In honor of Reverse Mortgage Education Week (April 18-22), it might be fun to look at how the Reverse Mortgage came into existence and how it has evolved over the years.
The Reverse Mortgage loan is not a new concept. The very first Reverse Mortgage was written in 1961 in Portland Maine by Deering Savings & Loan. It differs from today’s product as it was not insured – simply an attempt to help the widow of the loan officer’s former football coach stay in her home after his death. Other individual lenders offered similar loans during the 70’s, but these were very limited.
Congress started to take interest in 1969, but it wasn’t until 1983 that the program began to gather steam with senate approval of a proposal to have the loans insured by the Federal Housing Administration (FHA). In true bureaucratic form, the FHA insurance bill, called the Home Equity Conversion Mortgage Demonstration, wasn’t passed by Congress until 1987. And, as you may have heard in numerous Reverse Mortgage commercials on TV, President Ronald Reagan signed the reverse mortgage bill into law in 1988. And, here’s a little trivia for you: the first FHA-insured Home Equity Conversion Mortgage (HECM) was issued in Fairway, Kansas in 1989.
HECM volume grew slowly until the real estate boom jump started growth in the early-mid 2000’s. Prior to 2008, all HECM loans were adjustable rate loans. The addition of a fixed rate product in 2008 produced a major market shift into the fixed rate loan. This new fixed rate loan required that all available equity be taken in one lump sum at closing – leaving little or no equity for future financial needs. Another interesting trend occurred – the average age of the borrower at the inception of the loan decreased. In 1990, the average age of the borrowers at closing was almost 77. By 2008, it decreased to 73. And in 2012, it was down further to just under 72. Changes needed to be made to save the HECM program from potential losses.
Over the years, the HECM program has undergone many changes as efforts are made to offer more options to the borrower, protect the borrower and spouse, strengthen the loan program, and reduce the risk of failure for the borrower. The HECM for purchase is introduced in 2009 as an option for seniors purchasing a home. Loan-to-value ratios were tweaked to delay the chance of negative equity during the life of a HECM. Limits on initial draws and the addition of the Financial Assessment in 2015 were designed to further protect borrowers – to lower the risk of foreclosure due to inability to keep taxes and hazard insurance current and to force borrowers to leave funds in the line of credit for future financial needs.
The HECM loan today is a result of the trials and errors of the program over the past 55 years. The current version is poised to assist the millions of Americans who will be retiring in the coming years to “age in place” – to use the equity that they have built in their homes to be able to stay in their homes and enjoy their retirement years.
D. Charlene Turner
NMLS#456052 (www.nmlsconsumeraccess.org)
MLO license #8957VA; #152593NC
Tidewater Home Funding LLC
1108 Eden Way N.
Chesapeake, VA 23320
cturner@tidewaterhomefunding.com
Ph (757) 366-8690 ext. 337; Fax (757) 366-0566; Cell (757) 285-2563
Sources:
Guerin, Jessica. “The History of the HECM: A Detailed Timeline” The Reverse Review. October 2012 http://www.reversereview.com/magazine/spotlight-a-historical-timeline-of-the-hecm-program.html
AAG Featured Article: The History of the Reverse Mortgage https://www.aag.com/news/history-reverse-mortgage
History of Reverse Mortgages Reverse Mortgage Alert http://reversemortgagealert.org/history/