Does the U.S. Need a Reverse Mortgage For Younger Borrowers?

When I read that Canada’s HomEquity Bank released a reverse mortgage product available to people 55 and older, I was impressed. Someone was offering a product that wasn’t available here in the United States.

Up in Canada, the market for reverse mortgages is continuing to grow, up 16% from last year and brings HOMEQ Corporation’s portfolio to $1.1 billion as of Q1 2011. The decision to lower the age from 60 to 55 comes “primarily in response to a significant demand by couples where one spouse is over 60 while the other may be a few years younger,” said the company.

Besides it being something AARP might approve of considering its non-borrowing spouse lawsuit, it made me wonder: Does the U.S. need a reverse mortgage product for people as young as 55?

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It sounds great, but all lowering the age of a product to 55 means is that borrowers are going to get less money. With people continuing to live longer, estimating where that loan and the housing market might be in 30 years is impossible. The only way for lenders to protect themselves is by offering less money. This is the problem. Borrowers in the U.S. are looking for one thing… more money.

Offering a product with a lower age doesn’t address the biggest desire of consumers thus far in our market. I’ve spoken with plenty of people who’ve developed private reverse mortgage products and they’ve never once mentioned they see a demand for younger borrowers. Nope, everyone is looking for more money.

The whole idea of getting less money hasn’t yet proven to be a winning strategy here in the U.S. We’re testing it out right now in the form of the HECM Saver and only some of the industry is having success. While initial Saver results are encouraging, the industry saw applications slip for the first time and it has yet to prove that borrowers are looking for less money at a lower cost from their reverse mortgage.

Let’s also not forget that the industry had a product that allowed people as young as 60 years old access to reverse mortgages. The Senior Lending Network’s Simple60 was an exciting product, during an incredibly exciting time for the industry. However, it never really got the chance to take off, with KBC deciding to close down the company during the subprime crisis. But from what I’m told, there was never enough volume to prove there was a “significant” demand for the product. It was a nice, “oh yea, we offer this product too.” Why didn’t it ever take off? Because people always want more money, which is why the HECM remains the dominant product in the market.

Many in the industry feel the private markets could offer a product to younger borrowers and I’m sure it could… eventually. But people also seem to think there is a private product that will be able to compete with the HECM in the near future. To all those people, I think you’re crazy.

The private market will always offer less money and that’s why for the time being at least, no one in the U.S. will be seeing reverse mortgage products available to 55 year old borrowers unless it has the word HECM attached to it.

Until that happens, I say congrats to our neighbors up North, but I still like our products better.