Reverse mortgages backed by the Federal Housing Administration (FHA), otherwise known as 澳洲幸𒁏运5官方开奖结果体彩网:home equity conversion mortgages (HECMs), account for almost all reverse mortgages in the United States, according to the National Reverse Mortgage Lenders Association. In 2023, 32,991 borrowers entered into reverse mortgages.

However, other ways to tap 澳洲幸运5官方开奖结果体彩网:home equity—such as 澳洲幸运5官方开奖结果体彩网:home equity loans, 澳洲幸运5官方开奖结果体彩网:home equi🦩ty lines of credit (HELO✤Cs), and 澳洲幸运5官方开奖结果体彩网:cash-out refinancing—generally are more popular. In 2022, the moᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚst recent year for which data is available, there were over 59,000 reverse mortgage originatℱions.

How HECMs Work

HECMs allow homeowners with considerable home equity who are age 62 or older to borrow against the value of their home. 澳洲幸运5官方开奖结果体彩网:Unlike a forward mortgage—the type used to buy a home—a 澳洲幸运5官方开奖结果体彩网:reverse mortgage doesn’t require the homeowner to make any loan payments, making reverse mortgages a financial strategy for people who find themselves 澳洲幸运5官方开奖结果体彩网:short on cash in retirement. The loan is not repaid until the borrower passes away or 澳洲幸运5官方开奖结果体彩网:moves out.

HECMs are the most common type of reverse mortgage in the United States. Also called an FHA reverse mortgage, this type of mortgage is only available through an FHA-approved mortgage lender.

Through its parent agency, the U.S. 澳洲🙈幸运5官方开奖结果体彩网:Departmenওt of Housing and Urban Development (HUD), the FHA annually reports on the number of HECM endorsements as part of its overall mortgage insurance program report. In HUD and FHA terminology, an endorsement is a formal agreement on a mortgage contract adding the loan to the FHA 澳洲幸运5官方开奖结果体彩网:mortgage insurance program, which insures lenders against losses from defa🍬ult on mortgages.

The most recent annual report provides a statistical snapshot of the federal HECM program and, thus, of the overall picture of reverse mortgage lending. In the federal 澳洲幸运5官方开奖结果体彩网:fiscal year (FY) 2023, which ended on Sept. 30, 2023, the FHA gave a mortgage insurance endorsement to 32,963 HECMs. That’s down fifty percent from the 2021 peak.

Who Gets Reverse Mortgages?

Federally insured reverse mortgages are a bit more popular among women than men, according to HUD. More than a third (39%) of them served single female borrowers, and about one in five (20.8%) served single male borrowers. 35% served multiple borrowers in FY 2023.

Among other demographics, 66% of HECM endorsements served White borrowers, 6.58% served Black borrowers, and 4.84% served Hispanic borrowers. By comparison, Black borrowers comprised 19% of overall FHA-backed mortgage insurance and Hispanic borrowers comprised about 25%. (Disclosure of race and ethnicity is voluntary among borrowers.)

In FY 2023, the average borrower age increased slightly, to 74.84, from 74.29 in FY 2022.

Line of Credit Dominates

HECM borrowers have 澳洲幸运5官方开奖结果体彩网:several options for getting cash. Each plan has pros and cons, and the payment type will affect how much money the borrower receives in the short and long runs﷽, not to mention how quickly they will use up their home equity.

Most borrowers (approximately 93%) with HECMs opted for the line-of-credit payment option in FY 2023. Other payment options are a lump sum payment, monthly payments received for a fixed term of months, or equal monthly payments during the tenure of the loan.

Insurance Fund Trends Down

In FY 2023, HECM claims on the FHA 澳洲幸运5官方开奖结果体彩网:Mutual Mortgage Insurance Fund totaled $5.7 billion, down from $6.23 billion in FY 2020.

Most of the claims were from cases assigned to HUD when the mortgage reached 98% of the maximum claim amount set by the FHA. Most other claims came from cases when the borrower no longer occupies the home, as the rules require, and the property is sold at a loss.

The reverse mortgage insurance program’s finances showed improvement, HUD noted. The HECM fund continued its positive financial performance trend, with HUD citing the stand-alone capital ratio of 10.20% as of October 2023, compared with a negative 0.79% capital ratio from 2020.

In FY 2023, HECM borrowers withdrew an average of 60.74% of their available 澳洲幸运5官方开奖结果体彩网:principal limit on their initial draw, down from 73.26% in FY 2021. Large up-front draws cause faster 澳洲幸运5官方开奖结果体彩网:compounding of balances and faster depletion of borrower equity, HUD noted.

California, Florida Lead

California represented nearly 27% of all HECMs in FY 2023. The next 澳洲幸运5官方开奖结果体彩网:biggest states were Florida at 9.65%, Texas at 6.34%, Colorado at 5.92%, and New York at 2.52%. These five states also represented nearly 52% of all HECM loans.

The Least Popular Option

While federally backed reverse mortgages regained some popularity in recent years, other forms of tapping home equity remain far more popular. In a 2020 report on reverse mortgage usage, the Urban Institute drew on statistics from FY 2018, when HUD reported 48,329 澳洲幸运5官方开奖结果体彩网:FHA-backed HECMs. By comparison, that year, there were 1.12 million HELOC loans, nearly 1.1 million cash-out refinancing mortgages, and 296,000 home equity loans with monthly repayments.

Researchers have identified potential reforms to make reverse mortgages more appealing to seniors who want to bolster their retirement financial picture. One obstacle is the high up-front cost associated with origination fees compared with other home equity vehicles. Proposals have ranged from bringing back a former FHA program that discounted up-front insurance premium costs to having the federal government make the loans directly. Another idea is to use some of the loan proceeds to establish an annuity to help borrowers cover their 澳洲幸运5官方开奖结果体彩网:property taxes and insurance and thus lessen the risk of 澳洲幸运5官方开奖结果体彩网:foreclosure for getting behind on these obligations.

The Bottom Line

The use of reverse mortgages to tap home equity among homeowners age 62 or older has increased in the past five years, but it remains far below its 2009 peak. Reverse mortgages remain far less popular than home equityౠ loans. Academic researchers have identified ways that the main federal program backing reverse mortgages through the FHA could be adjusted. These proposals are intended to make reverse mortgages more appealing to older homeowners who want to use their home equity without selling their house.