Sass writes.

Sass cites some interesting statistics that show just how entrenched seniors become in their homes, noting that about two-thirds of owned homes remain in retirees’ names from the beginning of retirement to death, and even widowhood — a “shock” factor that could potentially force a homeowner to relocate and downsize — only decreases the likelihood of continued home ownership by 3 percentage points.

That said, Sass lays out the common reasons why these home-loving seniors don’t tap into home equity through a reverse mortgage, including high initial fees, a desire to leave a healthy bequest to their heirs, and the relative complexity of the products.

“Such levels of complexity have been shown to strongly incline households to do nothing — unless forced to act by financial distress,” Sass writes. “Given these informational and behavioral impediments, expanding the use of reverse mortgages will be challenging.”

Written by Alex Spanko

Join the Conversation (4)

see all

This is a professional community. Please use discretion when posting a comment.

  • I can think of NO advantages the HELOC has over the ReLOC other than initial cost and the ability to hold a zero balance. Given the significance of the ReLOC’s advantages, I am incredulous that the financial planner “blind” control group still selected the ReLOC only 43% of the time.

    Perhaps the study was not a “forced choice” between the two, and the remaining 67% of planner preferences comprised the choice of HELOC or “NEITHER”, the latter because use of home equity was not deemed necessary or feasible in some number of client cases.


      Where do you get a remaining 67%? 100% minus 43% is 57%, isn’t it? You prove the point about the problem that most of our originators lack the basic math skills to compute a fully funded LESA with a handheld business or scientific calculator.

  • Yet, if a proprietary reverse mortgage is not named a reverse mortgage neither by name nor by loan or security documents, is it a reverse mortgage eligible for nonrecourse relief under 15 USC 1602(bb) if that relief is not incorporated into the loan documents? Most likely yes, unless other terms of the loan sufficiently deviate from those listed in 15 USC 1602(bb) but then the question comes what is sufficient deviation.

string(118) ""

Share your opinion

[wpli_login_link redirect=""]