Do reverse mortgages serve the
long-term financial interests of borrowers?
It's the single most important unanswered question about reverse mortgages.
No one knows - and no one is currently planning to find out.
A 2007 AARP study found that HECM borrowers were very satisfied with their loans within the
first three years.
But a 2007 HUD report discovered that HECM borrowers were paying back their loans within
six to seven years - way earlier than anyone had predicted, and only about half the average borrower's remaining life expectancy.
So if borrowers were that highly satisfied with their loans within the first three years, why were they then ending these loans just a few years later, especially when doing
so typically
required them to sell their homes and move?
o Hadn't they taken out these loans
so they could remain living in their
homes for a longer time?
o Or had they always intended
to sell and move so soon?
o If they made the decision to
move more recently, what
made them change their plans?
Are borrowers ending their HECMs because
of factors unrelated to their loans?
For example, declining health,
disability, death of a spouse, moving
closer to family, to a better climate,
or to obtain relief from household
chores and maintenance?
Or is longer-term experience with these loans
causing borrowers to terminate them?
For example, are they only becoming
fully aware of the magnitude of their
increasing debt, rising loan costs, and
declining equity after an initial "honey-
moon" period?
Evaluating the HECM Program
The HECM program was initially created on
the statutory premise that it would "reduc[e]
the effect of economic hardship . . . at a time
of reduced income." Now - 20 years after the program began - we still don't know the degree
to which it is meeting this Congressional goal.
Specifically, we don't know how many former HECM borrowers see these loans as a positive financial tool that helped them through
a time of financial distress, and left them with enough equity to meet their ongoing needs.
And on the other hand, we don't know how many HECM borrowers spent a lot of their equity in their 60s to mid-70s, only to regret such spending after they had paid back their loans, and then found themselves needing their already-spent equity
in their later 70s or 80s.
Surveying Former Borrowers
A survey of former borrowers would begin to provide some insight into the most important consequences of the HECM program, including
o its impact on the long-term
financial interests of borrowers;
o its utility in dealing with later-life
needs such as long-term care;
assess the costs versus the
benefits of their loans; and
o the financial situation and
restrospective satisfaction
of former borrowers.
This research would also provide guidance
for improving consumer information, HECM counseling, consumer safeguards, and
program design.
But for its findings to be credible, this research must be independent and substantial. It must be designed, administered, and reported indepen-dent of industry interests, and it must be based on a substantial sample of former borrowers. Without such a sample, the survey's results could
o be highly unrepresentative, and as a result,
o inaccurately attribute loan terminations
to characteristics of the borrower, the
loan, or the lending process.
Anyone Interested?
But no one currently appears to be interested
in finding answers to the single most important unanswered question about reverse mortgages.
o Following its 2007 survey, AARP developed
a survey instrument and drew a sample
focusing exclusively on former HECM
borrowers. But this planned research was
never carried out, and AARP is not currently
planning to complete it.
o A currently planned HUD study of HECM
borrowers is overwhelmingly slanted to
current borrowers, with only a very small
sub-sample of former borrowers.
o No federal regulatory agency or
independent research organization is
currently planning to address this issue.
So the prospects of answering the single most important unanswered question about reverse mortgages are not good at present.