With “Gray Divorce” on the Rise, Reverse Mortgage Lenders See Opportunity

The Pew Research Center made a splash back in March with data that showed the fastest divorce-rate gains over the last 25 years belonged to Americans 50 years or older: 10 out of every 1,000 married people in that age group divorced in 2015, as compared to just 5 out of 1,000 in 1990.

Divorces remain rare among that cohort, with younger people still accounting for the most marriage splits; for comparison, 24 out of every 1,000 married Americans between the ages of 25 to 39 called it quits in 2015. But the doubling of divorces among older people — a figure that goes up to nearly triple for people older than 65 — was enough to inspire renewed discussions of how the Home Equity Conversion Mortgage can help with post-divorce financial woes.

On a recent webinar hosted by the National Reverse Mortgage Lenders Association, certified divorce financial advisor Diane Pappas laid out the potential reasons a recently-divorced spouse might use a HECM. More often than not, Pappas said, a late-in-life split disproportionately affects the wife, as women from older generations were less likely to work and involve themselves in household finances.

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“She may never have worked,” Pappas said. “She may not even know what they have in terms of retirement money, or how much her husband earns. I run into this all the time.” 

And while divorces at any age create financial issues, Pappas — the principal at Solutions for Divorce, a consulting firm in Gloucester, Mass. — said older folks face unique challenges stemming from their shorter timelines.

“The fact that retirement is right around the corner makes it hard to make those kinds of adjustments,” Pappas said.

That’s especially true in the case of home ownership. In a typical divorce, Pappas said, spouses generally have three options for dealing with the former marital house: sell it, own it jointly, or buy out the other spouse. The second option, though, generally only works for younger couples with school-aged children; older people with grown kids have no reason to own a house together if they don’t even want to live together anymore.

A reverse mortgage, then, can help one spouse buy the other out — and, in the case of the HECM for Purchase program, allow the departing spouse to buy a new property.

“I can see where a reverse mortgage is a way to think outside the box, and maybe provide some options where they did not have options before,” Pappas said.

All divorce proceedings eventually come down to splitting financial assets between the two parties, and it’s tempting to think of the house as merely one more object to be divvied up. But Jamie Hopkins, associate professor at the American College of Financial Services, pointed to U.S. Census data from 2010 that showed the median 65-year-old couple held 68% of their wealth in their homes, compared to just 32% in “non-equity assets” such as cash and investments.

“So as we’re splitting up assets in a divorce, as we’re moving through retirement, we have to be aware of how important the home is,” Hopkins said.

A lump-sum HECM could be useful to split the home-equity wealth equally between the parties, Hopkins said, while a reverse mortgage line of credit could be beneficial for the spouse who remains in the house. The answer all depends on the people’s individual goals, and defining those desires is an important part of the divorce process.

Hopkins, who has advocated for the HECM as a retirement-planning tool, said it’s important to involve reverse mortgage specialists in divorce proceedings given the product’s less-than-stellar reputation, and the general lack of knowledge about reverse mortgages among lawyers, accountants, mediators, and other players in the divorce process.

“Anytime that we’re dealing with a product or strategy that has a negative starting point, we have to own up to that,” Hopkins said.

Finally, during a routine breakdown of the HECM program, Dan Hultquist — director of learning and development at the ReverseVision software firm — brought up an unusual strategy regarding non-borrowing spouses. Since older borrowers generally can tap into a higher percentage of home equity, an older former spouse may very well wait until the younger partner leaves the home before taking out a reverse mortgage; once the younger person leaves, his or her age is no longer a part of the HECM calculus, thus netting the remaining partner more money.

“There may be a time when it makes sense to go ahead and separate now, because they’re going to qualify for more with one borrower,” Hultquist said.

No matter what the goals, Pappas emphasized the importance of teamwork among trusted advisors — lawyers, accountants, mediators, and HECM specialists — when navigating the tricky waters of senior divorce.

“The professionals really need to collaborate and work together and make sure that every little issue is addressed,” Pappas said.

Written by Alex Spanko

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  • “A lump-sum HECM could be useful to split the home-equity wealth equally between the parties, Hopkins said, while a reverse mortgage line of credit could be beneficial for the spouse who remains in the house.”

    In reading and rereading Mortgagee Letters 2013-27 and 2014-21, since when is a divorce settlement a mandatory obligation that permits a lump sum distribution that will permit the unpaid balance due at closing to exceed 60%? Obviously to the extent that it is an existing lien against the collateral immediately before closing, it qualifies as a mandatory obligation.

    So I am not sure what Mr. Hopkins is suggesting but if the required payout is 60% or less why not take a draw of up to the needed amount (or more if available) and have the remainder set up as a line of credit? That way both former spouses get the best of what they need from a HECM ARM.

    (Of course many of us have used that technique for divorced couples for more than a decade now.)

    • I have done a couple of ‘divorce HECMs’ and in both cases a signed property settlement was treated as a mandatory obligation by my underwriters. Those same underwriters are not known for ‘shooting from the hip’, so I’m assuming they got it on good authority that what we did was all on the up-and-up.

      I would be curious to see the actual HUD citations either way, if someone has them.

      • REVGUYJIM,

        Are you sure that the agreements did not have a corresponding lien filed on the home? Any legally enforceable lien related to the property settlement would do.

      • I originated one similar to this Summer before last, and the Underwriter required a lien, supporting the documents, be filed, so a mandatory obligation could exist and be paid from the proceeds. She also required both parties to provide hand written LOE’s, saying they understood they’d be splitting the proceeds 50/50, when the loan funded.

      • REVGUYJIM,

        Please read what Mr. Raymond Denton replied to my comment. I do not believe your comment is correct and most likely there already was a lien related to the signed property settlement or the underwriters got the needed lien without your knowledge.

        This is why anecdotes are so unreliable. Verified facts are crucial.

      • Sorry to disappoint with my anecdotes, but all I said was I closed two loans with prop settlement agreements treated as mandatory obligations – NO LIENS.

        Again, would welcome the HUD citations either way.

      • REVGUYJIM,

        By once again asking for HUD citations, you show you never carefully read my original comment where Mortgagee Letters 2013-27 and 2014-21 were both specifically cited.

        There are many reasons why property settlements can be paid off without being mandatory obligations one of which is that the total disbursements including the property settlement payoffs were less than 60% at closing to begin with. It could also be based on the total lack of details about the two HECMs you depend on both had case numbers assigned before September 30, 2013. Yet another issue is whether by state law, a property settlement in that jurisdiction is considered a lien even if not yet filed.

        I for one cannot put any faith in an anecdote for which no details have been presented. Mr. Denton also gave us no details for his anecdote either. Yet Mr. Denton implied by his insistence that a lien had to be filed that the HECM had the corresponding case number was assigned after September 29, 2013.

        There is yet another question still not dealt with and that is whether the underwriters in question closed the HECMs properly. Again there is insufficient information to conclude one way or the other.

        My original comment above was about Mr. Hopkins planning presentation. Without confirmation that property settlements without liens are mandatory obligations, in most cases those liens will have to be filed if not previously filed to make such planning work.

  • So once again I state, I do not understand what Mr. Hopkins is talking about unless a lien exists or the lien along with other payouts will not exceed the first year disbursements limit. Meeting HECM requirements is crucial to making financial plans work.

    Also as stated earlier why won’t a lump sum work with a line of credit as long as all HECM requirements are met and the principal limit is not exceeded in the process? None of the information is new and in this time period necessarily compliant with HECM requirements.

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