A
study
commissioned
by
the


U.S.
Department
of
Housing
and
Urban
Development
(HUD)
Office
of
Policy
Development
and
Research
(PD&R)
in
2022
aimed
to
assess
the
state
of
the
Home
Equity
Conversion
Mortgage
(HECM)
program
over
a
20-year
period.

The
study,
released
late
last
year,

examined
three
core
elements
of
HECM
program
effectiveness
between
2000
and
2020.
It
was
conducted
by
analytics
firm

SP
Group
LLC
and
its
subcontractor

Econometrica
Inc.

RMD
already
examined
the
study’s
section
on

various
HECM
policy
implementations
during
that
time,
but
the
report
also
included
a
detailed
section
on
the
program’s
impact
on
borrowers
during
these
two
decades.

Borrowers
tend
to
be
younger,
single
seniors

As
stated
by
actor
Tom
Selleck

in
a
commercial
for


American
Advisors
Group
(AAG)
in
2019,
the
reverse
mortgage
program
has
served
“over
a
million
Americans.”
The
study’s
section
on
borrower
characteristics
reinforces
the
figure,
detailing
that
the


Federal
Housing
Administration
(FHA)
endorsed
1.1
million
HECM
loans
between
Oct.
1,
1999,
and
Sept.
30,
2020.

By
using
HUD
administrative
data
from
these
loans,
the
researchers
compiled
“some
fundamental
characteristics
and
trends
of
the
HECM
borrower
population
during
this
period,”
including
age-related
data
showing
that
those
on
the
younger
end
of
the
qualifying
spectrum
made
up
the
bulk
of
borrowers.

“[I]n
general,
the
age
distribution
of
the
HECM
portfolio
is
skewed
toward
the
younger
end
of
the
senior
age
range,
with
45
percent
of
HECM
borrowers
aged
62
to
70,”
the
report
said.
“Females
(68
percent)
tend
to
use
the
HECM
program
at
more
than
twice
the
rate
as
males
(32
percent),
which
is
a
much
higher
ratio
of
females
to
males
than
in
the
general
senior
population.”

Additionally,
roughly
60%
of
HECM
borrowers
live
alone
in
single-person
households,
with
a
similar
share
of
borrowers
being
unmarried.
This
constitutes
“a
much
higher
percentage
than
the
unmarried
population
in
the
general
senior
population,”
the
study
notes,
and
the
vast
majority
of
borrowers
are
also
white.

Race,
ethnicity
and
financial
status

The
report
goes
on
to
state
that
84%
of
HECM
borrowers
were
white,
14%
were
Black
and
2%
were
of
another
race.
Whites
comprised
the
largest
portion
of
HECM
borrowers
during
this
20-year
period,
”consistent
with
their
predominance
in
the
general
population
during
this
time.”

The
largest
share
of
non-white
reverse
mortgage
borrowers
during
the
period
were
Black,
while
only
about
6%
of
borrowers
identified
as
Hispanic
or
Latino.
That
figure
“is
below
the
share
represented
in
the
general
population
of
seniors,”
the
study
reads.
“Non-Hispanic
and
non-Latino
borrowers
vastly
outnumbered
Hispanic
and
Latino
borrowers
in
all
years
the
20-year
period
of
this
study
covers.”

Unsurprisingly,
the
report
labels
most
HECM
borrowers
as
“house
rich
and
income
poor.”
It
utilized


U.S.
Census
Bureau
data
to
estimate
the
median
income
for
the
senior
population
living
in
a
one-person
household
at
$30,000
in
2019
dollars.
Researchers
added
the
income
of
HECM
borrowers
annually
to
provide
a
point
of
comparison
between
actual
borrowers
and
average
figures.

“Although
two-thirds
of
HECM
borrowers
had
annual
incomes
below
the
$30,000
benchmark,
most
of
the
borrowers
in
the
program
had
sufficient
equity
in
their
homes
along
with
home
values
higher
than
average
for
the
general
senior
population,”
the
report
said.

Data
indicated
that
43%
of
HECM
borrowers
had
homes
valued
at
$300,000
or
more
in
2019
dollars,
which
helps
to
illustrate
that
the
program
helped
to
provide
“extra
income
security
to
borrowers
who
are
‘house
rich
and
income
poor,’”
the
report
said.
“In
addition,
a
high
proportion
of
borrowers
draw
down
large
amounts
of
their
HECM
line
of
credit
within
the
first
month.”

Uses
of
proceeds

In
2011,
HUD
began
asking
borrowers
how
they
planned
to
use
their
loan
proceeds
by
adding
a
new
section
to
the
HECM
loan
application,
so
the
data
is
incomplete
for
the
full
examination
period.

Since
2011,
roughly
half
of
all
borrowers
chose
only
one
reason,
while
the
other
half
selected
multiple
reasons.
Most
of
the
borrowers
who
chose
one
reason
(53%)
selected
“additional
income”
as
their
reason
for
obtaining
the
loan.

“This
finding
is
in
line
with
the
HECM
program
goal
of
providing
seniors
the
ability
to
turn
their
home
equity
into
supplemental
income,”
the
report
said.

One-third
of
all
borrowers
since
2011
said
they
intended
to
use
the
proceeds
to
pay
off
an
existing
property
lien,
but
the
researchers
argue
there
is
not
a
lot
of
distinction
between
this
reason
and
the
“additional
income”
selection.

That’s
because
“extinguishing
existing
forward
liens
with
HECM
proceeds
is
a
mandatory
program
requirement,”
the
study
explained.
“For
those
borrowers
whose
forward
mortgage
is
extinguished
and
converted
into
a
reverse
mortgage,
the
HECM
loan
provides
relief
from
forward
mortgage
payments,
and
the
net
equity
proceeds
provide
a
source
of
‘additional
income.’”

The
third
most
common
use
of
HECM
proceeds
was
for
“leisure
activities,”
the
study
said,
with
11%
of
borrowers
indicating
this
as
their
chief
reason
for
obtaining
the
loan.
Curiously,
this
response
was
largely
concentrated
within
a
specific
time
period.

“The
bulk
of
responses
indicating
leisure
as
the
primary
reason
were
concentrated
in
the
years
2016
and
2017,”
the
study
said.
“It
is
unclear
if
this
response
was
due
to
a
change
in
borrower
preferences
or
an
alteration
in
how
the
data
were
collected
during
those
years.”

These
years
came
shortly
after

revised
non-borrowing
spouse
provisions
went
into
effect
for
the
HECM
program
but
before
it
would
feel
the
impacts
of
a

reduction
in
principal
limit
factors
and
the
implementation
of
a
requirement
that
could
lead
to
a

second
property
appraisal.

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