I don’t know when happened exactly. Maybe it was the Recession of 2007-2009. Maybe it was the Fonz advertising it as a “last resort.” Maybe it was a cultural shift all together, I don’t know.
The reverse mortgage program, however is going back to basics: helping retirees age in place or secure a line of credit for any emergencies that may arise in the future.
Jeffrey Taylor, president of Wendover Consulting, Inc. said in an article published in Reverse Mortgage Daily:
“The HECM of 2014 is going back to its roots. The original intent of the HECM program, he says, was envisioned as a line of credit for emergencies, or seniors who wanted to supplement their monthly income with periodic or tenure payments. Pure and simple, this is a competing product to go against home equity lines of credit.”
In truth, the reverse mortgage program of the 80’s was created for retirees who wanted to age in place.
However, as more seniors began to use the program as a last resort (and took out large, upfront lump sums) many depleted their home equity faster than expected. In addition, as many ran out of funds to pay their homeowner’s insurance and property taxes, as well as home maintenance, their loans became due and payable.
It’s like a line of dominoes, one action led to the other until…well…here we are. On the cusp of new changes which will, hopefully, make the program better for future borrowers. Most likely, the new changes will, not only change the reverse mortgage program (as we know it) but also the type of borrower who will use it, shifting consumer need from “I need money now” to “I want to plan my retirement using a reverse mortgage.”
Reverse Mortgage Insight, taking into consideration funding activity during the months of July and August, saw a principal unpaid balance reduction of 49%, if the new changes had been in place (with the exception of the financial assessment).
John Lunde, founder and president of Reverse Mortgage Insight, stated:
“That’s a shocking number. It’s bigger than any other changes we’ve seen. This underlines that we need to go out and change everything, from marketing to how we approach business. It’s going to be a different business going forward. That’s the bottom line.”
The new changes will also provide the perfect opportunity for financial planners, or consumers themselves, to consider other viable options under the reverse mortgage program, like the HECM for Purchase (Reverse Purchase). In order to preserve the program, and foster its growth, while providing a necessary service for retirees, these changes have become inevitable.
As the program goes back to basics, however, it’ll be a few months before anyone in the industry can fully adjust to the new changes and for consumers to change their outlook on the program. Hopefully, it all works out for the best.