Study on Reverse Mortgages Shows Increased Demand Among Younger Borrowers in Wake of Recession, According to MetLife Mature M...
March 14 2012 - 9:59AM
Business Wire
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 four years since the collapse of the housing
market in the U.S. It also reports that these mortgages, special
types of home loans that allow people to draw on home equity
without monthly mortgage repayments, have evolved into a way for
many older Baby Boomers to help manage urgent financial needs.
Boomers age 62–64 currently represent one-in-five prospective
borrowers of the product, which was once associated with a much
older age group.
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. Forty-six percent 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 had lower available loan limits.
The study concludes that older homeowners will need assistance
and consumer education to ensure that they make wise decisions
about the most appropriate use of their “nest egg” of home equity.
To that end, a consumer guide, The Essentials: Reverse Mortgages,
accompanies the study and is available free to the public. It is
aimed at helping potential borrowers learn more about the product
and its implications for their finances.
Data for the study 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.
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, the study found. 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 confidence about retirement security and
Americans will rely more and more on these measures,” said Sandra
Timmermann, Ed.D., director of the MetLife Mature Market Institute.
“As reverse mortgages do not have income requirements and since
other forms of credit have become less accessible, these loans will
become more attractive, though it is worth noting that the
Department of Housing and Urban Development (HUD) stated recently
that lenders may conduct financial assessments of applicants to
ensure that they have the ability to meet their loan
obligations.”
Barbara Stucki, Ph.D., vice president for home equity
initiatives for NCOA, added that going forward there is a good
chance home equity will evolve from being an emergency measure to
one that is part of a strategic retirement plan.
“While the economic downturn may be a major reason borrowers
have begun to use this financial option for debt management, in the
future it is likely that tapping home equity will be viewed as part
of the entire retirement planning process. It is likely the reverse
mortgage option will be considered alongside some of the more
traditional methods of saving and investment.”
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 Web site, or by writing to:
MatureMarketInstitute@MetLife.com or MetLife Mature Market
Institute, 57 Greens Farms Road, Westport, CT 06880.
National Council on Aging (NCOA)
The National Council on Aging (NCOA) is a nonprofit service and
advocacy organization headquartered in Washington, DC. NCOA is a
national voice for millions of older adults—especially those who
are vulnerable and disadvantaged—and the community organizations
that serve them. It brings together nonprofit organizations,
businesses, and government to develop creative solutions that
improve the lives of all older adults. NCOA works with thousands of
organizations across the country to help seniors find jobs and
benefits, improve their health, live independently, and remain
active in their communities. www.NCOA.org
The MetLife Mature Market Institute®
Celebrating its 15-year anniversary in 2012, the MetLife Mature
Market Institute is Metropolitan Life Insurance Company’s (MetLife)
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 50 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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