Changing Attitudes, Changing Motives

The reverse mortgage landscape is evolving with the changing economy and generation of homeowners. A recent study released by the Mature Market Institute used the HUD required counseling session data to determine the current reverse mortgage marketplace. The study is based on the responses to the counseling questions, using the Financial Interview Tool (FIT) as the standardized assessment tool. The data represents 21,240 households between September and November 2010.

The study determined more reverse mortgage borrowers are applying at earlier ages. The average age of borrowers is 73 years old; however the average age of homeowners that went through counseling between September and November 2010 was 71.5 years old, showing the decline in age. Furthermore, 46% of homeowners considering a reverse mortgage are under age 70.

This new group of borrowers is also using the money in a new way. Instead, of enhancing their lifestyle, 67% of these homeowners want to lower their household debt.

For the past 10 years, the average borrower’s age has declined. With the increased relative cost of the loans at younger ages, this phenomenon suggests that there other factors influencing younger borrowers to consider reverse mortgages.

The study posits that one explanation for the age decline in borrowers may be that the Baby Boomer generation is more willing to take on debt to fund major purchases, e.g., paying their grandchildren’s college tuition. Between 2004 and 2007, households ages 56-61 increased their debt by 38%. Another explanation is many people were affected by the recession, which resulted in major spending cuts (59% of people age 50-64 cut back on their spending).

Many Americans are not financially prepared for retirement. Out of those born in 1946 (the oldest of the Boomers), only 38% feel they will reach their retirement savings goal or have already reached them. In 2010, a mere 16% of workers all ages were very confident about having a secure retirement and only 29% felt very confident that they could afford basic expenses during retirement.

Lastly, the study suggests that Boomers are more inclined to consider reverse mortgages as a natural part of retirement planning and a solution to improve their retirement. With that said, the study advises more consumer guidance and education.

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