The amount of money available through a government reverse mortgage in the United States recently decreased and that could be an additional strain on older borrowers who appear to be increasingly reliant on home equity as a source of income as they age.
While in the United States, “there is no hard data to support the assertion that seniors are relying more on reverse mortgages as a last resort, by the very nature of the product—which is a need-based product—that’s a reasonable assumption,” said Atare Agbamu, president and CEO of industry consultancy ThinkReverse LLC, Oakdale, Minn., in an interview.
“By cutting the proceeds as HUD has done (and I can understand HUD’s position because it has to manage its insurance risk) there is no question that seniors are hurting because they can not get as much money as they used to get,” he said. “And if you couple that with declining home values, it’s a very tight situation.”
September Federal Housing Administration statistics for Home Equity Conversion Mortgage volumes show a relative increase, but—as Coester Appraisal Group noted in a recent report—this was likely driven by a rush to get the loans before the Oct. 4 change that could be followed by a reduction in HECM volumes. (FHA received 13,478 HECM applications and endorsed 5,966 HECMs in September.)
In other reverse mortgage-related news, two recent studies from England (which has been through a somewhat similar housing boom-and-bust as the U.S.) show that—even after a period of depreciation—reliance on some kind of home equity financing in later life has been growing.
Although 54% of employed British residents over 50 believe their home equity has declined over the past three years, almost one-quarter of those in that age group are considering using some or all of the equity in their home to fund their retirement, according to a survey by Liverpool Friendly Society Ltd., Croydon, England.
Of that group, 12% plan to borrow against their home through an equity release product. Forty-four percent of those over 50 and working and 34% of those 60-69 and employed have an outstanding mortgage on their homes.
A separate report by Retirement Solutions Ltd., Manchester, England, forecasts that poor annuity rates are likely to increase retiree use of home equity release products.
