While the Home Equity Conversion Mortgage (HECM) product allows seniors to tap into their home equity, Black seniors are disproportionately denied HECM loans when compared to white borrowers in all age groups, according to a research brief published on Thursday by the Urban Institute. In addition, the denial gap is evident across all loan amounts in neighborhood income spectrum.
Still, home equity is the main source of wealth for Black senior homeowners in late life, and it’s important to reduce barriers to access, according to the brief. To learn more about the research brief, RMD spoke with co-author Michael Neal and research assistant Amalie Zinn.
Barriers to entry
Home equity utility can meet a number of needs that seniors have in retirement, but the origination data trends indicate that Black homeowners have a harder time being approved for reverse mortgages, Neal said.
“Black homeowners, in particular, are frankly more likely to be denied a reverse mortgage,” Neal said. “I think that feeds into the history of racial inequities that we’ve seen in other areas, but also, it’s up against some of the lack of retirement and preparation for living as a senior that can make life much more difficult.”
The challenges that Black and Hispanic borrowers face with refinancing — another method of tapping home equity — have been documented before, and make it difficult to access the benefits of home equity, Neal said.
“This is another area where you’ve told people that this is the American dream, that this is what you should strive for, these are the benefits that you should seek to accumulate,” he said. “But right at a time when it could be best potentially used, access to it is disproportionately curtailed.”
Barriers for Black HECM borrowers further increase when looking at liquid assets. According to data cited in the brief, Black senior homeowners have fewer liquid financial assets to deploy to buffer the upfront costs of getting a HECM loan. According to data cited in the report, the median liquid net worth for Black homeowners ages 62 and older is only $3,500 — but the median is $104,000 for white homeowners ages 62 and older.
In addition, the median home equity value for Black senior homeowners was $89,823 in 2019, while the median home equity value for white senior homeowners was $170,000.
How to combat the issue
There are several recommendations for lawmakers included in the brief to help combat the disproportionality. One recommendation is to look at the impact of the financial assessment requirement implemented into the HECM program in 2015.
“Although HUD’s new financial assessment requirement is meant to protect homeowners, it disproportionately affects Black borrowers, as they tend to have low incomes and low credit scores attributable to structural barriers and historic discrimination,” the brief states. “With less home equity to start with, the financial assessment further decreases the amount of home equity Black senior homeowners can borrow, making them less likely to tap home equity and less likely to get approved for a HECM loan.”
However, the reverse mortgage industry could also play a role, Neal said.
“When we think about the industry overall, I think that is where there’s an opportunity to partner with the federal government, and with other stakeholders in the ecosystem,” Neal said. “I’m thinking about things like systems change. What is the racial and ethnic background of the loan officers who are working through these types of loans? And how can perhaps diversifying the occupation or profession be beneficial?”
Reverse mortgage industry actions
Lenders and other industry organizations can also take action on the appraisal front, Neal said.
“Federal policy hopefully has a lot that it can do, but also in terms of the lender, [they can impact these issues by] really paying close attention to the properties to ensure that they are of appropriate value. That can be beneficial as well,” he said.
Paying attention to larger institutional issues may also help to address inequities, Neal said.
“We talked about the history of structural racism that gives rise to appraisal bias and gives rise to the lack of non-housing wealth,” he said. “I think that there is something to be said around [asking] what are the things that industry can do in terms of ensuring that over the lifecycle, that those particular pain points are muted?”
The industry can also find a business case within these trends, Neal said.
“Certainly there’s something to be said for righting past wrongs, and that’s critical,” he said. “But there’s also a business case. And that, in my mind, starts with the sizable population of baby boomers who are coming exactly into this group. The industry can play a critical role in identifying the opportunities to sustainably serve those borrowers so that they are comfortable in their senior years.”