What Will Happen in the Reverse Mortgage Market in 2020?

Reverse mortgages are an effective strategy for unlocking housing wealth for older Americans. Unfortunately, the reverse mortgage industry has suffered in the past several years due to some regulatory changes. Here is what the future might hold for this market in the next year and beyond.


The Reverse Mortgage Market Has Struggled Recently

Reverse mortgage originations have been dropping dramatically over the past several years thanks to rule changes made by the Federal Housing Administration. In 2017, the FHA announced significant changes to the reverse mortgage program with the intent of shoring up losses that the program was suffering and causing a drain on the Mutual Mortgage Insurance Fund.

The new rules took effect on 10/2/17 and have had two years to create an impact on a once vibrant industry. According to John Lune, President of Reverse Mortgage Insight, there has been a 47 percent dip in loan count and a 12 percent drop in initial unpaid balances.

Virginia-based Live Well Financial, a major reverse mortgage lender, announced earlier this year that it would stop originating new loans in May 2019. Last year, the company sold off a sizeable chunk of its reverse mortgage portfolio.

The lenders in this market that are surviving have been rebranding by becoming companies that offer “holistic retirement solutions.” Even though the new rule changes have been disruptive to this market, there are some potential bright spots on the horizon in this space.


The Future of the Reverse Mortgage Market

In the short-term, the reverse mortgage industry in the traditional sense might continue to struggle, but there are alternatives. A robust proprietary market exists that isn’t subject to the FHA HECM restrictions, which could begin getting a larger volume of these types of loans.

As these lenders continue to raise public awareness about the benefits of these loans and address common misconceptions, there is the potential to increase origination volume. Likewise, the biggest factor influencing the future of the reverse mortgage market is likely to be demographics.

In the coming years, the overall population is going to be older than at any time in history. Retirees will find that their 401ks or pensions are inadequate, and people will be living longer thanks to medical advances. It only makes sense that this group will want to access the wealth that they have amassed in their home equity. According to the Brookings Institute, homeowners over the age of 62 hold median home equity of $139,000.

Even so, new changes in Medicare are on the horizon that could also impact this industry. The Centers for Medicare and Medicaid Services (CMS) announced that, in 2020, private Medicare Advantage (MA) plans would expand the scope of their coverage. This will allow chronically ill seniors to stay in their homes with MA picking up the tab for necessary modifications. In the past, seniors tapped into their home equity to pay for these expenses.

Finally, the Trump Administration proposed some changes to the HECM that could protect the future of the reverse mortgage program. Among them are amendments to the loan limit structure that reflect local instead of national markets and the elimination of HECM-to-HECM refinances. So far, these proposals have not been approved.