Nearly three-quarters (74%) of respondents in a Mutual of Omaha survey report that they have little or no knowledge about reverse mortgages, with others revealing misconceptions about how exactly they work.
The survey, conducted by the Mutual of Omaha insurance company and published by Mutual of Omaha Mortgage, recently served as the basis of a presentation at the National Reverse Mortgage Lenders Association (NRMLA) Southern Regional Meeting in Austin, Tex.
But some of the misconceptions cited in the report may be unexpected among industry professionals, even if many have likely been heard by educators and originators before. The survey was conducted with 400 respondents at or over the age of 60 between April 13-25, with respondents “asked to describe their current financial needs and to rate their knowledge of reverse mortgages,” the results said of the methodology.
“Those who said they had knowledge of reverse mortgages were asked what having a reverse mortgage would mean to them and what need would be best met by having a reverse mortgage.”
People just don’t know about the product
Education has been a longstanding priority of the reverse mortgage industry, and the survey data reveals that the industry still has a long way to go when it comes to keeping people informed about the product category. Beyond that, only 2% of respondents reported that they actually had an active reverse mortgage, a figure that roughly mirrors the product category’s adoption rate in comparison to the forward mortgage market.
The mechanics of the loan are also not well-understood, the results revealed.
“Forty percent wrongly believe taking out a reverse mortgage would mean their heirs won’t inherit their home, and 22% wrongly believe they would no longer own their homes,” they said.
The Home Equity Conversion Mortgage (HECM) program has come a long way since it was passed by the 100th U.S. Congress and signed into law by President Ronald Reagan. A steady stream of product safeguards and consumer protections have been rolled out on a regular basis during that time, with many such rules passed via Mortgagee Letter slated to be codified in an upcoming revision to HUD’s Single Family 4000.1 Handbook.
Still, respondents were cautious in longer-form responses, the results said.
“I still believe reverse mortgages relieve homeowners of some of their rights,” one respondent explained. Another said that they didn’t like the idea that they could not “leave the house to heirs.”
Another had a wholly different conception of the loan’s repayment structure.
“Based on what I’ve heard, my monthly mortgage payments would be paid by someone else, I would continue to be able to live in the home. They would own the home if I died; the home would no longer be mine,” this respondent said.
The four persistent myths
The survey zeroed in on several prevailing myths that continue to persist about reverse mortgages, most of which should prove very familiar to reverse mortgage educators and loan originators in particular.
The most predominant one is that the “bank gets the house,” when in reality the heirs have the option of paying back the loan to keep the home or sell it to satisfy the debt. There is also a myth that heirs are “left with the debt,” but heirs remain free to sell the home to satisfy the loan, and pocket the remaining sale proceeds. A reverse mortgage debt cannot exceed 95% of the home’s value.
Another myth is that a borrower would have to “leave the home before [they’re] finished using it,” but it would take a maturity event — such as a borrower becoming delinquent on property taxes, homeowner’s insurance or maintenance of the property — to displace a borrower. Even then, the survey results point out there is a technical end date for the loan.
“[T]echnically a reverse mortgage has an end date — the 150th birthday of the youngest borrower. So, it’s doubtful anyone will ever have to worry about this being a factor,” the survey said.
There is also a myth about monthly payments on a reverse mortgage being required, a curious misconception considering that many reverse mortgage advertising campaigns — even ones that in the past have garnered regulatory scrutiny — have made a lack of required monthly payments a centerpiece of the pitch.
“Unlike a traditional mortgage, a reverse mortgage doesn’t require any monthly payments, which means the house will not by foreclosed on due to missed payments,” the survey results said. “The only requirements for the homeowner are to pay the taxes, insurance and HOA fees and to maintain the condition of the property, just like any mortgage.”