Compared to the reverse mortgages found in the marketplace just three years ago, Home Equity Conversion Mortgages nowadays bear little resemblance to their past selves. As the reverse mortgage product has evolved over the years with new program changes, so too have their functions in meeting the various needs of today’s dynamic aging population.
Following several rule changes since 2013, which saw the introduction of upfront draw limitations, new principal limit factors, the long-awaited Financial Assessment and various updates to the non-borrowing spouse policies, the HECM program today is almost unrecognizable from the previous generation of reverse mortgages.
The “new” reverse mortgage
As a result of the recent program changes, the HECM product has been often referred to as the “New Reverse Mortgage,” said Dan Hultquist, an Atlanta-based certified reverse mortgage professional (CRMP) with Open Mortgage.
“In many cases, this is not the product you thought it was,” Hultquist said during a webinar for non-reverse mortgage industry professionals this month. “The reverse mortgage of today is completely different from those we covered even a few years ago.”
The webinar, which was sponsored by the National Reverse Mortgage Lenders Association as part of its inaugural Education Week initiative, was fourth in a series of online education sessions aimed at teaching non-industry members such as mortgage bankers, financial advisers, Realtors and caregivers about reverse mortgages and how these loan products might help their clients.
Hultquist, who is the co-chair of NRMLA’s Education Committee, during the webinar provided an overview of reverse mortgage loans, including how they work, how they are used and the new consumer safeguards aimed at protecting borrowers and their spouses. He also dispelled several common reverse mortgage misconceptions, one of which pertained to who is today’s reverse mortgage borrower.
“Most people believe that a reverse mortgage is just for needs-based borrowers,” he said. “We’ve heard over the years that it [reverse mortgage] is a last resort loan, but that is now only a smaller piece of the pie than it has ever been.”
Financial planning value
Since 2012, there has been a growing amount of research from both the financial planning and academic communities demonstrating the effective use of reverse mortgages as part of a coordinated retirement income plan.
When obtained early during retirement via a line of credit, having a reverse mortgage affords retirees the ability to buffer against market downturns by giving them another source of wealth from which to draw, so they can avoid selling-off assets at a loss.
Having a reverse mortgage can help “tremendously” because it allows retirees to take money from another “bucket,” rather than withdrawing funds from investments that have been hit by a market downturn, said Suzette Blackburn, owner of CapStar Financial, an independent investment and insurance firm in Austin, Texas.
“If we ignore our largest asset during retirement planning—our homes—then I’m not doing my job as a financial adviser,” Blackburn said during the webinar.
Meeting a wealth of needs
As the number of needs-based borrowers have diminished and the number of financial planning borrowers have grown, there is one subset of HECM borrowers that has largely remained constant, even through the recent program changes: lifestyle borrowers.
Unlike their needs-based counterparts, lifestyle borrowers are not financially desperate. While they may have enough money on a monthly basis to live on, they do, however, require extra funds to improve their quality of life during retirement.
In some cases, these borrowers might use a reverse mortgage to fund home repairs or make renovations to their property in efforts to make retirement more comfortable. For other borrowers, being able to age in place might mean using a reverse mortgage to pay for the costs of in-home care.
Home repairs and paying for health care services can be costly ventures, said Lorraine Geraci, vice president of learning and development at Finance of America Reverse (formerly Urban Financial of America).
“The use of reverse mortgage proceeds are different for every customer,” Geraci said. “Education, empathy and awareness of the individual needs of the consumer are key for our industry in working together to provide peace of mind for everyone we touch.”
Through the week-long series of webcasts, NRMLA cites having reached more than 1,200 professionals, including mortgage bankers, caregivers, real estate agents, financial advisers, CPAs, estate planners, gerontologists and other professionals who work with older adults.
Written by Jason Oliva