new personal factors impact reverse mortgage demand

Last Updated on Thursday, 18 February 2010 17:22 Written by H. Marc Helm Friday, 18 September 2009 15:40

“The economic needs of these other three generations could increase the demand for reverse mortgages.”
Beyond the regulatory and financial conditions affecting reverse mortgage growth today, many personal factors are having an increasing impact on demand. Factors such as the lengthening life span, personal health and the likelihood of continued employment during the senior years – all are coming to the fore.

Although eligibility for reverse mortgages starts at 62, at that age seniors can look forward to living another 20, 30, even 40 years. So, when seniors divide a lump sum reverse mortgage payment into as many as 40 years, how open will they be to obtaining a reverse mortgage at age 62, if they can stall or postpone their needs by careful planning?

Younger seniors may choose to delay taking out a reverse mortgage or determine that with extended life expectancies, they should opt for smaller monthly payments. In that case, what are the risks to originators, servicers and investors?

While reverse mortgages have been marketed as a way for seniors to meet their financial needs, there may be new interest in using such funds to help children, grandchildren or even non-house-owning parents. The economic needs of these other three generations could increase the demand for reverse mortgages even when seniors don’t need a reverse mortgage to meet their own individual needs.

Personal health and the future of health-related programs for seniors (Medicare, Medicaid, long-term insurance) will also impact how much money seniors will need. Doomsayers are predicting the potential bankruptcy of Medicare and also of Social Security. Although it is unlikely such forecasts will materialize, cutbacks or delays in implementation are possible, and this could increase financial pressure. In addition to potential threats to Social Security, employer administered and funded pension accounts for employees are also in some doubt. Many companies are reducing their contributions to those accounts or eliminating them entirely. If this goes on past the current economic downturn, there will be an increased need for reverse mortgages.

Personal investments, too - especially in IRA and Roth retirement accounts - have been hit hard and may remain depleted for an indeterminate time, meaning reverse mortgages could present the only hope for many seniors.

An extension of the working years, at least on a part-time basis, has been one answer to growing economic needs, but for those unable to work or find employment, the need to tap property equity will grow.

Can production keep pace?
In response to all this new need, one wonders whether production (origination) of reverse mortgages will be sufficient, hobbled as it is by several challenges, one of which could be a drop in the temporary maximum loan amount of $625,500 back to $417,000 next year.
 

Will banks; especially community banks, and also credit unions become active originators as their customers seek reverse mortgages?

All these questions and issues continue to make the reverse mortgage business a complicated one; with many more factors playing influential roles than they do in the interest-rate dominated forward mortgage business.

House-related factors, from equity to taxes and insurance; state and federal regulations; even how reverse mortgages are viewed by seniors, by lenders and by potential investors can impact the market and its growth.

Home values and the equity that can be tapped are important quite simply because these can limit the funds available and thus the attractiveness of a reverse mortgage – as in today’s market where home values and equity remain stagnant.

Just as with a forward mortgage, those holding a reverse mortgage must pay property taxes as well as state and local taxes and fees, and homeowner’s insurance. At least some of these are certain to go up, although with possibly some exemptions for seniors. But this can mean greater needs for reverse mortgages.