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Urban Institute: Panel Discusses Aging in Place, HECM Program

While a continuous stream of surveys continue to corroborate that seniors overwhelmingly prefer to age in place, making a determination about exactly the right place for them to age is a more difficult and complex issue to try and answer. This is according to a recently and privately convened panel of experts on aging and retirement hosted by the Urban Institute, detailed in a blog post made on the organization’s website by Karan Kaul, research associate at the Urban Institute’s Housing Finance Policy Center.

“Staying in a home must be financially sustainable, but it should also maximize physical, social, and emotional well-being,” Kaul writes. “Financial considerations include maintenance and repair costs and the cost of necessary safety retrofits (grab bars, lifts, ramps, etc.), as well as the general cost of living in that area.”

The size of the home must also be a match for the capabilities of the resident, Kaul says. Citing the 2017 American Community Survey which detailed that over 40 percent of seniors aged between 55 and 75 years, and 38 percent of seniors aged 75 and older live in 3-bedroom houses, this suggests what Kaul describes as “a potential mismatch between the size/maintenance requirements for the home and the needs of the inhabitants.”

Still, that shouldn’t necessarily imply that the answer to this issue is going to be downsizing the home in every situation, particularly because smaller and newer homes in certain areas may end up being more costly for a retiree.

Finding the right place for a senior to age can revolve around finding a place to live that balances multiple objectives. These include the availability of the right place at an affordable price point, plus repair and maintenance costs; access to medical facilities such as primary care doctors, in-home care, and nursing homes; social programs that allow for interaction; adequate local transportation options; and closeness to family and friends.

In terms of seniors attempting to make ends meet in retirement, more of them are relying on mortgages. Based on data compiled in late 2017, 41 percent of senior homeowners aged 65 and older have a mortgage today. The same figure in 1989 sat at 21 percent in 1989, while mortgage balances have also increased on average from $17,000 to $72,000 over the same period of time for the same age group.

“And with people living longer, retirement savings must last longer,” Kaul writes.

While home equity release continues to be a viable option for seniors making efforts to cover their expenses in retirement, lack of efficient mechanisms for seniors to access their home equity continues to be a barrier for many seeking this route to fund retirement.

“Thus, homeowners with limited incomes and savings have only one option for equity extraction: the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program, which has fallen short of its potential,” Kaul says.

According to 2017 data cultivated from a research project conducted by Kaul and Urban’s VP of Housing Finance Policy Laurie Goodman, high costs, the general complexity of the HECM product and fear of both losing their homes or falling victim to fraud are major impediments that keep many seniors from getting a reverse mortgage.

The convened participants in the meeting agreed that stabilization of the HECM program should be a major priority of the federal government, and they recommended the following ways to accomplish that goal: lowering costs associated with servicing HECM loans and introducing a lower loan-to-value (LTV) ratio; offering a lower-cost product for households wanting to borrow a more specific and limited amount; and encouraging the return of private reverse mortgages, which recent signs show that the industry is becoming increasingly dedicated to doing.

Read the full blog post at the Urban Institute.