There is a link between the higher age of a prospective mortgage borrower and the potential rejection of that client’s application. However, the details of the correlation do not necessarily suggest that lenders are in violation of fair lending laws. This is according to a new research brief published by the Boston College Center for Retirement Research (CRR).
“[T]he equation includes lender by year-quarter fixed effects, which means that the findings are not driven by older individuals applying for mortgages with more stringent lenders,” the brief reads in part. “Excluding 2020 applications produces the same pattern, which means the results are not driven by COVID. Omitting age groups from the equation does not affect the coefficients on the other variables. Separate estimates for government-guaranteed loans produce the same qualitative results. Finally, the pattern is also evident for cash-out refinance applications.”
The data also suggests that women are less likely to have as high a failure rate with mortgage applications in later life when compared to men, according to the research.
However, the research does not conclude that mortgage lenders are in violation of fair lending laws for three key reasons.
“First, the regulations allow the consideration of a borrower’s age in credit decisions under some circumstances,” the brief reads. “Second, although the equation controls for a large set of observable characteristics, the results should be viewed as an association between age and rejection – not a causal relationship. Third, mortality risk has real economic implications for lenders for which they might require additional collateral. Regardless of the reason, however, it is important for older individuals to know that they are more likely to be denied credit.”
The reverse industry has long contended that having people at or over the age of 62 enter new 15- or 30-year mortgages could be an inappropriate fit considering their life circumstances.
“I’ve seen many situations where a forward mortgage loan officer and the borrower themselves have many misconceptions about reverse mortgages, so they didn’t even look into it as an option to compare with other choices,” reverse mortgage professional Christina Harmes Hika told RMD in 2019. “This is where the knowledgeable mortgage broker can shed light on the realities of how a reverse mortgage works, and how it could have a life-changing impact.”
Unlike a Home Equity Conversion Mortgage (HECM), forward mortgages were not designed with seniors in mind, according to Martin Andelman, reverse mortgage trainer and speaker with HighTechLending in Orange, Calif.
“It’s also worth mentioning that [in terms of] 30-year mortgages, I promise you, no one ever sat around and talked about 30-year mortgages thinking they’d be perfect for 70 and 80-year olds,” he said in an episode of The RMD Podcast. “30-year mortgages were never meant to be for them. And now, I bump into people all the time who could be 72 years old, just refinanced two years ago, and now has only 28 years to go. What could go wrong?”