HOUSINGNEWS REPORT
REVERSE MORTGAGES: CAN FINANCING FOR SENIORS CHANGE WITH THE TIMES?
FORWARD AND HECM STAND-ALONE CAPITAL RATIOS FORWARD STAND-ALONE HECM STAND-ALONE
3.33%
3.07%
3.93%
3.11%
2.00%
1.17%
0.88%
-0.44%
-10.13%
-11.81%
-18.30%
-18.83%
2013
2014
2015
2016
2017
2018
SOURCE: U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
“a negative capital ratio of 18.83 percent and a negative economic net worth of $13.63 billion.” How could such an intuitively-good idea have gone so wrong? With billions at risk, will HUD be forced to close down the HECM program? Can HUD lower insurance premiums for FHA forward mortgages in the face of reverse mortgage claims? Boomers born between 1946 and 1964 and the Silent Generation born between 1925 and 1945 — are asset rich. Not all of them, and not equally, but as a group those aged 62 and above hold enormous wealth. Their real estate equity amounted to $6.9 trillion in the second quarter according to the National Reverse Mortgage Lenders Association (NRMLA). Harvard’s Joint Center For Housing Studies says that home-owning seniors age 65 and above have a typical net worth of $319,200 versus just $6,710 for renters in the same age group. The Great Disconnect America’s senior homeowners — Baby
“I agree the program concept has a role to fill the needs for seniors, but the question is why the taxpayer is footing the bill for a product that produces billions in forecasted losses and drains the reserves of the fund, risking more taxpayer bailouts in the future.”
DAVID H. STEVENS FORMER PRESIDENT AND CEO, MORTGAGE BANKERS ASSOCIATION
Real estate equity is often seen as “idle” capital. Unlike cash in a savings account, real estate equity generates no interest. Without interest or some other form of return, inflation eats away at asset values. While asset prices seem to be growing over time in cash terms, buying power per dollar — the real definition of wealth — declines as a result of inflation. The problem for seniors is magnified because in retirement incomes typically contract. Census data shows that in 2017 individuals between the ages of 60 and 64 had median household incomes of $63,919 — a figure which was reduced to $41,125 for those aged 65 and above. Forty-
three million retired workers get Social Security retirement benefits, but the average monthly check is just $1,413 or $16,956 per year. Many older property owners have a large net worth on paper but struggle with month-to-month cash costs. The Joint Center for Housing Studies estimates that 9.7 million senior households – nearly a third – spend at least 30 percent of their income for housing. Worse, 4.9 million senior households devote at least half their income for housing costs.
Part of the reason for steep housing costs is that seniors increasingly face
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DEC 2018 | ATTOM DATA SOLUTIONS
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