HOUSINGNEWS REPORT
REVERSE MORTGAGES: CAN FINANCING FOR SENIORS CHANGE WITH THE TIMES?
result of several massive marketplace changes.
But for most of the country appreciation is unlikely to be much of an offset. The National Association of Realtors estimates that home values will rise just 2 percent in the coming year. “The reverse mortgage industry faces some significant headwinds in the next few years,” said Mike Roberts, founder of MyHECM.com, a leading independent reverse mortgage resource for seniors. “Financial assessment, utilization limitations, and principal limit (PL) reductions have already made the landscape more challenging,” Roberts explained. “Now we’re facing rising interest rates, which will eventually trigger a decline in home values. Higher interest rates and declining home values are both negative for PLs. The pool of consumers for which a HECM is both workable and sensible will shrink over the next few years. The industry has had it pretty good over the last 10 years with low
simply less equity. HECMs in no way created the mortgage crisis, but like FHA financing in general they surely represented collateral damage. In the end, the cushion HUD built into the HECM program was simply insufficient. Second, the longer a HECM is outstanding, the greater the risk. As a 2017 HUD study explains, “as the principal balance of a reverse mortgage approaches the value of the collateral (that is, the borrower’s home equity is exhausted), the homeowner has less incentive to maintain the property. The dearth of regular home repairs and improvements may cause the value of the collateral to depreciate, magnifying losses for FHA.” But what about those rising property prices? Can’t they offset rising HECM balances? In areas with a lot of appreciation — think of the ZIP codes near the two recently announced Amazon headquarter projects — maybe yes.
First, median home prices in Q3 2018 are only 11 percent above the pre- recession peak in Q3 2005, according to ATTOM Data Solutions. That’s an average gain in home value of less than 1 percent a year. According to the Government Accountability Office (GAO), “households collectively lost about $9.1 trillion (in constant 2011 dollars) in national home equity between 2005 and 2011.”
Losses in the housing sector bled over into other areas of the economy.
“Dramatic declines in net worth,” said the GAO, “combined with an uncertain economic outlook and reduced job security, can cause consumers to reduce spending. Reduced consumption, all else equal, further reduces aggregate demand and real GDP.”
HECM losses had to rise after the mortgage crisis because there was
“The pool of consumers for which a HECM is both workable and sensible will shrink over the next few years. The industry has had it pretty good over the last 10 years with low rates and rising home values. The next few years won’t be so easy.”
MIKE ROBERTS FOUNDER, MYHECM.COM
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DEC 2018 | ATTOM DATA SOLUTIONS
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