Study on Reverse Mortgages Shows Increased Demand Among Younger Borrowers in Wake of Recession
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Study on Reverse Mortgages Shows Increased Demand Among Younger Borrowers in Wake of Recession

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August 9, 2011

CONTACTS:

Debra Caruso
DJC Communications
(212) 907-0051
debra@djccommunications.com
Joseph Madden
MetLife
(212) 578-3021
jmadden@metlife.com

Westport, CT – A comprehensive new study from the MetLife Mature Market Institute shows the age of those seeking Home Equity Conversion Mortgages (HECM), popularly known as reverse mortgages, has plummeted in the three years since the collapse of the housing market in the U.S. 

It also reports that these mortgages, a special type of home loan that lets you draw on your equity without monthly mortgage repayments, have now become a way for many older Baby Boomers to help manage urgent financial needs. Once a product associated with a much older age group, Boomers aged 62-64 currently represent one in five prospective borrowers, with more and more considering reverse mortgages to help fund their pressing financial needs, in many cases brought on by the recent recession.

Changing Attitudes, Changing Motives: The MetLife Study of How Aging Homeowners Use Reverse Mortgages, produced in conjunction with the National Council on Aging (NCOA), reports that the average age of those who have gone through reverse mortgage counseling has declined and is now 71.5 years of age. 

The U.S. Department of Housing and Urban Development (HUD) reports a similar decline in the average age of borrowers to age 73. Further illustrating this trend, 46% of homeowners considering a reverse mortgage are under age 70. The percentage of 62- to 64-year-olds who are prospective borrowers has increased 15 percentage points since 1999, despite the fact that younger applicants have lower available loan limits.

A consumer guide, The Essentials: Reverse Mortgages, accompanies the study and is available free. It is aimed at helping potential borrowers learn more about the product and its implications for the future of their finances.

The study includes an analysis of new data about older homeowners who consider these loans, which was collected by HUD-approved counselors as part of mandatory counseling for all reverse mortgage applicants. Between September and November 2010, counselors completed 21,240 of these counseling sessions.

It was found that about two-thirds (67%) of recent counseling clients also have a conventional mortgage that will need to be repaid if they decide to take out a reverse mortgage. About one in four (27%) reported having both housing and non-housing debt. Borrowers with sizable existing debt may rapidly deplete home equity. 

“Consumer attitudes about reverse mortgages are changing because the recession has eroded their confidence about retirement security,” said Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute. “Since reverse mortgages do not have income requirements, these loans will become more attractive as other forms of credit become less accessible and more expensive.”

Timmermann adds, “While the economic downturn may be a major reason why borrowers are now using this financial option for debt management, looking to the future it is likely that tapping home equity will be viewed more strategically in the retirement planning process.”

Both the MetLife Mature Market Institute and NCOA caution that expanded consumer guidance and education will be needed as the demand for reverse mortgages heightens.

“While the home is a valuable financial resource, without appropriate and effective guidance, tapping home equity may also increase the financial vulnerability of older homeowners,” said Barbara Stucki, Ph.D., vice president for home equity initiatives for NCOA. “Expanded and strengthened consumer education will be necessary to assist borrowers in making wise decisions.”

The report provides the following information for consumers, financial advisors, and others counseling older Americans. 

  • Loan Types — Potential borrowers need to understand the pros and cons of loan options, features, and costs for their personal financial situation. With recent changes, including lower loan limits, the introduction of a fixed-rate HECM, and a new loan option (“HECM Saver”), reverse mortgages are no longer a one-size-fits-all solution.

  • Revise Outdated Thinking — Based on their experience with conventional loans, consumers may believe a fixed rate is preferable to an adjustable rate HECM. But a fixed rate HECM can be more costly and potentially offers less flexibility than an adjustable-rate mortgage (ARM) HECM loan. In addition, lenders may now offer reverse mortgages with minimal upfront costs, which can make this loan attractive for more short-term needs.

  • Clarify Confusing Concepts — Although borrowers need to pay off existing debt on their homes to get a reverse mortgage, by transferring this debt to the reverse mortgage loan obligation, they are only deferring the repayment of these mortgage payments (with interest) until they die or move out. Borrowers must also meet all of their other reverse mortgage obligations including making timely property tax and homeowners insurance payments.

  • A Holistic Approach — Borrowers may benefit from involving other professionals in decision-making as appropriate, including legal, financial, and tax advisors. They may also consult with medical advisors to provide input on health challenges that could make it hard to stay at home.

  • Exit Strategy — Reverse mortgage borrowers can stay in the home as long as they wish. But sooner or later, the loan will have to be repaid. Financial advisors, senior advocates, housing specialists, and other experts will need to work together to develop scenarios with appropriate exit strategies to guide consumers through these transitions.

  • Now or Later? — Whether to integrate home equity into ongoing retirement financing or to preserve this asset for major unexpected expenses in the future is a common question. Homeowners may choose to use home equity to pay for home repairs or to pay off tax burdens. In some situations, a reverse mortgage may help stabilize a difficult financial situation, such as forestall a foreclosure.

  • More Than a Last Resort? — Using home equity as more than a “last resort” can help keep cash shortfalls from becoming major problems, but the growing trend toward borrowing at earlier ages also raises concerns. Aging Baby Boomers, likely to live longer than their parents, may not have saved enough for their additional retirement years. Consequently, seniors they may need to preserve a portion of their home equity.

Changing Attitudes, Changing Motives: The MetLife Study of How Aging Homeowners Use Reverse Mortgages and The Essentials: Reverse Mortgages can be downloaded from www.MatureMarketInstitute.com. They can also be ordered through Contact Us on the MetLife Mature Market Institute website or by writing to: MatureMarketInstitute@MetLife.com or MetLife Mature Market Institute, 57 Greens Farms Road, Westport, CT 06880.

About The MetLife Mature Market Institute®  The MetLife Mature Market Institute is MetLife’s center of expertise in aging, longevity and the generations and is a recognized thought leader by business, the media, opinion leaders and the public.  The Institute’s groundbreaking research, insights, strategic partnerships and consumer education expand the knowledge and choices for those in, approaching or working with the mature market. The Institute supports MetLife’s long-standing commitment to identifying emerging issues and innovative solutions for the challenges of life.  MetLife, Inc. is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers in over 60 countries.  Through its subsidiaries and affiliates, MetLife holds leading market positions in the United States, Japan, Latin America, Asia Pacific, Europe and the Middle East.  For more information, please visit:  www.MatureMarketInstitute.com.

 

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About NCOA  The National Council on Aging (NCOA) is the nation’s leading nonprofit service and advocacy organization representing older adults and the community organizations that serve them. Our goal is to improve the health, independence, and economic security of 10 million older adults by 2020. For more than 60 years, NCOA has been a trusted voice and innovative problem-solver helping seniors navigate the challenges of aging in America. We work with local and national partners to give older adults tools and information to stay healthy and secure, and we advocate for programs and policies to improve the lives of all seniors, especially the most vulnerable. For more information, please visit www.ncoa.org.

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