Yale Study Probes Reverse Mortgage Motivations, Racial Disparities

A new paper from a Yale University researcher takes a deep look at the reasons why some older Americans elect to take out reverse mortgages — and how racial and socioeconomic factors can play into their decision making.

The study, which appears in the journal The Gerontologist, consists largely of interviews with current or prospective reverse mortgage borrowers scattered throughout New England. Lead author Danya Keene, an assistant professor at the Yale School of Public Health, and her team grouped the results into categories based on respondents’ reasons for pursuing a Home Equity Conversion Mortgage.

For instance, single white homeowner Simone elected to take out a reverse mortgage to pay for travel and delay the use of other retirement savings products.


“She reasoned, later in the interview, that these other investments were appreciating faster than her home,” the researchers wrote. “By drawing on her home’s equity while living in it, she could ‘let her other financial investments stay and grow.’”

Needs-based borrowers included Tony, a widowed white homeowner who used a reverse mortgage to pay off his existing mortgage after the death of his wife. Even though he quickly spent the $55,000 he received from the loan on a vacation and monthly expenses, Tony told researchers that he was satisfied with his decision to take out a HECM.

“All I had to do was pay the insurance on the place, and the taxes, and that was it. You know, it was that simple,” he said. “It took a hell of a burden off your shoulders.”

But things weren’t so smooth for Beverly, a black homeowner who turned to a HECM after she was unable to sell her home — which she attributed to the “negative reputation” of her low-income neighborhood. She began to regret her decision after her health issues began to make living in a two-story house impractical.

“I wasn’t happy with myself after I did it, you know, but I did it,” she told the researchers. “The interest just keep going up, up, up. In that way, you’ll never be able to claim your home back because you already signed it over, and you’re not paying them anything; it’s theirs.”

In addition, the team found mixed feelings from 68-year-old married homeowner Rebecca, who is black, and 67-year-old single homeowner Walter, who is white. Both took out reverse mortgages to cover unexpected health costs, and ended up viewing the products as the best option in an overall bad situation.

“[Rebecca] explained that traditional home equity loans were not an option because the monthly loan payments would be unaffordable. The reverse mortgage offered Rebecca a potential escape from an untenable situation, but she considered it only a last resort,” the researchers wrote.

Walter was more blunt.

“I wouldn’t recommend the reverse mortgage as a first choice to anybody, ‘cause the upfront fees are enormous and I have to pay stinking mortgage insurance, which is really a huge cost of that loan,” he said. “I had no other option. Get out or do this.”

Next steps

Keene and the team admit that the sample size — 39 homeowners from the New Haven, Conn. area and five more from the Boston metro area —  was small and not necessarily representative; in fact, they noted that the “predatory reputation of reverse mortgages” may have turned some potential participants off from the team’s outreach.

But the researchers argue that the qualitative results of the study can provide guidance for future inquiries into the intersection of race and reverse mortgages. For instance, black respondents frequently cited troubles with selling their homes or securing other forms of credit as reasons why they turned to a HECM.

“These racially structured constraints and opportunities may similarly contribute to the need for reverse mortgages as foreclosure prevention tools among black homeowners,” the researchers wrote.

They also reached a conclusion that seemed to strike at the heart of a common perception in the reverse mortgage industry: Increasing borrower education may not always lead to better outcomes.

“The inequality we observe is not likely to be resolved through improvements in education about reverse mortgage loans,” the team wrote. “The majority of participants in our study were well-informed about the terms of the loans they considered or secured. Some took out the loans, despite the known trade-offs, because they had no other options.”

Written by Alex Spanko

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  • As long as the HECM is considered the only choice or the last option, it will not have appeal. No one likes to be pushed into a corner and forced to give up something they love.
    If the HECM can become a standard option and shown as a possibility for anyone over 62 that can qualify, it could be in place earlier and would then be seen as the safety net, not the last resort they are forced to accept.

      • I get it. My point is still to change the conversation. For most, there would be a mortgage to pay off and a HELOC. And the fact is long term security has a cost. And the HECM provides long term security. It is a financing tool that is designed for retirement, when income is stable or going down. A mortgage with payments, and especially payments that go up over time is not a good fit for retirement.

        And the closing cost is less than the real estate commissions to sell a home and less than the cost of long term care ins for most. I am not confusing insurance payouts with loan proceeds, but for most people, long term care insurance is not possible and a HECM may be. But they do not even look at it. And let’s not forget that they can make payments if they choose and offset the accruing interest.

        And if as an industry, the volume can go up the cost can come down. A tall order, but the HECM is valuable and we can’t let it fade away.

    • Patty,

      Your comment is more wish than fact. Treverse brings up a good point. Upfront costs are now a barrier since if not used that simple $20,000 can rise after 30 years with an average interest rate of only 5.5% to over $120,000. That does not sound like a bargain to me unless I know I will need the cash from the line of credit.

  • I am sorry but to make this study into a racial issue is wrong! Enough of the racial comparatives.

    There are many reasons why a borrower down the road may regret there decision on taking out a HECM. Things in life change as time goes by!

    Many of the comments were positive as well. I don’t mean to put the blame on the loan originator or the company doing the HECM, but in many case we find the borrower was not given the right information right from the beginning!

