How Long Has the HECM Reverse Mortgage Been Around?

Back in the late 1980s I worked in the senior world at a retirement home. I was the administrator and I would go to these “Coalitions on Aging” meetings where the big topic of conversation was what are we going to do with the baby boomers? There were (and are) so many of them and many were projected to lack the retirement savings they needed to sustain them all through retirement.

To address the issue, legislators and academics teamed up in the 1980s and came up with the concept of “aging in place”, which is a common buzz phrase in the reverse mortgage industry. The idea of aging in place was to give seniors the ability to use home equity as an additional financial resource in retirement. This would enable seniors to live more comfortably while taking pressure off of entitlement programs.

Many seniors have a lot of equity in their homes, which is essentially like a savings account built up over many years of making mortgage payments. Unfortunately, equity can’t be used to fund your lifestyle in retirement. You can’t take it down to the store to buy groceries, right?

If you have a paid off house and it’s worth $200,000 or so, on paper your assets look pretty good. But when you’re looking at the money coming in and going out every month maybe it's not so good. You can’t spend your house, right? You can't break off a window and spend it on plane tickets to see the grandkids, right?

The typical “solution” was to go down to the bank and get a traditional mortgage. The problem is that the bank wants you to qualify based on income and credit because they want you to make a monthly payment. If you’re on a fixed income, it can be very hard to qualify for a monthly payment.  Since a reverse mortgage eliminates a required monthly principal and interest, qualifying for a reverse is easier than qualifying for a forward loan, though a good credit history is still important.

Even if you qualify just fine, doesn’t it somewhat defeat the purpose to take on an additional monthly expense (the mortgage payment) for the sake of getting your hands on more cash? A better option was needed for seniors who wanted to live better and had a lot of equity in their homes.

The original reverse mortgage concept dates to the early 1960s, but the idea really gained steam on Capitol Hill in the 1980s. In 1989, President Reagan signed the original HECM reverse mortgage pilot program into law. It was in a “limited release” status for the better of part a decade while HUD and FHA worked out the kinks, but it became a permanent and widely available program in the late 1990s and early 2000s.

The program has since grown enormously in popularity. In 2008 alone, over 155,000 HECMs were endorsed by FHA. The numbers have since dropped thanks to the onset of the financial crisis, housing bust, and new regulations, but over 50,000 reverse mortgages are written every year in the United States today.