Reverse Mortgages in America: The Statistics

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Reverse Mortgages in America: The Statistics

According to the National Reverse Mortgage Lenders Association, the majority of reverse mortgages in the United States are guaranteed by the Federal Housing Administration (FHA), also known as home equity conversion mortgages (HECMs). 49,207 more borrowers took out reverse mortgages in 2021 than the previous year.

However, alternative methods of accessing home equity, such as cash-out refinancing, home equity loans, and home equity lines of credit (HELOCs), are often more common. According to information from the Home Mortgage Disclosure Act, there were 2.506 million home equity loans, HELOCs, and cash-out refinances in 2018, the most recent year for which data is available. There were 33,000 new reverse mortgage originations in the same year.

Key Takeaways

  • Reverse mortgages that were federally insured returned to pre-pandemic levels in 2021, although they were still far below their peak from a decade earlier.
  • The Mutual Mortgage Insurance Fund (MMIF) of the Federal Housing Administration (FHA), which provides insurance for reverse mortgages, had its first profitable year since 2015 in 2021.
  • Reverse mortgages are still used more often by women than males.

How HECMs Work

HECMs, which are available to homeowners with sizable home equity who are 62 years of age or older, allow homeowners to borrow money against the value of their property. Reverse mortgages, in contrast to forward mortgages, the kind used to purchase a property, don’t compel the homeowner to make loan payments, making them a viable financial option for those who run out of money in retirement. The loan is not paid back until the borrower dies or vacates the property.

The most prevalent kind of reverse mortgage in the US is a HECM. This sort of mortgage, also known as an FHA reverse mortgage, is only accessible via a lender that has been authorized by the FHA.

As part of its yearly report on its overall mortgage insurance program, the FHA reports on the number of HECM endorsements via its parent agency, the U.S. Department of Housing and Urban Development (HUD). A legal agreement on a mortgage contract adding the loan to the FHA mortgage insurance program, which protects lenders against losses from mortgage failure, is known as an endorsement in HUD and FHA jargon.

The most current annual report gives a statistical overview of reverse mortgage lending in general as well as the federal HECM program specifically. In the 49,163 HECMs it insured for the federal fiscal year (FY) 2021, which concluded on September 30, 2021, the FHA provided a mortgage insurance endorsement. This is an increase from 31,272 in FY 2019 to 41,825 in FY 2020. The FHA had approved 114,425 HECMs in FY 2009.

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Who Gets Reverse Mortgages?

According to HUD, women are somewhat more likely than men to use reverse mortgages that are federally insured. One in five (21%) of them handled single male borrowers, while 36% of them worked with single female borrowers. In FY 2021, four out of five (or 41%) serviced multiple borrowers.

72% of HECM endorsements benefited White borrowers, 6.37% served Black borrowers, and 5.41% served Hispanic borrowers, among other demographics. Comparatively, Hispanic borrowers made up around 25% and Black borrowers made up roughly 17% of all FHA-backed mortgage insurance. Reverse mortgage statistics were more in line with the rest of the mortgage market: 10% of borrowers were Hispanic and around 6% of borrowers were Black, according the HUD annual report. (Borrowers may choose to voluntarily disclose their race and ethnicity.)

The typical borrower age grew to 73.95 in FY 2021 from 73.51 in FY 2020.

Line of Credit Dominates

There are various ways for HECM borrowers to acquire money. Each strategy has advantages and disadvantages, and the choice of payment will influence how much money the borrower gets over the course of the loan as well as how rapidly their home equity is depleted.

In FY 2021, the majority of borrowers with HECMs (about 90%) chose the line-of-credit payment option. A lump sum payment, monthly payments for a certain number of months, or equal monthly payments for the course of the loan are further payment alternatives.

Insurance Fund Trends Down

According to the FHA Mutual Mortgage Insurance Fund, HECM claims in FY 2021 came to $2.99 billion, down from $6.23 billion in FY 2020.

The majority of the claims were from cases that HUD was given after the mortgage reached 98% of the FHA’s maximum claim amount. The majority of the other claims were made in situations when the borrower no longer lived in the house as required by the regulations, and the house was sold at a loss.

