a study commissioned U.S. Department of Housing and Urban Development (HUD) The Office of Policy Development and Research (PD&R) aims to evaluate the status of the Home Equity Conversion Mortgage (HECM) program over a 20-year period in 2022.
The study, released late last year, looked at three core elements of HECM program effectiveness between 2000 and 2020. SP Group LLC and its subcontractors econometrics corp.
RMD has reviewed the portion of the study regarding the implementation of various HECM policies during that period, but the report also details the program’s impact on borrowers over these two decades.
Borrowers tend to be young, single seniors
As actor Tom Selleck says in the commercial American Consulting Group (AAG) In 2019, the reverse mortgage program served “more than one million Americans.” The study’s section on borrower characteristics reinforces this figure, detailing federal housing administration (FHA) approved 1.1 million HECM loans between October 1, 1999, and September 30, 2020.
Using HUD administrative data from these loans, the researchers compiled “some basic characteristics and trends of the HECM borrower population during this period,” including age-related data showing that younger eligible groups accounted for the majority of borrowers. .
“[I]Generally speaking, the age distribution of HECM portfolios is skewed towards the younger end of the senior age range, with 45% of HECM borrowers being between 62 and 70 years old,” the report said. “Women (68%) are more than twice as likely as men (32%) to use HECM plans, and the ratio of women to men is much higher than in the general older population.”
Additionally, approximately 60% of HECM borrowers live alone in single-person households, with a similar proportion of unmarried borrowers. That’s “a much higher share of the unmarried population than the general elderly population,” the study noted, adding that the vast majority of borrowers are also white.
race, ethnicity, and economic status
The report also noted that 84% of HECM borrowers are white, 14% are black, and 2% are of other races. Whites made up the largest share of HECM borrowers during this 20-year period, “consistent with their dominance of the overall population during this time period.”
Blacks made up the largest share of nonwhite reverse mortgage borrowers during this period, while only about 6% were Hispanic or Latino. This number is “lower than the proportion of older people in the population,” the study said. “Non-Hispanic and non-Latino borrowers significantly outnumbered Hispanic and Latino borrowers in all years of the 20-year period covered by this study.”
Not surprisingly, the report labels most HECM borrowers as “house-rich but income-poor.” it takes advantage of U.S. Census Bureau The data estimate the median income (in 2019 dollars) for seniors in single-person households to be $30,000. Researchers increase the income of HECM borrowers each year to provide a point of comparison between actual borrowers and the average figure.
“Although HECM borrowers have annual incomes below the $30,000 benchmark, most borrowers in the program have sufficient home equity and have home values above the average for the general senior population,” the report states.
Data shows that 43% of HECM borrowers own homes valued at $300,000 or more in 2019 dollars, which helps illustrate that the program helps “provide housing-rich but income-poor borrowers,” the report said. Provide additional income protection.” “Additionally, a significant portion of borrowers draw down a significant amount of their HECM line of credit within the first month.”
Use of proceeds
In 2011, HUD began asking borrowers how they planned to use loan funds by adding a new section to the HECM loan application, so the data for the entire review period was incomplete.
Since 2011, about half of borrowers have chosen just one reason, while the other half have chosen multiple reasons. The majority of borrowers who selected a single reason (53%) selected “extra income” as the reason for obtaining the loan.
“This finding is consistent with the HECM program’s goal of providing seniors with the ability to convert home equity into supplemental income,” the report states.
Since 2011, one-third of borrowers have said they intend to use the proceeds to pay off existing property liens, but researchers believe there is not much difference between this reason and the “extra income” option.
This is because “eliminating existing forward liens with HECM proceeds is a mandatory program requirement,” the study explains. “For borrowers whose forward mortgages are canceled and converted to reverse mortgages, a HECM loan can provide relief from forward mortgage payments, while the net equity gains provide a source of ‘additional income.'”
The third most common use of HECM proceeds was for “leisure activities,” with 11% of borrowers saying this was the primary reason they obtained the loan, the study said. Oddly enough, this reaction was largely concentrated in a specific time period.
“The majority of responses indicating that leisure was the primary reason were concentrated in 2016 and 2017,” the study states. “It is unclear whether this response is due to changes in borrower preferences or changes in the way data is collected over the years. “
These years come shortly after the revised non-borrowing spouse provisions come into effect for the HECM scheme, but before then the scheme will feel the impact of a reduction in major constraints and the implementation of requirements that may result in a second property assessment.
