According to recent research data, despite some of today’s reverse mortgage efforts targeted toward a population that is using home equity as a comprehensive planning tool, the borrower demographic of the past still holds true: borrowers of Home Equity Conversion Mortgages (HECMs) are made up of a major segment of primarily low-income individuals with little wealth outside of their homes.
This is according to research cited by Dr. Edward Seiler, economist with Dworbell, Inc. in a presentation given at the National Reverse Mortgage Lenders Association (NRMLA) Eastern Regional Meeting last month in New York City.
Low-income, low wealth
When examining the borrower profile cultivated by absorbing multiple research papers on the subject, Seiler found that the longstanding perceptions about HECM borrowers still manage to hold true today.
“I think the old adage of borrowers having lower incomes and fewer assets outside the home and equity to tap was confirmed by this data,” Seiler said in an interview with RMD following his presentation. “That was comforting, because people talk about that all the time, they wonder if it’s anecdotal or real, so it’s good to confirm that.”
In a 2017 research paper cited by Seiler and authored by Stephanie Moulton, Cäzilia Loibl and Donald Haurin, data on 1,761 households that received HECM counseling was cross-referenced with the University of Michigan’s Health and Retirement Study (HRS) to paint a demographic picture of reverse mortgage borrowers.
Among some of the interesting data points yielded in the paper are that those with private long‐term care insurance are 67 percent less likely to have a reverse mortgage. So are married homeowners, who are 40 percent less likely to have a reverse mortgage.
Higher education, risk-averseness and marital status
Also included in the demographic data is a relationship between the education levels of borrowers, and their likelihood in engaging in a reverse mortgage.
“I think what’s interesting as well is in education levels, that relatively more college graduates are using reverse mortgages,” Seiler told RMD.
Homeowners that have either partially or fully completed their college educations are up to twice as likely to have a reverse mortgage as their counterparts who did not complete high school, based on the same 2017 data. Also enlightening is that households with reverse mortgages are more risk averse, and are likely to have prepared a five- (or more) year financial plan, according to 2016 research conducted by Swarn Chatterjee for the International Journal of Financial Studies. Based on that data, risk-averse respondents are 44 percent more likely to have a reverse mortgage than those who are not.
“I find it interesting that non-married people, and non-married males especially were going for reverse mortgages. The main interest, though, is the relationship between LTC insurance and reverse mortgages and activities of daily living, and that the borrowers are more risk-averse and generally have more financial plans in place than non-borrowers.”
Borrower health, long-term care
HECM borrowers are generally healthy people, Seiler shared, based on Moulton’s research when matched with Health and Retirement Study data for reverse mortgage-eligible households. People with a lot of activities of daily living (ADL) are less likely to take a HECM, which includes people who have more health problems. People with long-term care (LTC) insurance are also two-thirds less likely to take out a HECM because LTC insurance costs have increased significantly relative to life insurance costs.
When asked by an audience member at the conference if Medicare Advantage (MA) will make LTC insurance more available, Seiler indicated that based on the information he’s reviewed, it’s possible.
“It depends on how they’re able to finance it,” Seiler answered. “A lot of these people don’t have a way of financing Medicare Part C. But, it would be nice if it was bundled in, because people ask themselves how they’re supposed to pay for long-term care. Using home equity could be a possibility, and Medicare Advantage could be very advantageous for the HECM market.”
As recently as April 2019, changes made to the Medicare Advantage program will allow private MA plans to expand the scope of their coverage starting in calendar year 2020, including new additions for chronically ill enrollees that could allow for non-medical expenditures, including home modification, as well as long-term care insurance.