The Future of Reverse Mortgages: “It Will Be the Norm”

Citing past research on reverse mortgage products that has been conduced by the Boston College Center for Retirement reserach, the center finds that now, more than ever, reverse mortgages are poised to take an important place in the retirement landscape. 

With the average American woefully unprepared for funding his or her retirement years, people are going to have to use home equity to their advantage, says Alicia Munnell, director of the Center for Retirement Research at Boston College. A reverse mortgage is one viable way to do it.

“This is not a flawless area,” says Munnell. “But I am a great fan of reverse mortgages. I have been for 15 years. No, they are not right for everybody.”

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A recent Consumer Financial Protection Bureau report on the reverse mortgage business raised several findings about the products including concerns about reverse mortgage counseling as well as the trend toward younger borrowers.

With regard to borrowers getting younger, Munnell says, the CFPB made the issue out to be a larger concern than it actually is.

“It doesn’t bother me,” she says. “If borrowers are taking a reverse mortgage younger in order to postpone drawing upon Social Security or to pay off their existing mortgage, both seem like legitimate goals.” 

While counseling funding has been a contested topic in recent months and years as funding for the counseling was momentarily suspended in 2011, the CFPB drew attention to the quality of counseling as well. 

“They are complex instruments and counseling needs to be done. My sense is we need to get a better understanding of who should take out a reverse mortgage. People need this kind of cushion so that if they have an adverse event, they have some capital to draw on.” 

Munnell says that for the middle of the income distribution of U.S. households, Americans must consider their home equity as part of their retirement plan, with the average having saved only about $100,000 for retirement. 

“I see a future where people in their 60s are having dinner with friends and the conversation leads to: “Where are you getting your reverse mortgage?” It will be the norm. It is going to take a while, but we will have a cohort of people entering retirement who only have $100,000 in their 401(k) plans.”

Written by Elizabeth Ecker

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  • The problem with reverse mortgages in the last 20 years is that the money borrowed on them is far more than the house is worth today. Also people are so overburdened by the mortgage being paid now that  there might not be equity in the home to really get money out of their homes. This is the reality of the situation.

    • Savvy,

      I am not a member of the so called Realtor club but I am a California licensed real estate broker and a NMLS licensee.

      From where are you getting your information?  I have a customer who got his reverse mortgage in 2005 and owes about $20,000 on it but his home is worth over $120,000.  He has a FHA insured line of credit of over $220,000 still remaining and still growing each and every month.

      I also know a son of a borrower who took out $300,000 from his line of credit just before he died and gave it to his son as his inheritance.  The home sold for $140,000 last year.  What the estate with no assets now faces is capital gains tax on a $160,000, if that.

      Some seniors are in the position you describe.  Is that good or bad?  In some cases it is very good.  Imagine the senior who is receiving enough Social Security to feed themselves, take care of medical, pay for property charges such as property taxes and insurance and has enough left over to save for home repairs.  Before the reverse mortgage, their regular mortgage was eating them alive.

      Or how about the former school teacher whose electricity had been turned off.  She had no phone service so she called me using her neighbor’s cell phone.  She had no hot water because the gas was turned off.  All of her food and medicine which needed to stay cold was in her neighbors’ refrigerators.  Oh yeah, her house was at 93 degrees the day we went to see her.  She had no mortgage and could not sell the home as is.  And there sat her car in her driveway with no gas and no battery charge.   There was no insurance on her house.  She was getting around $500 per month in teacher’s retirement.  BUT she had no mortgage and her property taxes were up to date. 

      After I arrived the woman threw me out with no explanation.  She later told me she had just had stomach surgery and she was in such great pain she could not concentrate on what I was saying.

      At closing the woman had just received her retirement check and needed someone to pick her up at a local school for beauticians where for the first time in 10 years she had her hair cut and nails done, all for $15.  She was splurging already.  Work needed to be done on her house but she now has over $700 per month coming from her reverse mortgage and utilities, food in her own refrigerator.  She gets her hair and nails done at least monthly at the same school near her house.  Oh yeah, she still has some money in her line of credit she can use for emergencies.

      Have some seniors taken reverse mortgages and made decisions on how they used the funds and are now sorry for how they misspent their money?  To say otherwise would be as invalid as the claim made in your comment.

      I can also point you to Stockton California where months before the downturn came, people were putting down payments on homes which a Realtor sold them but within a year these same folks would be part of the story of the US capital for foreclosed homes.

  • Tym,

    Alicia is no doubt a bright and articulate woman but in the article she sounds like someone who just visited an OPM (Other People’s Money) den and because of the fumes alone, was in a state of euphoria.

    Sometimes I wonder what I sounded like to friends when discussing the future of our industry in 2006 and 2007.  In our little industry both publicly and privately exec after exec was crowing about proprietary products and how HECMs would be such a small part of our production by 2011.  By the end of 2008, no doubt, I looked pretty ridiculous.  OPM dens have a way of doing that to a person even if that person does not shoot up or smoke, just being there is generally enough to induce a high.

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