Only 3% of Seniors Plan to Buy Homes Using Reverse Mortgages

The Home Equity Conversion Mortgage for Purchase may be a cost effective way for seniors to both obtain a reverse mortgage and buy a new home in a single transaction, however, very few aging homeowners plan to utilize this product for their next home purchase, a recent survey finds.

When buying a new home, one of the earliest decisions a buyer needs to make is how they plan to pay for their new residence. Buyers can either take out a traditional mortgage loan, pay in cash if they have the means, or for homeowners age 62 and older, get a HECM for Purchase (H4P).

An majority of buyers, however, prefer to buy their home using a traditional forward mortgage rather than a reverse mortgage, according to the results from a new survey by the National Association of Home Builders (NAHB) sponsored in part by top-10 industry lender Reverse Mortgage Funding, LLC.

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The survey, Housing Preferences of the Boomer Generation, analyzes and compares the home buying characteristics of Millennials (b. 1980—), Gen-X (b. 1965-1979), Baby Boomers (b. 1946-1964) and Senior (b. —1945) consumers. NAHB conducted the survey in two phases in September 2015, using an online consumer research panel maintained by Home Innovation Research Labs.

Of 4,326 total responses garnered by NAHB, only 3% of buyers say they would use a reverse mortgage to pay for their new home, whereas 67% would likely use a traditional mortgage, whereas 28% would pay in all cash. Only 2% of buyers said they would use “other” forms of payment.

Broken down by generation, Baby Boomers were the least likely to use a reverse mortgage to purchase a new home, totaling just 2% of responses, while 62% of this group would rather use a traditional mortgage loan and 32% prefer to pay in cash.

Although just 3% of Seniors said they would use a reverse mortgage for their next home purchase, they were otherwise closely split between using a traditional mortgage (48%) and paying in cash (47%). Even 3% of Millennials and Gen-Xers said they would consider using a reverse mortgage to buy a home, though these younger groups skewed predominately toward traditional forward mortgages (79%).

The minuscule interest in reverse mortgages may be attributed to a widespread lack of knowledge or understanding of the product, especially for the H4P, which still remains a minute share of overall HECM volume. The NAHB study did not explore the potential influencers behind these responses.

Written by Jason Oliva

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  • During 2014, 4.94 million existing homes saw change in ownership. Another 437 thousand new homes were also sold that year. Thus 5.337 million homes were bought that year.

    Per the National Association of Realtors reported that those over 68 comprised 10% of the buyers in 2014 and those between 60 and 68 years composed 15% of the marketplace. So about 21.67% of the homebuyers were 62 years or older.

  • Another good article by Jason and well timed. Also, great statistics again given by my friend Jim Veale.

    The H4P product, to me is the sleeping giant of our industry!

    Who sells more existing homes in this country, “Realtors”, right? and right behind them, “Builders”!

    The problem only 3% of seniors that are purchasing a home don’t use the H4P product is because, either they don’t know it is available, which is usually the case, or their Realtor or Builder never mentioned it to them.

    It boils down to education!! Getting out there and holding educational workshops at realtors offices when they have their weekly meeting. Go out to large builders you know that have inventories of models and homes that are 99% completed. Educate these Relators and Builders on the valuable tool they have at their disposal with the H4P product.

    This is how we can build that 3% up to 6%, 12% and more. We have to let it be known that there is the H4P product available and let everyone know how it works!!

    John A. Smaldone

    This is the expressed opinion of John A. Smaldone only and does not represent an opinion of Willow Bend Mortgage or its affiliates.

    • John,

      Endorsements of 2,436 is just 0.21% of the assumed 1.156,500 buyers over 61 years old. We have a long way to go just to get to 3%.

      I am not against H4P but I very much challenge why we exaggerate what H4P has done.

      We want to believe anecdotal evidence but it has no value. Why call it a sleeping giant when it is not a giant and it is not asleep.

      If we want to be educators let us withstand the urge to exaggerate what it is we are educating on. Eventually one will bring down the other.

      • Jim,

        With all do respect, I disagree with you on this one, which is very rare. I do see the H4P as a sleeping giant and if presented and worked properly, it could reach and exceed the 3% mark.

        I also feel we in our industry must always be educators and help everyone we can to understand the benefits of the reverse mortgage.

        My friend, the H4P product is needed out there in the market place. The only way we are going to have everyone capitalize on it is by promoting it and educating all those that are involved in the home purchase market.

        That is my take on it Jim and as always, I appreciate your comments and point of view.

