Bloomberg: Lack of Retirement Savings, Reverse Mortgages Deserve Serious Look

NewImage.jpgBusiness Week is reporting that with big losses to retirement savings as a result of the financial crisis has stoked interest in reverse mortgages among younger retirees of both sexes.

According to the article, over the last 22 years, 637,000 of the Federal Housing Administration’s reverse mortgage program have been endorsed through the end of July 2010.  That represents roughly 7.2 percent of the 6,933,404 owner-occupied housing units for people age 65 and older recorded by a U.S. Census Bureau survey in 2008. HECMs, which are insured by the Federal Housing Administration (FHA), are now roughly 99 percent of the reverse-mortgage market.

“It’s viewed even now as a niche product that people only make use of in desperation,” says Anthony Webb, research economist at the Center for Retirement Research at Boston College. “Given the inadequacy of retirement savings, it really is something that everyone ought to be thinking about, even if in the end they choose not to take advantage of it.”

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According to Jim Heitman, an independent, fee-only financial adviser in Alta Loma, Calif., clients interest in reverse mortgages has jumped up big in the last few years.  “When I introduce the topic, I need to do a lot less educating as to what that is than I used to,” he says.

Boomers’ Shrunken 401(k)s Spark Interest in Reverse Mortgages

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  • Can’t anyone run a calculator anymore? If the raw numbers are correct, the percentage is not 7.2% but closer to 9.2%. Where are these numbers coming from? Surely not more than 90% of the total HECMs ever endorsed may have been outstanding as of 7/31/2010. Using that number, 8% is much higher than any percentage I am aware of to date. Yes, seniors between 62 and 65 are left out of the homeownership figures but I doubt if the number of homes owned by that cohort is over 18,000,000 homes.

    We have consistently heard that we have only penetrated a little over 1% of all eligible senior homeowners. Using 2%, that means there would have to be over 26,000,000 homes owned by those over 62. So what is the real story? Bloomberg indicates that the total number of homes owned by those 65 and older is less than 7,000,000.

    If there are over 500,000 reverse mortgages outstanding on a potential base of around 10,000,000 homes owned by those 62 and over, that would say we have penetrated over 5% of the potential market. 5% is much better than less than 2%.

    So what is the real story? Whatever it is, it should be based on the number of eligible homes, not the number of seniors over 62.

  • Mr. Webb has it about right.

    Like all marketers we like to gloss over how effective our marketing has been. We have attracted the desperate more than the house rich and cash poor. To reach a wider segment of those over 62, we need different marketing. No doubt we will see that with time.

    Providing cash to the desperate is much easier than gaining a wider market share with those who are not so desperate. By the comment of Jim Heitman, members of the industry may feel as if we have achieved something. It is not what Jim stated is false; it is what he stated is bothering. Looking at the fall in volume this last year despite better knowledge about our products is not very reassuring.

    Now one has to look at Jim for a minute. He is in one of the most marketed areas in the country. Despite its large population, California does not have a high percentage of seniors in its population base but the percentage of HECMs based on raw population numbers is disproportionately high.

    When you read what various “educated” writers have to say about HECMs, one thing we all have to admit is that our education needs to improve. We have come a long way but we have a long way to go to expand our current customer base.

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