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Policy Experts Push Creation of Low-Cost Reverse Mortgage Product

To better serve the housing and health care needs of the nation’s booming senior population, bipartisan policymakers are recommending several initiatives aimed at improving the ability to age in place for millions of Americans, including the creation of a new, lower-cost reverse mortgage product.

By 2030, Americans age 65 and older will represent more than 20% of the U.S. population, up from 14% today, according to a new report released Monday by the Bipartisan Policy Center (BPC).

The report, “Healthy Aging Begins at Home,” was developed over the past year by the BPC’s Senior Health and Housing Task Force and offers several policy recommendations focused largely on the integration of both housing and health care services and supports.

“America’s changing demographics will pose unprecedented strains on our fiscal, housing and health care systems,” said Henry Cisneros, Task Force co-chair, during a live webcast Monday afternoon in Washington, D.C. “It truly is one of the most pressing domestic issues before our country.”

Cisneros, who formerly served as secretary for the Department of Housing and Urban Development from 1993-1997 during the Clinton Administration, has been outspoken in the past about how reverse mortgages can be a creative, yet critical component to solving the aging in place crisis the U.S. currently faces.

Reverse mortgages play an integral role in helping older adults age in place, enabling seniors to unlock wealth stored in an otherwise illiquid asset. For seniors who own their homes, home equity offers a potential source of capital for much-needed home modifications that will enable them to continue living in their property even as their physical abilities change.

While the homeownership rate among individuals age 62 and older is projected to dip slightly over the next 50 years, according to the Task Force, nearly 75% of seniors are expected to own a home well into the future.

“This projected rate of homeownership among seniors offers a sustained opportunity to consider home equity as a source to cover necessary expenditures, including home modifications and LTSS [long term services and supports],” the Task Force writes in its report.

Although reverse mortgage may not be the easiest financial products to understand, the Task Force notes that concerns regarding their complexity can be mitigated with access to low-cost and effective mortgage counseling to ensure potential borrowers are clearly aware of the risks and benefits associated with the products.

As part of its policy recommendations, the Task Force urges HUD to maintain both protections and counseling services for the Home Equity Conversion Mortgage program. The Task Force also recommends that HUD consider new products that assist borrowers in safely accessing home equity.

One such product could be the development of a “low-dollar reverse mortgage pool” for retired homeowners. Doing so, the Task Force notes, would reduce fees on mortgages and make the market more accessible.

The current FHA-insured HECM program allows qualifying homeowners to withdraw a maximum loan amount that varies based on the age of the borrower and the interest rate environment.

A low-dollar reverse mortgage pool, however, would allow retirees to tap into smaller amounts of their home equity, which the Task Force says could mean lower risk for lenders, borrowers and taxpayers, while also potentially having the added benefit of reduced fees and interest rates.

This concept, which was introduced by the BPC Commission on Retirement Security and Personal Savings, may be further detailed in the group’s final report, which is slated for release June 9.

The report will further underscore the challenges Americans face as they plan for their financial future, including the significance of home equity as an additional resource for retirement funding.

Aging Americans will need all of the financial help they can muster and reverse mortgages could be a vital resource for many, especially when considering that over the next 20 years, nearly 40% of adults age 62 and older will have financial assets of $25,000 or less; and 20% of those age 62 and older will have $5,000 or less, according to the Task Force.

These statistics present a “stark reality” of what the future holds for millions of seniors, said Vin Weber, former U.S. representative and Task Force co-chair.

“Seniors’ inadequate savings, their long-term care needs, and the costs of home modifications, call for new strategies to address the home and health needs of individuals as they age,” Weber said in a written statement.

Read the BPC Senior Health and Housing Task Force’s full report.

Written by Jason Oliva