HUD highlighted that the economics of the reverse mortgage insurance program have improved. According to HUD’s annual report, it was the first year since FY 2015 that the HECM fund had a positive financial performance. As of September 30, 2021, HUD reported a stand-alone capital ratio of 6.08%, up from the previous fiscal year’s capital ratio of -0.78%.

As opposed to around 67.7% in FY 2020 and 63.1% in FY 2019, HECM borrowers withdrew an average of 73.26% of their authorized principal limit on their first draw in FY 2021. According to HUD, large upfront withdrawals accelerate the compounding of liabilities and the erosion of borrower equity.

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California, Florida Lead

In FY 2021, California accounted for about 36% of all HECMs. Florida came in second with 6.19% of the population, followed by Texas with 4.07%, New York with 3.14%, and Pennsylvania with 1.08%. Additionally, these five states accounted for approximately 51% of all HECM loans.

The Least Popular Option

In spite of a recent increase in popularity, reverse mortgages that are guaranteed by the government are still significantly less common than other ways to access home equity. The Urban Institute used data from FY 2018, when HUD reported 48,329 FHA-backed HECMs, in a 2020 study on reverse mortgage utilization. In contrast, there were 296,000 home equity loans with monthly payments, approximately 1.1 million cash-out refinance mortgages, and 1.12 million HELOC loans that year.

Proposed AARP Reforms to Make Reverse Mortgages Safer

Cheaper costs: Compared to the initial loan, the origination charge for HECM refinances ought to be lower. States should set limits on the costs and interest rates on jumbo reverse mortgages, also known as proprietary reverse mortgages.

Lender accountability: The Consumer Financial Protection Bureau (CFPB) need to mandate that lenders include consumer safeguards; lenders must to tell consumers of all HECM loan choices, even if they do not provide them.

Truth in advertising: Federal authorities should make sure that reverse mortgage loan disclosures, sales techniques, and advertising are not false or deceptive. They must avoid conveying the idea that a reverse mortgage is a benefit as opposed to a loan. Advertisers should be forced to disclose that any famous individuals who appear in their advertising are being paid spokespersons.

Fraud and scams: HUD needs to put an end to reverse mortgage fraud and scams by taking enforcement action.

Eligibility for public benefits: Reverse mortgage proceeds shouldn’t have an impact on a homeowner’s eligibility for public assistance programs.

Researchers have highlighted possible changes that may be made to reverse mortgages to increase their attractiveness to seniors looking to improve their retirement financial situation. One barrier is the hefty origination charge upfront cost as compared to other home equity vehicles. There have been a variety of proposals, from having the federal government directly issue the loans to bringing back a previous FHA program that offered a discount on the upfront cost of insurance premiums. Another option is to set up an annuity using portion of the loan proceeds to assist borrowers in paying their insurance and property taxes, lowering the likelihood that they will go into foreclosure if they fall behind on these payments.

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How much equity can you get on a reverse mortgage?

The lender and your payment schedule will both have an impact on the amount of money you’ll get from a reverse mortgage. Your ability to borrow money with a home equity conversion mortgage (HECM) is determined by the youngest borrower’s age, the interest rate on the loan, and the lesser of your home’s appraised value and the maximum claim amount allowed by the Federal Housing Administration (FHA), which is $970,800 as of January 1, 2022. You cannot, however, borrow the whole value of your property or anything close to it.

What is the downside of a reverse mortgage?

While a reverse mortgage might help with certain cash flow issues, you should not rush into it since building up your home equity undoubtedly took years of arduous effort. When you take out a reverse mortgage, you must spend a significant portion of your equity on loan fees and interest. The large fees and high interest rates that might consume a sizeable percentage of a homeowner’s equity are a few drawbacks to take into account.

Can a family member take over a reverse mortgage?

You must repay the reverse mortgage in full if you inherit one from your parents or grandparents. You have three options for doing that: using your own money to pay the loan, refinancing the house, or selling it.

The Bottom Line

In the last five years, there has been an uptick in homeowners age 62 and older using reverse mortgages to access their home equity, although use is still far below its 2009 high. Compared to home equity loans, reverse mortgages continue to be far less common. Academic experts have suggested revisions that may be made to the primary government program that backs reverse mortgages via the FHA. These changes are meant to increase the attractiveness of reverse mortgages to senior homeowners who want to access their equity without having to sell their property.

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