Not unlike an insurance policy, wherein key educated guesses underpin much of the pricing and risk (payout) calculations, a reverse mortgage “calculator” is used by lenders to determine how much money to make available to a senior from the equity in their home, based on several factors including a borrower’s age and the property value.
But, there are differing opinions on the features used by the calculator to derive its findings. Mike Fasano of Fasano Associates, a Washington, D.C. firm which specializes in life, health and annuity underwriting, finds it “striking that AARP’s reverse mortgage calculator doesn’t give more money to someone who is single versus a married couple.” And, he wonders whether “it would make sense, as the reverse mortgage industry goes after Baby Boomers, to consider medical underwriting as a differentiating factor in products. I would think it would make an awful lot of sense,” Fasano opined.
A HUD economist who helped set-up the financial model for reverse mortgages, tells RMD that, “medical underwriting could be considered on a longer-run agenda, but it would need development work. The difficulties with doing that include the fact that lenders are not prepared.”
Bronwyn Belling, national program coordinator, AARP Foundation – Revere Mortgage Education Project, says: “HUD chose to design the [reverse mortgage] program so that the loan amount is based on the age of the youngest borrower. The older spouse doesn’t matter,” she explains, because “the younger [one] has the likelihood of living longer,” although she admits “it’s one household where either person can outlive the other.” Belling recalls Fannie Mae’s Homekeeper program – terminated at the end of 2008 – which did take into account the joint life expectancy of both borrowers [using an] actuarial table.
Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at [email protected]