How Reverse Mortgages Have Changed Over the Years

Are you familiar with how reverse mortgages have evolved over the years and how they could benefit you now more than ever?
how reverse mortgages have changed

You may have heard of a reverse mortgage before, but are you familiar with how reverse mortgages have evolved over the years and how they could benefit you now more than ever? From their introduction to today, there have been significant changes and improvements that have previously hurt homeowners, especially those owning or considering taking out a reverse mortgage loan to cover financial needs later on in life. In this blog post let us take a look at some of these changes and how they can affect senior homeowners today.

Overview of Reverse Mortgages

Reverse mortgages have become an increasingly popular option for older adults looking to tap into the equity of their homes without having to sell, move out or without having to get a new loan with payment to access those funds. Essentially, a reverse mortgage allows homeowners to receive payments from the money they already paid into their home (equity), either as a lump sum or in monthly installments, while retaining ownership and living in the home. While reverse mortgages can be a great option for those who are looking to supplement their retirement income or pay for unexpected expenses, it’s important to note that they are not a silver bullet solution and should be carefully considered in light of your overall financial goals and needs. As always, it’s a good idea to consult with a financial advisor in addition to the now required HUD governed housing counseling session before making any major financial decisions.

History of Reverse Mortgages - from early regulations to modern day

Reverse mortgages have come a long way since their early days of regulation. First introduced in the 1960s, reverse mortgages were initially considered extremely risky, but as time passed, regulations have become stricter to protect borrowers. In the 1980’s, changes were made to reduce multiple risks and scary situations we’ve all heard about. FHA and HUD stepped in, along with AARP to help ensure seniors were protected and educated on how this government backed and insured program works. Today, reverse mortgages are called Home Equity Conversion Mortgages (HECM) and have become more popular and accessible to those over 62 years old who need extra income or who want to utilize the cash for investing in stocks, bonds and real estate purchases. Today, a reverse mortgage could also be leveraged to move into a new home if you need to relocate or downsize, and even allows the option to buy a rental investment property, which the homeowner would co-occupy as their primary residence, all still without the burden of monthly payments. As a result, the history of reverse mortgages paints a picture of how these financial products have adapted to changing times to help people live more comfortably in their golden years.

Changes in Underwriting and Lending Requirements for Reverse Mortgages over the Years

Reverse mortgages have undergone significant changes in terms of underwriting and lending requirements over the years. While they have always been a viable option for homeowners aged 62 years and above, the regulations surrounding this type of mortgage have evolved to ensure their safety for consumers. In the past, some lenders didn’t take into account a borrower’s ability to maintain their property taxes and insurance payments. However, today, the Financial Assessment Rule requires that borrowers undergo a financial assessment before they can take out a reverse mortgage. Lenders are also now able to set up autopayments through an escrow account for the homeowner’s property tax, HOA and insurance payments so they don’t ever get missed creating an issue with maintaining qualified in the program. Requirements for proof of income have changed making it easier for more seniors to qualify in today’s ever changing economy, however certain criteria must be met to ensure the homeowner will qualify now and be protected in the future. The changes in underwriting and lending requirements have ensured that reverse mortgage products are a safe and valuable financial tool for seniors to have in their arsenal.
1961

The first reverse mortgage is written in Portland, Maine. This new type of loan was created by a savings and loan officer to help his high school football coach’s widow to be able to stay in her home after her husband passed away. 

1961
1984

The Century Plan is introduced, which is the first mortgage that keeps the loan in place until a borrower permanently leaves the residence by moving or passing away.

1984
1987

Congress passes an FHA insurance bill called the Home Equity Conversion Mortgage Demonstration, which is a reverse mortgage pilot program that insures reverse mortgages.

1987
1988

HUD gains the authority to insure reverse mortgages through the FHA when President Ronald Reagan signs the reverse mortgage bill into law. The reverse mortgage government insured loan is established.

