Baby boomers are sparking a reverse mortgage revival as a way to generate retirement income, reports Reuters.
After the housing boom-and-bust, the reverse mortgage product was “left for dead,” the article says, but retirees who haven’t saved enough are now turning to their largest asset: their home.
“Brokers and bankers say the 77 million retiring baby boomers will likely help fuel further growth in the loans in the coming years, making the business a growth spot in a home loan market where volumes have recently been declining,” says Reuters.
In 2013, reverse mortgage borrowers took out $15.3 billion of loans, up 20% from the previous year, according to Inside Mortgage Finance data cited in the article.
While reverse mortgage dollar volume recently climbed, traditional mortgage lending is expected to fall 37% this year as higher interest rates reduce refinancing activity, the Mortgage Bankers Association forecasts.
“There are lots of mortgage lenders who see declining volumes and may view (reverse mortgages) as an opportunity to increase revenues,” David Stevens, president of the MBA and a former commissioner of the FHA, told Reuters.
Larger lenders including Wells Fargo and Bank of America exited the reverse mortgage industry in recent years, but smaller lenders see opportunity for growth in the space.
“The market is huge. It’s under-penetrated,” Denmar Dixon, chief investment officer at Walter Investment Management (NYSE:WAC), said at a December investor conference.
About 10,000 boomers turn 65 each day, and almost half (48%) don’t think they’ll be able to cover all their expenses in retirement, according to a Fidelity survey.
With bigger lenders concerned about the risks of reverse mortgages, citing factors such as unpredictable home values and the loan’s delinquency rate, the Federal Housing Administration has instituted changes to the HECM program addressing those risks, Reuters notes.
“As with any mortgage product, there is risk to financing a loan, but we have made, and continue to make, significant efforts to mitigate that risk,” Melanie Roussell, a spokeswoman for U.S. Department of Housing and Urban Development, told Reuters.
Written by Alyssa Gerace