    This is why it is so very important we take our time and be patient to our potential senior borrowers.

    Discovering the true need of the borrowers wanting to take out a HECM in the first place is top priority on the list! The need will dictate the entire scenario of how to proceed forward with your senior client!

    John A. Smaldone

    • John,

      Without information of this nature, how would we ever know if race might not be a factor in the HECM decision? Heresay and anecdotal testimony is insufficient.

      Few, if any, of those involved in the HECM originating process are in any way intentionally involved in discrimination but yet if race is a factor,

      • I do agree with you, I just got irked over the way the heading of the article was worded.

        Thanks Jim,


  • “she considered it only a last resort,” We are back to the loan of last resort if they qualify. I am curious when the people interviewed took out their Reverse Mortgages? I am sure it was before 10/2 but how many were before the FA? Another story that doesn’t tell you much without all the facts.
    I have put in a lot of work with FP’s over the last few years talking about the LOC option with the growth rate as a safety net in retirement. Looks like this strategy is out the window with the outrageous closing costs and lower PLF’s.

  • I’ve been originating Reverse Mortgages for over ten years. I’ve never had anyone displeased. To Patty Willis, the HECM IS a standard option and possibility for anyone over 62 that qualifies. It is NOT a last resort. It CAN be set up as a safety net. So many people don’t understand how Reverse Mortgage work, but yet they form an opinion. I agree with John Smaldone, to make this study into a racial issue is wrong! As a mortgage loan officer it is illegal to discriminate! As an all around good person, with a heart, even if it wasn’t illegal I would help anyone I can regardless of race, religion or gender!

    • Ms. Daniel,

      “…the HECM IS a standard option and possibility for anyone over 62 that qualifies.” That case was better made in fiscal years 2007 through 2009, not fiscal 2018. Demand is far too suppressed to claim that “the HECM IS a standard option….”

      One long-time originator is fond of saying: “Facts are facts but it is perception that matters.” To be a standard, it is those opinions that you seem to discard that must change before HECMs will ever be seen as “a standard option” by retirees.

      As to the issue of race, please see my comment to John Smaldone.

      • Mr. Veale: You seemed to miss the last of that statement “possibility for anyone over 62 that qualifies”

      • Ms. Daniel,

        You first state that the HECM IS (your all caps) a standard option. Then you go on to say (using an “and”) that it is possibly for anyone over 62 who qualifies.

        That means that a HECM is a standard option and even in cases where it might not be considered as such could still be used by anyone over 62 who qualifies.

        While the second part of your sentence is absolutely correct, HECMs have yet to arrive at the status of being “a standard option.” If you do not believe me compare endorsements for fiscal years 2009 and 2017. Then look at the sad state of demand for early fiscal 2018. Sales speak very loudly.

  • Let’s not forget that the ability to qualify for a HECM allowed these folks to remain in their homes. If there was no HECM program, what would their options have been? So, last resort or not, the folks were not forced to sell or be foreclosed upon.

    • Kathy,

      How soon we forget? It is exactly because of foreclosures in Philadelphia that we are seeing the proposed legislation we are. Taxes and insurance defaults in the last few years have produced significant HECM foreclosures.

      We need to respond with more reason. The industry has rescued seniors from forward mortgage defaults only to be foreclosed upon with a HECM. That is exactly why there is HECM financial assessment, to mitigate foreclosures from defaults caused by property charge payment failures.

      Those who live in glass houses should not throw stones. Proportionately, foreclosure is far more frequent with HECMs than with forward mortgages. Why? Because proportionately few forward mortgages terminate in foreclosure while until just recently, about 50% of all HECMs terminate through short sales, deed-in-lieu of foreclosure, trustee’s right of sale where a trust deed applies, and foreclosures. There is a substantial percentage of HECMs paid resulting in termination but not nearly the percentage found in the forward industry.

    • Absolutely, the major point of the HECM being an option that, exists at all, seems lost on those who conducted the “survey.” What if the HECM didn’t exist? The subjects of the report may have been in a far worse situation.

      The “bent’ of the report conclusion was of course right in line with the veiled-inflammatory nature of the article-title: they approach “HECM issues” as if the HECM was an entitlement program with a taint of “victimization”. It’s not. It’s a program that helps those who have helped help themselves. The better one has done in accumulating home equity, the better the “deal.”

      There is no fair/unfair involved. The HECM is offered to a wide spectrum of borrower-circumstances (if somewhat condensed since “October 2nd”): fully paid-off mortgage with no other liens and no particular “heirs” issues, to the opposite end of possible financial situations.

      It’s a take it or leave it option-proposition, but, then, it IS an option. There is only upside, considering: “Well, what would you have done if the HECM program didn’t exist at all?”

      How many times has anyone said: “Damn! if I had only passed on closing that HECM, all kinds of great things would have happened!”

  • For those borrowers who choose to view – however myopically – the HECM loan as a “last resort”, are they not STILL happy it was available to them? Would they not have been much worse off without the HECM alternative?

    This is akin to the swimmer who drowned and whose life was saved by someone giving them mouth-to-mouth resuscitation, and then complaining at the dinner table that evening that their savior had bad breath.

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