‘Solid Seniors,’ Not Principal Limit Cuts, Could Boost Reverse Mortgage Fortunes

When the Department of Housing and Urban Development cut principal limit factors for reverse mortgages last year, officials cited losses related to the program in the Mutual Mortgage Insurance Fund as a primary motivator.

But one prominent Home Equity Conversion Mortgage advocate says that in order to rectify some of HUD’s problems, the federal reverse mortgage program needs more “solid seniors,” and not lower principal limits.

Jack Guttentag, writing for his Mortgage Professor blog, noted that the pool of HECM borrowers isn’t made up of a representative sample of American seniors; instead, there’s a higher proportion of homeowners who simply need as much money as possible from a reverse mortgage in order to cover large expenses in retirement.


“In contrast to the ‘desperates,’ there is a much larger group whose lives could be enriched by a HECM, for which purpose they would not necessarily need to draw the maximum amounts permitted,” Guttentag writes. “If they did take a HECM, many would retain some equity for their heirs, an objective that protects FHA against loss.”

He calls this cohort “solid seniors,” and he suggests multiple ways to market the product to this group of homeowners who care more about holding onto some equity — or achieving a specific financial goal — than cashing out as much of their home’s value as possible. For instance, Guttentag says HUD should provide an updated informational database that allows seniors to view the potential benefits of taking out a HECM on their specific home — including a walkthrough of how a line of credit could grow over time based on their own scenarios, or how a reverse mortgage could help them pay off an existing mortgage.

In addition, Guttentag calls on HUD to allow for the certification of mortgage networks that allow borrowers to receive multiple comparative rate quotes for their desired product from a single, trustworthy source. He classifies the current marketplace as a “gotcha” system in which seniors can’t find out how much money they can obtain, and at what rate, until they fill out each specific lender’s lead-generation forms.

“Prices are disclosed only after a senior discloses the property address, their email address, and in some cases, their Social Security number,” Guttentag wrote. “As a result, very few prospective HECM borrowers contact more than one lender.”

Check out Guttentag’s full list of suggestions for the HECM program on the Mortgage Professor.

Written by Alex Spanko

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  • I feel that Jack Guttentag is right on target up to that last two paragraphs!

    SOLID SENIORS is a great way to put it, what Guttentag is saying is we need to target a different type class of senior. The senior that owns property, has a low debt ratio on their home and the senior who is looking to improve their quality of life for retirement.

    In short and unfortunately, we are not going to be able to help the senior that is 3 months late on their mortgage payment, has a great deal of other debt and has not shown the willingness to pay their bills on time. Plus along with that, their income level will not even meet the residual income requirements of today.

    Those days are gone, forget about them, look to new horizons and you may still make the reverse mortgage space the place for you to stay!

    John A. Smaldone

  • I agree with the principle Jack talks about but can the actuaries take that into account now? It seems that the actuaries can only reflect that when there is enough results from terminations to be able to take it into account in their conjectures which could take years.

  • As usual, Guttentag is a bit off base. Why would a “Solid Senior” take out a HECM if they could afford to pay and would possibly be making payments? There are cheaper alternatives. If he is saying it is because they can’t prove their income, doesn’t that make a good argument to allow no-income verification loans in limited circumstances, i.e. where there is sufficient equity? HECMs have gone far away from the original idea of grandma not having to eat cat food. Most of the problems I have seen is the senior taking one out to give money to a relative or invest.

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