Housing Downturn Led to Major Reverse Mortgage Changes says AARP Report

While reverse mortgages offer older Americans a way to tap home equity during retirement, the collapse of the mortgage market in 2008 has led to major changes that impact consumer choices according to a new report from the AARP Public Policy Institute.

“For homeowners who are “house-rich, but cash-poor,” reverse mortgages can be a lifeline that enables older people to remain independent while meeting basic needs,” said the report.  “However, declining home values and the resulting collapse of the mortgage markets have had a major impact on all aspects of reverse mortgages.”

The release of additional products like the HECM Saver may bring additional choices to consumers, but it has also made reverse mortgages more complicated and therefor, led to more scrutiny from Congress and regulatory agencies charged with protecting consumers.  In recent years, Congress has passed two consumer protection laws in response to unsuitable financial products being sold along with a reverse mortgage.

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One concern highlighted in the report is the fact that reverse mortgage borrowers are getting younger in recent years.  “The trend toward borrowing at earlier ages raises concerns about the long-term impact of reverse mortgages on financial security.”

With more borrowers taking out lump sums at closing, the report says that “more research is needed on the consequences of reverse mortgages for long-term financial security.”

“Providing safe and affordable reverse mortgage options and improved counseling and disclosures will be crucial in establishing the consumer confidence needed for expansion of this important financial option,” said the report.

View a copy of the report here.

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  • I do agree with a lot of the report from AARP. However, lets look at some of AARP’s concerns. As far as borrowers taking out more lump sums, that is true. We have seen more lump sum’s come into play over the last couple of years because of the fixed rate product and falling home values. We have also seen floating rates and volatility with the reverse mortgage industry that was not prevalent in the past.

    I feel we will see the ARM coming back into the picture, which will afford the borrower more option’s than the fixed rate product. The SAVER is a program to watch, it will fit a needed gap in the future of the reverse mortgage.

    I realize the largest percent of reverse mortgage needs has been to satisfy existing liens. We must also understand that many of these borrowers may have had excess funds after their mortgage was paid off. If the ARM was the only product or the most attractive product, we may have seen many borrowers put funds into a line of credit or take monthly income’s. The point I am trying to make is that the future may not continue to repeat the past two years, anyway, I hope not.

    AARP’s report paints a not to rosy picture in many ways. Lets not forget the percentage of seniors that have a low LTV or own their home free and clear. We have many opportunities by targeting this group.The reverse mortgage has gotten the reputation and perceived as a need based product for those that are only in financial difficulty. This is as far from the truth as you can get. Sure, we are there to help seniors who are and who have experienced difficult times, more so today than we have seen in the past. Tell me, what happened too improving the quality of life for our seniors. This used to be our best word of advise before the crash and all the changes hit us. This is still the case for a large percentage of our senior homeowners, a reverse mortgage can improve their quality of life dramatically!

    We are going to have to market our product differently than we have in the past and we must start going after the senior with a large amount of equity or no lien on their property. In short, we are going to have to go back in the business of improving the quality of life for a large percentage of our seniors.

    One other area of the report zone in on the percentage of younger borrowers taking out reverse mortgages are growing. It is fairly obvious why, look at the economy and the job situation in this country. I can understand the concern for the younger borrower and what the financial condition of these borrowers will be 10 years down the road. Again, we need to start increasing our efforts and go after the senior in their late 60’s and early 70’s. Seniors of this age are healthier and more vibrant, wanting to travel more and live their lives. We must not forget what we used to believe and tell our senior’s, “A reverse mortgage will allow you to do more of what you have been wanting to do”!

    I see hard times ahead with many challenges but I see many opportunities for those who take the Bull by the horn and go after it with enthusiasm and ingenuity.

    Have a good day,

    John A. Smaldone

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