Shutting Down: Why many reject the HECM - Skip to content

Shutting Down: Why many reject the HECM


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The hurdles to increased acceptance are complex

Today there is an estimated $4.4 trillion in home equity for those 65 and older, many who are woefully unprepared for retirement. As HECM endorsements continue to underperform years past, many ask why more eligible homeowners do not get a reverse mortgage.

A recent report from the Urban Institute reveals some of the underlying causes of homeowners reluctance to get a reverse mortgage despite the potential benefits. For years our industry has generally accepted the statistic that a mere 2% of eligible homeowners. However, last summer a MIT study provided a more detailed summary. Analyzing over 3,700 retired households with a loan to value ratios less and 40%, they found 55% would be eligible for a HECM. The bottom line, 12-14% of all retired households in the U.S. are eligible for the reverse mortgage.

The DC think tank, the Urban Institute, published a report entitled ‘Seniors’ Access to Home Equity’, which determined that adults 65 and older control $4.4 trillion of the total $11 trillion held by American homeowners. With nearly half of households in this group having zero retirement savings why are more not seizing the opportunity to fund their retirement years using a reverse mortgage? The primary factors, the report shows, are

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  1. I would like to see the upfront MI added to the principal limit as done on the FHA forward side (and VA), and not deducted from the borrower’s available funds. It would still be part of the mortgage balance and accrue charges as it does now. Doing so, I believe, would also enhance the appeal of H4P. Real estate professionals are more accustom to the “forward side” handling of MI too.

  2. Jerry,

    A HECM is much different than a forward mortgage. A HECM is designed so that the value of the home (calculated using the MCA) at TALC life expectancy approximates the balance due plus the sum of 1) the line of credit on that same date and 2) the amortized balances in all set asides. The interest rate used in determining the balance due and line of credit is the expected interest rate.

    To determine the principal limit at closing, the home value at the TALC expected date of death is discounted on a monthly basis using both the expected interest rate and the annual HECM FHA ongoing mortgage insurance rate. The principal limit at closing is then divided by the MCA to come up with principal limit factor.

    It seems you believe that HUD is bothered that H4P has such small demand. Where do you get that from? Please do not name this official or that official. Please name the members of HUD’s senior management team who have any stake in H4P at all.

    Based on risk, why would HUD do as you suggest? Even without the change you suggest, the HECM portion of the MMI Fund is horribly negative. What you purpose would only make it worse, much worse! To say I disagree is a gross understatement.

    Let’s stop with the suggestions that would only make the situation with the MMI Fund and thus HUD much worse.

  3. Instead of sending trillions of dollars overseas, our government should be more concerned with our senior adults. the MMI fund? there is enough waste to subside this fund and not cost the tax payer another nickel. Either this program was designed to benefit our seniors or not. This program almost fits the old adage directed toward banks…”if you don’t need a bank loan, you can get one”.

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