Senior borrowing, home equity set records

Seniors held a record amount of equity in their homes, but also hit a high in terms of the amount of borrowings outstanding they had against it at the end of the third quarter, the National Reverse Mortgage Lenders Association and Riskspan found in a new report.

People ages 62 and up held a total $13.08 trillion in the third quarter, consisting of a $15.39 billion in property value offset by $2.32 billion in borrowing. This demographic's quarterly home equity totaled nearly $12.7 trillion the previous fiscal period and $11.81 trillion a year earlier.

The quarterly increase is the second consecutive one. Home equity in this demographic faltered a little in the first quarter of 2023, dropping briefly to $11.62 trillion from $12.39 trillion the previous fiscal period.

The third quarter gain is significant to lenders because as interest rates have risen, more have shown interest in offering the Federal Housing Administration-insured Home Equity Conversion Mortgages that allow older adults to withdraw equity while living at home, so long as the borrowers can maintain the property.

Relatively higher interest rates had diminished the amounts that could be withdrawn through reverse mortgages, but with financing costs falling a little recently, borrowers may have more to gain from taking out these types of loans.

And while borrowing for this age group did reach a record high during the quarter, the spread relative to total home equity is still wide, suggesting there's still opportunity for expansion in this part of the market.

"There's lots of room for additional market participants," NRMLA President Steve Irwin said.

That could offset some of the consolidation that's occurred among reverse mortgage lenders in the past couple of years.

Finance of America, which acquired top reverse-mortgage lender American Advisors Group, is currently the largest player. It's currently working to address a notice from the New York Stock Exchange warning that its stock price has been trading below compliant levels.

Guild bought Cherry Creek this year to expand its reverse mortgage division and Reverse Mortgage Funding filed for bankruptcy last year.

Participation in a market where there's room to move may be limited because Home Equity Conversion Mortgages have their challenges.

In addition to periods of higher rates and slightly weaker equity, the product is complex and can take time to originate. HECMs also have some cumbersome servicing process policymakers are working to improve.

The FHA loan products require meeting with housing counselors and increasingly have been offered in conjunction with personal finance professionals who can help explain them as well.

"We're seeing more and more borrowers utilize the reverse mortgage as an integral part of an overall retirement plan," Irwin said. "We think that such strategic uses of the reverse mortgage will only continue to grow in the coming years.