AARP Weighs in on the ‘New’ Reverse Mortgage Math

The Department of Housing and Urban Development’s recent changes to the reverse mortgage program have garnered mixed reviews from the industry, as some laud the rules for helping seniors preserve more equity, while others lament the fact that fewer borrowers may qualify.

Senior advocacy groups like AARP and the National Council on Aging (NCOA) are weighing in, asserting the program’s continued importance while acknowledging that the revised program may attract fewer consumers. Both say the changes reinforce the need to educate the public about the loan.

Lori Trawinski, director of banking and finance at AARP’s Public Policy Institute, declines to call the changes positive or negative, but does admit that higher costs might make the loan less attractive — and new principal limits might mean fewer seniors will qualify.


“If you have an existing forward mortgage, that mortgage needs to be paid off before you can get a reverse,” she says. “So if someone is counting on a certain amount of reverse mortgage proceeds to be able to pay off a forward loan, it could be that with the new principal limit factors, they may not get enough proceeds out of the loan to do that.”

Higher upfront costs might also be a disincentive to consumers, Trawinski says.

“For about three quarters of borrowers, the upfront premium went from 0.5% to 2%, so that’s a significant increase. It may dissuade some borrowers from going forward with the loan,” she says.

Amy Ford, NCOA’s senior director of home equity initiatives and social accountability, agrees that these factors might influence consumer decisions and says the changes highlight the need for effective counseling.

“Some could ultimately be deterred by the higher upfront cost or the lower principal limit available. However, we must support consumer education and housing counseling in its critical role as champions for older adults in decision-making,” Ford says. “Older adults considering options to meet their cash needs benefit greatly from robust education and counseling that highlights all pros, cons, and product features for a complete picture of options available.”

Trawinski says AARP aims to help consumers better understand reverse mortgages.

“We continue to monitor developments in this marketplace, and we do that because reverse mortgages can be a useful loan for some people, but it really depends on someone’s personal financial situation,” Trawinski says. “It’s a matter of trying to help people understand what they are getting into before they actually take out the loan.”

Ford says regardless of program changes, reverse mortgages continue to be an important financial tool for older Americans,

“Assuring the HECM program is available to older adults for years to come is critical,” she says. “There are limited tools available to seniors to leverage their home to meet their needs later in life, and long-term sustainability and solvency of the program is key.”

Written by Jessica Guerin

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  • In the last few months I have had the privilege of having Ms. Trawinski reach out to me. While some might find her views on HECMs less than favorable, from what I can tell, she is not just smart but reasoned and reasonable when it comes to HECMs.

    Just because someone is not as forceful about HECMs as others, that does not mean that the less forceful are against the use of HECMs by seniors who can benefit from their use either financially or cash flow wise.

    None of the quotations credited to Ms. Trawinski in the article above give me cause to change my view on her position on HECMs.

  • Most of what is pointed out in this article is accurate, unfortunately! However, while we will be eliminating a certain segment of the market for our product, we also have the opportunity of going after other markets!

    Our reverse mortgage tool becomes more & more of a retirement planning tool for those that have a greater amount of equity in their homes.

    We find financial planners are utilizing the HECM more today in there plan when re-structuring their clients assets for retirement.

    Personally, I feel more and more lobbying will be going on to roll back and or to compromise on bringing the principle limit factors back up again.

    All of us need to fight hard for that part of new ruling to change and revert back to being as close to what it was! The MIP is not the what the main problem is for falling volume!

    John A. Smaldone

    • John,

      I am not trying to question your optimism but rather to find out why you feel “more and more” that lobbying will be going on to increase current PLFs? Are you getting some kind of promise from Senator Corker?

      I read your point about the MIP situation but if the net principal limit is lower for 75% of the applicants due to the 300% increase of the initial MIP for these applicants from its former 0.5% rate (to 2%), would it not be better if that was adjusted as well (perhaps not for HUD but for borrowers)?

      Take care.

      • Now, now Jim, that is hitting below the belt. I am merely pointing out that the PLF are hurting the borrowers more today than the MIP issue!

        However, I am not discounting the fact

        that the initial MIP cost could be adjusted in favor of the borrower.


  • This has killed several prospective refi prospects of mine. These folks could have really used the money.

    Why not raise the MMI and go back to the previous Principal Limits?

    Gregory B Shearer
    The Senior Equity Group
    La Canada CA

    • As it has done for me, Gregory. I had a string of homeowners in the $300,000 value range, where the changes caused them to go from having their current mortgages paid and getting about $15,000 to having to bring in about $15,000 – they were a few of many now unable to benefit from a HECM.

      I want to once again raise the idea of using more graduated levels of MI to better reflect the relative risk levels being undertaken by the fund. Charging the same INSURANCE premium for those needing 100% of the available proceeds vs those using the opportunity solely as a financial planning tool and needing nothing at closing, seems to indicate a lack of understanding of the basic concept of insurance.

      Starting with the assumption we could come up with a revenue-neutral series of, say, five (5) levels ranging from .5 to 2.5, with three levels somewhere in-between the two extremes mentioned, I keep trying to figure out why this is a bad idea. Just sayin’

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