The average age of a Home Equity Conversion Mortgage (HECM) borrower at the time of a loan’s origination remains in their early 70s, while as many as 40% of all HECM borrowers between 2009-2019 are specifically single females. This was just some of the data shared by members of the U.S. Department of Housing and Urban Development at the National Reverse Mortgage Lenders Association Annual Meeting in Nashville, Tenn.
Other illuminating data points shared by members of the Department included that just over half the amount of HECM counseling certificates issued actually resulted in the endorsement of a new loan, while there are also over a quarter of a million active HECM adjustable rate loans indexed using the LIBOR standard.
Single women as a growing share of HECM borrowers
In fiscal year 2019, 31,260 HECM loans were endorsed by the Federal Housing Administration. This figure represents a low over the course of the last two fiscal years, according to Dr. Joshua Miller, senior advisor in the office of the deputy assistant secretary for single family housing at HUD. In terms of the composition of HECM borrowers, the data is divided into three separate categories: instances where there are multiple borrowers, single female and single male borrowers, respectively.
In 2019, 39.7% of HECM endorsements were for multiple borrowers, 38.04% were to single females, while 21% were to single males. While the different classes of borrowers remained relatively consistent throughout the year, the disparity between single females and single males as HECM borrowers is following through on notable trends that originators had observed in their daily course of business previously.
“There is no doubt there is a heavy weighting toward single women doing HECMs,” says Howard Frankel, senior reverse mortgage loan officer with Resolute Bank in Naples, Fla in a late 2018 interview with RMD. “Especially women who are older, who might be in their upper 70s and who have lost a husband recently.”
Frankel at the time observed that inquiries about reverse mortgage options were coming more and more from women in their 70s, who had perhaps recently lost a husband and were exploring their options in terms of finances, he said at the time.
The HECM data shared by HUD could indicate that this is a growing segment of potential reverse mortgage customers, particularly due to the high concentration of single women growing to reach within 1.3% of matching the dominant demographic of senior couples who avail themselves of a reverse mortgage product.
Loan characteristics, H4P and refinance trends
In terms of loan characteristics by purpose, the far and away most dominant reason to get a HECM over the past decade has consistently remained in the traditional arena, while refinance activity has seen something of a roller coaster of “valleys and peaks,” as Miller describes it.
“You have movement across this time period, and refinance activity is really going to fluctuate based on economic conditions like interest rates and house price appreciation,” Miller says. “To some extent, policies may also affect refinance activity. However, the last two years has seen a decrease in overall refinance activity.”
Interestingly, however, fiscal year 2019 did see relative parity between HECM refinance transactions and HECM for Purchase (H4P) activity. Unlike refinances, H4P endorsements have been steadily increasing over the period between 2009-2019.
“The For Purchase shows a different trend, we’ve seen it increase quite significantly over this period of time between 20019 and 2019,” Miller says. “In FY 2009, the share [of H4P transactions] was 0.84%, and that has increased to 7.4% for the latest fiscal year. The takeaway from here is that there are fluctuations in terms of refinance activity, and then a steady growth in terms of the HECM for Purchase.”
Counseling certificates outnumber HECM endorsements
Another trend raised by HUD staff presenting at the conference related to reverse mortgage endorsement certificates, as pointed out by Erica Jessup, acting director of the home valuation policy division in the Office of Single Family Housing at HUD. According to the data, 60,082 HECM counseling certificates were issued in fiscal 2019, compared with 31,260 endorsements that same fiscal year.
“You’ll notice that in fiscal year 2019, there were over 60,000 HECM counseling certificates issued. And, for the number of endorsements, a little over half [of that figure reached the endorsement stage],” she explains. “I always like to point that out, because it gives you an opportunity to see that sometimes, after someone obtains counseling, they don’t always go forward with the program.”
This is not an indication of a negative attribute on the part of FHA or the requirements of the HECM program, she says. Rather, the counseling is likely doing its job by helping borrowers to realize that the reverse mortgage product may not end up being a good fit for this potential borrower after all.
“Sometimes, they just realize that this [product] isn’t a good fit for them,” Jessup says. “And that’s okay. Or, maybe they found an alternative means in order to have their short-term needs met, because maybe from a long-term perspective, the HECM just doesn’t work for them. So, this is always useful information to have.”
Also detailed as possible causes for the discrepancy between the amount of counseling certificates disbursed and the endorsement total is lag time between receipt of the certificate, potential eligibility issues, and the client’s decision not to pursue a HECM, the presentation detailed.