        John A. Smaldone

      • John,

        The article states: “Although just 3% of Seniors said they would use a reverse mortgage for their next home purchase….” But where is the 2.79% of the 3% who say they would use a HECM hiding. We do not see this exaggerated demand percentage now or at any time in the history of H4P. Even if actual demand was just 1.25%, the article would have more credibility. BUT actual, true, factual, empirical demand is just 0.21% or less than one-fourteenth of the demand cited in the article above.

        This kind of exaggeration is exactly what is wrong with the industry when it comes to H4P. The numbers thrown around seem reasonable until you fact check them. This is well beyond the idea of just being optimistic to the point of being deceptive.

        Yes, 3% is well within the realm of possible but for fiscal 2016 it is not probable as the actual will clearly reveal at the end of this fiscal year.

        Are you willing to be held accountable for not getting to a 3% of all home buys made by seniors during fiscal 2017 and if you are, how will you be? What is it you are willing to risk?

        With the problems of FHA restrictions on both H4Ps and condo approvals, there is no way we will see a 3% qualified demand until next decade. That being true is why I jump all over the idea that H4P is anything more than an important (for Realtor marketing purposes) boutique product within a boutique industry. But a sleeping giant?

        This is not an attack on JOHN SMALDONE but it is a direct assault on the many false claims about H4P so freely traveling around our industry. H4P has a feasible demand of no greater than 0.8% in fiscal 2017 even if all HECM originators stopped originating Refis or Traditions and only originated H4P. While we have all the supply needed, qualified demand will most likely not be at 3% by the end of the decade unless there are wholesale policy H4P or condo approval changes at FHA before 9/30/2019.

  • Gentlemen, regardless of the statistics, the bottom line is that H4P is a very expensive way to finance a home purchase. The problem is that HUD has created a product that does not allow lenders to apply a YSP lenders credit to reduce closing costs. If a standard HECM borrower was paying off a mortgage that compromised 50% of their appraised value, many lenders would apply a lenders credit to pay some closing costs on the loan in order to be competitive.

    H4P regulations need to be reformed so that closing costs are in line with conventional HECM’s.

    Additionally, since many retiring seniors are moving to Active Adult Communities that are Condo’s, (most of which are not FHA approved), that also diminishes the number of loans that will and can be done. HUD needs to revisit its Condo policy and maybe go back to Spot Approval for all HECM loans or at least for H4P. The Condo approval policy was put into effect during the 2007/8 housing collapse, due to the number of people who defaulted on FHA loans. Most of those defaults were of forward FHA loans where the borrowers only had 3.5% down. With H4P, borrowers have
    much more skin in the game in the form of equity. The likelihood of
    default is much diminished.

    Alfie Schloss – HECM Loan Originator

    • Mr. Schloss,

      The problem has more to do with property management and HOAs. HUD has a very legitimate concern that the HOA will go under creating havoc with priorities of liens, payment of property taxes, insurance and other areas impacting common ownership not just of land but in many cases, the building in which the condo unit is housed.

      HUD HOA rules should be left alone. Yes, more seniors will be left without HECMs but why should HUD be stuck for costs that not even the borrower created. Seniors move to this style of living falsely believing that they are saving costs. If one takes into account the future costs of inadequate funding of future building maintenance and areas in common, future costs or the depression of future condo sale prices as a result of current underfunding makes the MMI Fund in particular susceptible to even greater risk of loss.

      Unless you can make an economic argument against the underfunding of future costs, it seems you believe HUD should underwrite more contingent costs for condos than single family residences. That argument will not hunt.

      • Jim,

        OK but what is the incentive for HUD? HUD does not want more risk. It is up to the industry to find a better result with less risk to HUD.

        I certainly do not have the answer do you?

  • The only way to get 3% is to get Realtors on board with understanding the H4P. They steer the entire process. Most don’t bother with thinking outside the box, and if they don’t understand something they will advise their client to not accept the offer. I’ve had it happen. Instead of accepting a H4P on an sfr, they took a cash offer which was less than the H4P offer. Quick escrow and payout. Realtor said they couldn’t take the chance on H4P falling out of escrow. Huh? There is CE classes on the H4P for Realtors, very few take the course.

    • Mr. Walton,

      Facing the unknown is difficult at best but particularly so when a commission is on the line and the seller is shaky about the consummation of the transaction due to the financing.

      It is NOT enough to train buying and selling agents about HECMs. One must still educate the borrower and if the H4P is to go smoothly, the seller to some degree.

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