Preliminary Evaluation of the HECM Reverse Mortgage Program

TLDR

The study evaluates the HECM insurance demonstration, aiming to promote private reverse mortgage programs by insuring lenders against associated risks. The authors assess demand by analyzing borrower attributes, property characteristics, and payment options, and examine participation patterns, counseling requirements, and regulatory obstacles. Results show strong demand among house‑rich, cash‑poor seniors, a flexible design that meets diverse needs despite higher lender costs, and growth impeded by counselor shortages and regulatory barriers.

Abstract

This paper describes and evaluates the Home Equity Conversion Mortgage (HECM) insurance demonstration, designed to encourage the development of private reverse mortgage programs by insuring lenders against the risks associated with new mortgage lending programs and with reverse mortgages in particular. The paper evaluates demand for the program by analyzing the attributes of participating borrowers, their properties and the types of payment options chosen. It also presents several observations regarding participation by the financial community in the HECM demonstration, required counseling and legal and regulatory issues that may hamper the growth and development of reverse mortgage programs in general. The findings suggest strong demand for reverse mortgages among “house‐rich, cash‐poor” elderly homeowners, either to supplement inadequate current incomes or to provide a reserve against unexpected lump‐sum expenses. The flexible design of the HECM program addresses a wide variety of borrower financial needs, even though it imposes higher costs on lenders and servicers. The continued growth of the program, however, is hindered by a shortage of qualified housing counselors in some areas, as well as by a variety of legal and regulatory barriers.