Reverse mortgages have had a bad reputation for many years and has not been seen as a viable option for most seniors. With a combination of bad publicity and complicated terms the product has been greatly misunderstood among consumers. The challenge is that with America’s large aging population, the concept of reverse mortgages needs a closer look.
Reverse Mortgage Stabilization Act of 2013
In 2013, Congress passed and Obama signed into law The Reverse Mortgage Stabilization Act of 2013. This act provides the FHA with the authority to stabilize the reverse mortgage programs and provided needed consumer protections. Since 2008 there have been heavy losses due to reverse mortgages, even though the only way to default is if the property owner does not pay the taxes and insurance. When Congress passed The Reverse Mortgage Stabilization Act of 2013, it was hoped that reverse mortgages will become a viable option for today’s aging baby boomers.
Why Reverse Mortgages?
One of the biggest economic challenges today is our aging population. With the life expectancy now averaging at 85, this has created a different economic reality than previous generations have faced. As more Americans are living longer, they are at greater risk of outliving their resources. Rising health costs are also eating away at a larger percentage of retirement incomes.
According to the social security administration for the average seniors social security income represents 39% of the total household income. For 23% of married senior couples and 46% of unmarried seniors, the social security income represents 90% of the household income. Social security income is fixed income and increases are small and limited. Healthcare costs are seeing double digit increases each year and all other expenses are rising all around them. As a result seniors are looking for ways to stay in their homes during the end of their lives.
The reverse mortgage product is now being revamped and remarketed to seniors as an option that will allow them to stay in their home, even if they have an existing mortgage. Marketing efforts are being made to increase awareness and provide accurate information about the benefits and drawbacks of the reverse mortgage. If positioned correctly and sold correctly, reverse mortgages can provide a source of security for seniors. It provides options where they are able to remain in their homes without a mortgage payment. Some seniors, depending on the equity they have built in the home, might have access to additional funds to provide income for seniors as they age.
The second half of the equation is finding lenders who are willing to offer the product. Lenders must be educated and innovative in order to ensure they are providing the best product for the customer’s needs. There was a time when negative amortization mortgages were popular, but not good for customers. The result was disastrous for both consumers and lenders. Reverse mortgages are not right for everyone over the age of 62, but they have their place in the market. If positioned correctly they will provide additional funding options to seniors.
The Reverse Mortgage Stabilization Act of 2013 will provide a less complicated lending structure that will enable lenders and seniors alike to better understand the product and make appropriate recommendations.