MetLife: New, Younger Borrowers Need Reverse Mortgages

The reverse mortgage borrower of today is getting younger, and the age may be declining even further as a result of the financial stresses of the past four years, according to a study released this week by MetLife’s Mature Market Institute.

This new group of borrowers is also using the reverse mortgage in a new way: to lower household debt, rather than to enhance lifestyle, as was more common in the past. Further, due to declining home values, an increasing number of borrowers can’t qualify, according to data compiled by the National Council on Aging and Metlife.

The study, based  on Department of Housing and Urban Development reverse mortgage counseling data collected between September and November 2010, using NCOA’s FIT tool, shows the average borrower is about 73 years old today, but the average age of those who went through counseling was even younger—at 71.5.

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Borrowers are getting younger at the same time relative costs of taking a reverse mortgage have increased, MetLife reports, noting that for about 32% of counseling clients, their existing mortgage may exceed 50% of the value of their home and they may not have enough equity to qualify.

“The higher relative cost of these loans at younger ages suggests that there must be other factors that account for the influx of homeowners under age 70 who are interested in, or taking out reverse mortgages,” the report states.

Boomers are willing to take on more debt to fund major purchases today, as senior households increased debt between 2004 and 2007. They may also have overextended themselves financially, leading to the need to tap into home equity sooner.

“Several years ago, many older homeowners took out this loan as a way to enhance their quality of life,” the report says. “But now, people who consider these loans are more concerned about urgent financial needs, including lowering debt…. For older homeowners with sizable debt, a reverse mortgage may be the only way they can retire. This strategy, however, can also increase financial risks if borrowers do not manage their spending or rapidly draw down their home equity.”

With common reverse mortgage needs changing, the average borrower may be shifting, according to MetLife and NCOA, back toward meeting immediate cash needs.

“Among HECM counseling clients in 2010, only 27% were considering a reverse mortgage to enhance their lifestyle,” the report says. “Even fewer (23%) saw the need to plan for the future as a reason to take out this type of loan. Instead, most of these homeowners wanted to lower household debt.”

View the full report.

Written by Elizabeth Ecker

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  • The article is a good one and points out what changes are occurring  in today’s society. The article depicts a great sales tool to be used by originators with their younger clients.

    Good article Elisabeth and the timing was good.

    John A. Smaldone

  • The first key finding in this study per the MetLife website is: “While the average age of borrowers is 73, 46% of homeowners considering a reverse mortgage are under age 70.” So why is the data used to prove this key finding coming from 2009 and 2010 when the report is for March 2012? 

    Sound biased? Consider who the co-author is. To say that NCOA has at least one “dog in this hunt” is a strong understatement. Specifically the study itself claims: “The study is based on the analysis of data from 21,240 counseling sessions held between September and November 2010.” (Before the September 2010 there was no such data; this data comes from FIT, a creation of NCOA.) Then again the study concludes: “This study reinforces the need for strong reverse mortgage counseling.” Not a particularly surprising conclusion based on biased data and one of the co-authors is a HECM counseling agency and intermediary. 

    So why is the emphasis on data from the first 81 days of FIT which is now over 18 months old when more current data is available? More than at any other time in the history of the program, those under 70 in particular had a disproportionate reason to look at and if eligible, get a HECM. During the fiscal year ended September 30, 2010, the principal limit factors (“PLFs”) were reduced. Starting October 4, 2010, at the then expected interest rates, younger seniors had PLFs available that had not been available for 12 months. So was there pent up demand among younger seniors for the now available higher PLFs? No doubt, yet this study did not discount this factor in their findings. 

    Also the study does not look at the average age of the youngest borrower related to endorsements for the counselees under consideration; instead the study seems satisfied to use the average age for the fiscal year ended September 30, 2010 of 72.9 years when the average age of the counselees they looked at would have had their HECMs endorsed in the second and third fiscal quarters of the fiscal year ended September 30, 2011 when the average age was 72.2. 

    The study makes several very good and valid claims but why did they need to choose biased and dated information to make their points unless it was in part to show some “valid” (i.e., warped and biased) use of FIT? While there is much to commend the stand the study takes against the use of HECM proceeds for risky “investment” strategies, it fails to recognize any differentiation in risk related to current strategy proposals. For example, working with a competent CFP who understands the strategy, the risk of using a reverse mortgage early in retirement to extend available cash throughout retirement for most middle class seniors is actually much less than previously thought as demonstrated in recent research by Dr. John Salter, CFP and Mr. Harold Evensky, CFP. On the other hand, increasing Social Security benefits through delaying them by using reverse mortgage proceeds is full of risk for almost all seniors with any reward delayed in most cases until the adherents reach at least mid 80s; it is more of a gamble than reasoned financial strategy. 

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