Home Equity Conversion Mortgages offer help to older borrowers facing financial strain

Robert D. Yeary, chairman and CEO, Reverse Mortgage Solutions Inc.

As published in Scotsman Guide's Residential Edition, April 2009.

As their retirement investments and incomes continue to shrink, more older homeowners will be inclined to seek reverse mortgages. Many of these people never would have considered such a product in the past. As economic times change, however, so do the needs of homeowners of all ages.

Home Equity Conversion Mortgages (HECMs), insured by the Federal Housing Administration (FHA), allow homeowners ages 62 or older to borrow against their home equity. As more U.S. residents with existing mortgage and personal debt reach that age, a new group of potential reverse-mortgage customers emerges.

In many cases, reverse mortgages can help these older citizens pay off existing debt and even avoid mortgage delinquency and foreclosure.

To qualify for a HECM, borrowers must own their house outright or have only a small mortgage balance remaining. They also must live in the house, be current on any federal debt and participate in an information session led by an approved counselor.

HECMs are the only reverse-mortgage product the federal government insures, and brokers looking to work with these mortgages would be wise to educate themselves about the product and its requirements. This is especially true as more eligible borrowers turn to the product as overall turmoil in the financial markets challenges their bottom lines.

Exploring the client base

According to HECM-origination statistics from the FHA and the U.S. Department of Housing and Urban Development, the annual number of HECMs endorsed by the federal government increased every fiscal year from 2000 through 2008.  The annual endorsement level grew from 6,637 to 112,015 during that time.

The growth trend is expected to continue in fiscal year 2009. According to the data, there were 37,502 HECM endorsements between this past October and January.

Why is this occurring? Many potential reverse-mortgage clients have watched their retirement portfolios wither during the past two years. In some cases, these potential clients now lack the cash flow necessary to meet their ongoing expenses. While they previously could have counted on help from adult children, that support system also often faces hardships brought on by job loss and other economic challenges.

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