1988
1989

The first FHA-insured Home Equity Conversion Mortgage (HECM) is issued.

1989
1994

Congress begins requiring lenders to disclose to borrowers the total annual loan costs at the start of the application process. This allows borrowers the chance to compare lender prices and shop around.

1994
1996

The reverse mortgage program is adjusted to allow for loans on residences that have up to four units as long as the borrower occupies one unit as their primary residence. This effectively gave the HECM a rental investment component.

1996
1998

The HECM is officially permanent! The HUD Appropriations Act makes the program official while Congress allots funds for counseling, outreach, and consumer education. Safeguards (like full disclosure of fees) are implemented to protect borrowers from unnecessary charges.

1998
2001

HUD and the American Association of Retired Persons (AARP) team up to begin testing and training approved counselors.

2001
2006

AARP conducts its first national survey of reverse mortgage borrowers which reveal that the primary motivation for getting a reverse mortgage for borrowers is to plan for emergencies and to improve the quality of life.

2006
2009

The HECM for Purchase is introduced. For the first time in reverse mortgage history, borrowers are allowed to purchase a new home without paying monthly mortgage payments.

2009
2013

HUD releases new HECM policies that make the product safer, stronger, and less risky for the borrower.

2013
2015

Non-borrowing spouse protections went into effect. This means that if the qualifying buyer passes away the non-borrowing spouse can remain in the house payment free until they are 100 years old.

2015
2023

HUD raises the HECM lending limit to $1,089,300.

2023

Expansion of Available Options for Borrowers

If you’re in the market for a loan, there’s good news: there are now more options available to borrowers than ever before. No longer are you limited solely to traditional banks and credit unions. Today, there are a plethora of online lenders, peer-to-peer lending platforms, and even apps that offer loans. This increased competition in the lending industry not only means more choices for borrowers, but also oftentimes more favorable loan terms and interest rates. So whether you’re looking for a personal loan, a small business loan, or a mortgage, it pays to do your research and explore all the options available to you. With a HECM loan, a local lender is almost a requirement to ensure you are guided through the process smoothly and comfortably, especially when it comes to the local appraisals and the financial counseling sessions that are needed to qualify.

Impact on the Overall Reverse Mortgage Market

The reverse mortgage market has seen some significant changes over the years. However, the overall impact has been positive. One of the most significant changes has been the introduction of new regulations that have improved consumer protection. Reverse mortgages have become an excellent option for seniors looking to supplement their retirement income. The market has also grown thanks to increased awareness about reverse mortgages, including the benefits they offer. As more people reach retirement age, the demand for reverse mortgages is expected to keep growing. Overall, the reverse mortgage market is poised for continued growth and success in the coming years.

Let's wrap things up!

In summary, while reverse mortgages are still regulated and require a great deal of thought and research on the part of any borrower, they have come a long way since they were first proposed in the 1960’s. With increased available options for seniors, expanded protections to help prevent long-term misuse or abuse, and an overall evolution of the regulations underlying their construction, they are becoming an increasingly viable source of liquidity for many seniors around the world. As we continue to see shifts in demographics and economics that affect senior markets in particular, we can also expect to continue to see changes in policies governing reverse mortgages as well as additional services would could further expand the opportunity for borrowing with confidence.
If you would like to talk with a REALTOR ® about your real estate options leveraging a HECM, or would like a referral to a local loan officer to see what a HECM loan would look like for you, feel free to contact us! We have a heart for housing!

Sources: 

https://www.aag.com/reverse-mortgage/history/

https://www.investopedia.com/history-of-reverse-mortgages-5224844

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Mandy Page

Hello, I'm Mandy Page

I have been in the real estate industry since 2003, with most of my background focused on multifamily and single family rental income properties. I also have a heart for helping others with housing solutions ranging from property management consulting to land development to senior housing solutions. I’m excited to meet new people and find more ways I can offer housing assistance.
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