Reverse Mortgage Borrower Motives Expand as Education Spreads

As the industry continues to adapt to a new landscape of lower principal limit factors, reverse mortgage experts say it’s key to remember why most borrowers pursue the products in the first place — and how those motives have changed amid greater education and positive news coverage.

Traditionally, homeowners take out reverse mortgages to gain financial flexibility and address the most pressing needs facing the retired population, like aging-in-place upgrades, medical bills, and caregiver services.

Because qualifying borrowers don’t have to make monthly principal or interest payments, homeowners tend to see the products as simply an extra source of cash — whether it’s making their home wheelchair accessible, buying a home with more attractive amenities, or simply preserving more of their savings.

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Originators also say that managing debt is often what drives their clients to seek out a loan. Loren Riddick, national sales manager for Fairway Independent Mortgage who has closed more than 100 Home Equity Conversion Mortgages, says that close to half of the borrowers he sees use the loan to eliminate mortgage payments and restructure debt so they can live more comfortably.

The reasons fluctuate somewhat according to demographics, originators told RMD, and the recent regulatory changes have also shifted potential borrowers’ motivations: Of those who apply for a HECM loan, fewer people qualify than in the past due to changes such as Financial Assessment, which can alter their reasons for pursuing one.

“The traditional media assumes that everyone is a needs-based borrower,” says Live Well Financial vice president of education and organizational development Dan Hultquist. But, according to Hultquist, the scale has increasingly tipped away from the crisis borrower and toward one with more financial planning options.

Hultquist divides most borrowers into three basic groups: needs-based, lifestyle, and retirement planning. Needs-based borrowers have urgent motives like medical bills to cover. Lifestyle borrowers want to be able to travel, buy a new car, or upgrade their kitchens. Finally, originators that derive business from sources like tax planners, financial advisors, and estate planners tend to have clients with a retirement cash flow incentive who are driven by the flexibility and future security a reverse mortgage can provide.

Paying off debt means freeing up cash that can be invested in their individual dreams and goals. Riddick helped a client with a $250,000 home get a loan in order to help him invest more in his church. Another client’s loan was part of a long-term generational legacy plan that encouraged descendants to attend college.

Lately, Hultquist sees another, “potentially growing” category: Those who want to relocate, upsize, or downsize to another home that makes more sense for their needs. Retirees are catching on that, if they can afford the upfront cost, a reverse mortgage can help them buy that dream home on the beach or condo in a desirable active adult community.

“I was surprised to find that more people are upsizing with a HECM for Purchase,” says Hultquist.

According to a recent study from AARP, 90% of people 65 and over want to stay in their homes as they get older. And while Riddick laments that the people who need a reverse mortgage the most are the least likely to qualify for one, he’s excited that homeowners are becoming more educated about how the loan works.

“Folks understand you’re not giving up ownership,” he says, referring to a common reverse mortgage misconception. “It’s more and more accepted.”

Written by Clare Curley

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  • Quite frankly we need demand.

    In speaking with people who track this stuff, it seems that demand as reflected in case number assignments (CNAs) is most likely to produce less than 6,000 endorsements for August and September 2018 combined. Unfortunately that means that total fiscal year endorsements for fiscal 2018 will come in at the worst fiscal year endorsement total for any fiscal year since 2005. They talk in terms of the six straight fiscal year of endorsement stagnation.

    Apparently the demand in April 2018 was so low that endorsements for August 2018 could be lower than for June 2018, although it will most likely be more. With the over aggressive design of financial assessment, it seems, comes lower PLFs. If so, they could be with us to stay unless and until NRMLA comes through with strong reasons why the actuaries can be more lenient with their assumptions. Recently there has been talk that NRMLA made its recommendations to HUD earlier this summer. It seems likely we will hear about them and their implementation at NRMLA’s upcoming national convention.

    Without good news from NRMLA, fiscal year 2019 looks like yet another weak fiscal year for demand especially after the posting of the disappointing even lower CNA count for June 2018 than for May 2018.

    While there are a number of positive articles on increased interest in HECMs, proof of that is not reflected in recent endorsement counts. While some talk about the real world being the world of perception, not fact, I for one would like to see even a 50,000 endorsement count for fiscal 2019.

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