While reverse mortgage volume notched a notable increase in 2021 according to the data, the product category has yet to emerge as a mainstream retirement tool even in spite of academic authorities, retirement specialists and certain broker-dealers advising that such products should at least warrant consideration. This is according to a new column at Wealth Management.
“Volume for Home Equity Conversion Mortgages (HECMs) finished 2021 at 53,020 loans—an 18.7% bump from 2020 but still in the range where originations have bounced around since 2012, according to Reverse Market Insight,” the column reads. “And, loan volume is far below the peak year of 2008, when 115,000 loans originated.”
Part of the reason for this could come down to a generally low penetration rate for the reverse mortgage industry according to John Lunde, president of Reverse Market Insight (RMI).
“If you look at current loans measured against the number of eligible households, it works out to a little more than a 2% penetration rate,” Lunde told the site.
Industry activity remains depressed in spite of a series of major program changes instituted over the past several years, the column notes.
“Defaults had become a problem in the industry — especially when newspapers started publishing stories about seniors losing their homes,” the column reads. “Although the loans have no payments, borrowers must keep their homeowner’s insurance and property taxes current and maintain the property. The changes reduced total available loan amounts, raised fees and, importantly, introduced a required financial assessment to make sure borrowers had the capacity to meet their obligations and terms under the HECM.”
In an interview with Wade Pfau, professor of retirement income at the American College of Financial Services and founder of RetirementResearcher.com, advisors would be well-suited to learn about how a reverse mortgage can potentially assist a qualifying client.
“If you can either just lower your withdrawal rate from your investments a little bit, or avoid distributions after a market downturn, that has such a huge positive impact on the subsequent portfolio value,” he told the site. “That’s really the secret sauce of the reverse mortgage. You can’t look at the reverse mortgage in isolation, you need to consider its impact on the overall plan, and specifically the investment portfolio.”
Pfau does note, however, that certain registered investment advisers have demonstrated interest in exploring reverse mortgage options. This was also observed by Stephen Resch, VP of retirement strategies at Finance of America Reverse (FAR). Some of that interest has been centered around proprietary reverse mortgages, which can offer loan limits of up to $4 million. The 2022 HECM lending limit currently sits at $970,800.
Read the column at Wealth Management.