As the Home Equity Conversion Mortgage (HECM) enters its third decade, one of the reverse mortgage industry’s leading experts and often referred to as the “Godfather” of the program says the most fundamental question about the consumer impact of the HECM has yet to be answered.
Ken Scholen, Director of the National Center for Home Equity Conversion tells RMD the program was created on the statutory premise that it would “reduce the effect of economic hardship… at a time of reduced income.” Now, 21 years after the first HECM was closed, Scholen wants to know if the HECM product is serving the long term financial interests of borrowers.
While the Department of Housing and Urban Development is required by the Housing and Economic Recovery Act of 2008 (HERA) to conduct a study to determine “appropriate consumer protections and underwriting standards” for the HECM program, Scholen says it fails to address the bigger picture of the product.
Even though surveys by organizations like AARP have found the majority of current HECM borrowers say the product has had a positive impact on their lives to date, Scholen says these surveys have not included substantial samples of former borrowers.
“We don’t know how many former HECM borrowers see these loans as a positive financial tool that helped them through a time of financial distress, and left them with sufficient equity to meet their ongoing needs,” says Scholen. Additionally, there is no data on whether borrowers spent a lot of their equity in their 60s to mid-70s, “only to regret such spending after they have paid back their loans, and then finding themselves needing their already-spent equity in their later 70s and 80s.”
As the average age of borrowers with reverse mortgages continues to drop, the need to survey borrowers who have terminated the loan couldn’t be more important. “The youngest borrowers may have the greatest risk of depleting their equity too soon,” he says.
Scholen stresses that he is ardent supporter of the HECM program, but believes a substantial survey of former borrowers would create confidence that the industry is seriously concerned about the products overall impact on consumers.