Many Consumers Wary of Reverse Mortgages, But Willing to Learn

The National Council on Aging shook up the reverse mortgage industry earlier this year with a study showing that consumers were turned off by the name of the products. But according to a lead NCOA researcher, the results also proved that consumers are open and willing to receiving education about Home Equity Conversion Mortgages.

“People were able to acknowledge their discomfort and their misunderstanding about the products,” Jay Greenberg, CEO of NCOA Services, LLC, said at last month’s National Reverse Mortgage Lenders Association conference in San Francisco.

The study had two primary parts: a quantitative portion, which sought information from 1,000 senior homeowners regarding their attitudes toward HECMs and other equity-extraction products, and a qualitative feedback study that featured input from 112 focus-group participants at 13 events around the country.

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The quantitative survey, conducted online, revealed that 58% of respondents preferred the reverse mortgage line of credit to a regular “forward” home equity line when the products weren’t named; meanwhile, among those who were told  the names of the products, 68% preferred the HELOC.

To conduct the research, NCOA received financial support from Reverse Mortgage Funding, which used the focus group concept in a new ad campaign this year. In the commercials, average consumers are asked to pick between a HECM credit line and a HELOC using product information alone, and overwhelmingly pick the reverse mortgage — often to their shock and surprise.

While NCOA’s research could seem discouraging to players in the reverse mortgage industry, Greenberg emphasized that the findings illustrate a real willingness among older Americans to explore the option when given the right education. Many participants who already had forward lines of credit on their homes admitted they didn’t have a firm grasp on those products, Greenberg said, and the seniors also pointed out multiple positive factors about HECMs.

For instance, multiple respondents expressed approval of the counseling process, the non-recourse nature of the loans, and the option to make payments — the latter of which formed the basis of another RMF ad from earlier this year.

“What the research did for us is convinced us that we should continue our educational journey in the reverse mortgage field and in home equity in general,” Greenberg said, announcing a three-year goal of educating one million seniors about home equity extraction techniques. As part of that plan, NCOA will place a specific emphasis on reaching homeowners whose wealth is largely tied up in their homes.

“What I’m hoping is that we can continue our work with the industry, both in terms of the industry as a whole as well as specific companies, because there’s a tremendous amount of work to be done, and our nation’s seniors will be much better if we all work together,” Greenberg said.

Written by Alex Spanko

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  • Correction needed:

    Today’s story states that:
    “The quantitative survey, conducted online, revealed that 58% of respondents preferred the reverse mortgage line of credit to a regular “forward” home equity line when the products weren’t named; meanwhile, among those who were told the names of the products, 68% preferred the reverse mortgage.”

    Pretty sure that is supposed to say ” 68% preferred the HELOC”.

    The original story, from March 2017, states:

    “Consumer sentiment swung wildly, with 68% of respondents saying they preferred the home equity line of credit”

    Might want to fix that.

  • That was a great survey.

    The big take-a-away from the survey has to do with the Line Of Credit. The survey participants didn’t know about it. That is, it isn’t enough just to know about the LOC’s presence within the HECM contract: if they didn’t understand the true growth-potential of the LOC, then, “they didn’t know about it.” When the LOC was carefully explained, they loved it.

    As a recipient of a HECM contract, I can say, personally, I also think that the Line Of Credit is far and away the best feature of the HECM. But I didn’t know that I would think it was; until my second HECM statement.

    However, the LOC is the most “hidden” significantly-beneficial aspect of a loan in the history of loans; Of this, I’m most confident. If it wasn’t so hidden, the “October, 2 Changes,” would have arrived in a “HUD letter,” ohh, maybe a decade earlier than it did.

    It’s doubtful whether those (“they”) in government who are able to apply outside-political-pressure on “a HUD,” knew any more about the relatively enormous cash-amounts a LOC generates for the benefit of seniors, than the seniors themselves did. Once the cat was out of the bag with regard to how much of a good deal seniors were getting with the LOC, “they” cracked-down on it.

    Keeping in mind how little would-be borrowers in the survey knew about HECM details doesn’t really answer the question of why the LOC is “hidden” though.

    I can remember my application process. Although I believe that I had good, maybe excellent counsel, the extent of the LOC explanation was that “it grows.” Well, Chia Pets grow, too, but they don’t produce $900 more in the LOC section of my monthly statement than was there the previous month.

    Lesson learned, as William Devane says. I’d say, with the HECM, if you want an increase in originations, go tell ’em about the LOC. Do as the survey did: advertise and then organize “focus groups,” but this time it would be for signing-up for the HECM purposes. And of course, don’t forget to carefully explain the LOC.

    • Ed,

      You have a lot to learn. Not all HECMs have an accessible line of credit. Very few H4Ps have lines of credit. It seems you have no idea what a fixed rate HECM is and how it works.

      If you do not know that members of this industry use the line of credit as their stellar feature of a HECM in presentation after presentation then you have not met Shelley Giordano, Barry Sacks, Dr. John Salter, Dr. Wade Pfau, or other industry leaders. There are whole sections of HECM lenders that have staff who primarily work with financial advisors using the line of credit as the showpiece of their presentations.

      Like many others you seem to think this is magic but it is not. HUD simply decided that adjustable rate HECMs that are essentially the same due to all things being equal except for the amount outstanding due decided that cohort should have the same basic principal limit meaning that if one has more balance due, the other should have a line of credit available that includes that excess balance due. Since that time, a lot has changed which means that does not necessarily work out the same.

      For example, if two borrowers have a principal limit of $220,000 but borrower A has a balance due of $100,000 and borrower B, $175,000, then HUD’s original objective was that A would have a line of credit of $120,000 but B a line of credit of just $45,000.

      Lehman Brothers through its reverse mortgage subsidiary, Financial Freedom, for years one of the largest lenders in the industry, had a proprietary reverse mortgage that was an adjustable rate product that had a fixed growth rate for its line of credit that did NOT vary with the interest rate being charged on the balance due.

      The so called growth in the line of credit is simply more credit that the lender is offering the borrower because the increase is insured by FHA. The offer ends when the borrower defaults for any reason. If the default is cured and the loan reinstated, so is the growth in the line of credit. Heirs do not inherit the available line of credit.

      It is great you are so excited about the HECM line of credit as a borrower. If the cost of the loan is worth the risk of not using the line during your lifetime, then it IS the thing to do. For many it is hard to justify the upfront cost.

      But again, your point is well taken.

      • Is there something wrong with you?

        You blithered:
        “You have a lot to learn. Not all HECMs have an accessible line of credit. Very few H4Ps have lines of credit. It seems you have no idea what a fixed rate HECM is and how it works.”

        Where did I say they did? Just because I didn’t mention them doesn’t mean that I don’t know about other aspects of the HECM.

        Are you so hard up to criticize, that you’ll just make-up something stupid like that?

      • Ed,

        So because you are so blinded by the line of credit that fixed rate HECMs are NOT worth mentioning. That is worse than anything I stated or implied or stated in my first comment.

        You have the right to hold to the position you do but your view is both dangerous and biased. While most HECM borrowers are better off with an adjustable rate HECM for many, the fixed rate HECM would provide a better result.

        While I agree with Einstein’s assessment of compounding as found with the HECM line of credit, mortgage lending is not about that assessment ALONE.

        Enjoy the New Year

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