Will HECMs Limit Inheritences For Others?

According to the New York Times, “retirees are increasingly using mortgages as a financial tool — and not simply as a last resort to pay for health care emergencies and the like.

“Indeed, there is nothing to stop people from using the loan proceeds for vacations or cars or whatever they want. Millions just may do that someday, which makes reverse mortgages a real wild card. Their growth certainly raises the likelihood that large portions of family homesteads in America will end up belonging to banks, not heirs.” (See: 8 Reasons You Should Not Expect an Inheritance, June 21, 2008)

This sounds logical, but in practice very few homes have reverse mortgages now. As to the future, reverse mortgage financing will surely become more common, but much of the housing stock owned by seniors is likely to remain unencumbered.

Why?

The National Association of Reverse Mortgages Lenders (NARML) says in the last quarter of 2007 that seniors held real estate equity worth $4.22 trillion. That’s a huge amount of value and having spent a lifetime getting rid of mortgages a lot of seniors are simply not inclined to take out another.

Yes, some seniors will need a reverse mortgage to stave off foreclosure. Others will need reverse loans to access cash. Some will get reverse mortgages to put children and grandchildren through college or pay medical bills.

But many seniors — having spent a lifetime avoiding mortgage debt — will not be easily swayed to encumber their homes in their later years.

To date there have been roughly 390,000 reverse mortgages insured by the FHA since 1989 and a far-smaller number issued by private-sector sources. At the same time, NARML says there are 13.2 million households that qualify for reverse mortgage financing.

Those 390,000 HECMs are just a small portion of 13.2 million potential borrowers, but the real relationship is different. To get the right comparison you need to measure all reverse mortgages issued against all households that would have qualified since 1989.

Will the number of reverse mortgages increase? Absolutely. Will large portions of the senior population opt for a reverse mortgage? It’s just speculation but the answer here is: not likely.

This entry was posted on Thursday, June 26th, 2008 at 3:50 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.