Your Complete Guide to The History of Reverse Mortgages
presented by John Correll, CRMP
Certified Reverse Mortgage Professional
This comprehensive guide, authored by a Certified Reverse Mortgage Professional (CRMP), presents a thorough historical perspective on the evolution of reverse mortgages. It traces the journey of these financial instruments, capturing pivotal milestones and regulatory shifts that have helped shape their present form today. The article's credibility stems from the CRMP's expertise, offering nuanced insights and resource documents crucial in shaping today's reverse mortgage landscape. Beyond a mere historical account, this guide serves as an invaluable educational resource, catering to industry professionals and individuals alike, providing a holistic understanding of the transformative events and regulatory frameworks that have defined reverse mortgages over time.
Definitive Perspective of All Aspects of the History and Evolution of Today's Reverse Mortgage
Reverse Mortgage Historical Review: From 1960's to Today's Modern Reverse Mortgages
Through the Decades: Tracing the History of Reverse Mortgage Programs
Introduction - Reverse Mortgage Historical Overview
Over the years, reverse mortgages have become an increasingly popular financial tool for older Americans who want to tap into some of their home equity without having to sell their homes or make monthly payments. This dynamic home equity loan choice can allow older homeowners to receive payments from their home equity while continuing to live in the home they love. The Reverse Mortgage has a rich history that dates back over half a century into the early 1960's. On this page, we will explore the history of the reverse mortgage: from the initial origins through the evolution of reverse mortgages into today's modern-day loan choice.
Reverse Mortgage History - The 1960's: A New Concept Is Born - The 1st Reverse Mortgage
Early Days 1961 - 1969: There are reports that the first reverse mortgage was issued way back in 1961.
1961
The event takes place in 1961 in Portland, Maine where Nellie Young is given a reverse mortgage by Nelson Haynes of Deering Savings & Loan after her husband dies. The bank created this special loan so she could remain in her home. The story goes that the bank created this new product to help her out as her deceased husband was the banker's football coach.
1969
Later that decade in 1969 the US Senate begins to explore the concept of reverse mortgages in the Senate Committee on Aging. Yung-Ping Chen who was a professor from UCLA introduced his support for the concept of an "actuarial mortgage plan in the form of a housing annuity" which would allow homeowner's access to borrowing against the equity in their home as they aged in place. The concept caught the attention of the committee who decided to explore it further.
Reverse Mortgage History - The 1980's: Congress Creates the HECM Program
In the 1980’s reverse mortgages finally got national attention when congress took action more than a decade after the senate hearing in the late 1960's. Maybe its true that congress does in fact move slowly - but progress reared its head during this decade and the concept of a reverse mortgage gained acceptance.
1983
Congress holds a hearing on Reverse Mortgages. A senator named John Heinz introduces a proposal which was approved in 1983. This proposal made was to allow reverse mortgages to be insured by the Federal Housing Administration (FHA). Heinz also encourages further exploration of the concept of home equity conversion.
1984
In 1984, The Century Plan is introduced by American Homestead. The plan suggests the idea of government insurance and allowing the loan to be in place until a borrower leaves the home permanently.
1987
In 1987 things gain momentum in Congress which culminate the passing of a FHA bill called the Home Equity Conversion Mortgage Demonstration which was a reverse mortgage pilot program that allows for the mortgages to be insured.
1988
In 1988 Ronald Regan signed the reverse mortgage bill into law. This gave HUD the authority to insure reverse mortgages through the FHA. This officially established and allowed for a government insured reverse mortgage. The program is created as a pilot program which can insure up to 2,500 HECMS thru September, 1991. HUD released a mortgagee letter on this December 22, 1988 which can be read here: hud.gov/sites/documents/88-38ML.TXT
1989
In 1989 the first HECM (Home Equity Conversion Mortgage) was insured by the FHA (Federal Housing Administration). The reverse mortgage takes place in Kansas City Missouri by James B. Nutter Company. To provide liquidity to the program, Fannie Mae agrees to purchase FHA-insured HECMS.
Reverse Mortgage History - The 1990s: Additional Regulation and HECM Becomes Permanent
1990
In 1990, the HECM is extended through 1995 and the cap on the number of loans is raised to 25,000.
1994
Congress passes new regulations in 1994 which give borrowers more protections and the ability to shop lenders for the best terms. The lenders are now required to disclose the total annual loan costs to the borrower at time of application.
1995
In 1995, Fannie Mae rolls out its own version of the reverse mortgage. The product is called the HomeKeeper. The product is discontinued in future years. The HECM volume cap is again increased, this time to 30,000 units and the program is extended until 1996.
1996
In 1996, the HECM program is expanded to allow owner occupied residences of up to 4 units (1-4 units) provided the borrower lives in one of the units. This opens up additional property types in the HECM program.
1997
In 1997 the National Reverse Mortgage Lenders Association (NRMLA) is established. The association is designed to represent lenders interests in Washington DC. From NRMLAs website: "The National Reverse Mortgage Lenders Association (NRMLA) is the national voice of the reverse mortgage industry, serving as an educational resource, policy advocate and public affairs center for lenders and related professionals."
1998
1998 marked the year of The HUD Appropriations Act which made the HECM program officially permanent. There were also additional safeguards and borrower protections added to require full disclosure on fees and protections. The volume cap on the HECM is raised to 150,000.
Reverse Mortgage History - The 2000's: New Millennium and The Great Recession
2000
In 2000, HUD made some updates to the origination fee in order to encourage more lenders to participate in the program. The origination fee was set at $2,000 or 2% of the maximum claim (which is the lesser of the appraisal or the current lending limit)
2001
In 2001, Reverse Mortgage Counseling Arrives. HUD teams up with AARP (American Association of Retired Persons) and starts testing and training counselors. They also establish counseling rules at this time which are all designed to help educate and inform potential borrowers to make the program safer.
2004
In 2004, HUD introduces rules about refinancing a HECM reverse mortgages into a new HECM. In 2005 the rules on refinances are approved and start to allow reverse-to-reverse mortgage refinances. This opens the door for borrowers with an existing reverse mortgage to come back for more money if their equity increases.
2005
In 2005, the first HECM-to-HECM refinances are made opening the door to refinancing a reverse mortgage for more money or better terms as home prices rise or better terms become available. This can potentially allow a borrower to obtain more money in the new reverse mortgage.
2006
In 2006, the national lending limit for the HECM is set at $417,000. This limit has gradually been increased over the coming years and decades. A survey conducted by AARP revealed that one of the primary motivations for a borrower to take out a reverse mortgage was to plan for future emergencies and improve quality of life.
2008
In 2008, in reaction to the real estate crash and the great recession, congress passes The Safe Act. The Secure and Fair Enforcement for Mortgage Licensing required states to implement consistent licensing and registration requirements including loan officers originating HECM reverse mortgages.
Another act, The Housing and Recovery Act (HERA) was also passed which added safeguards on fees and imposed rules on cross selling related products among other things. 2008 also was the year the first baby boomer turned 62 which is the minimum age to qualify for a HECM.
2009
In 2009, The HECM for Purchase program is finalized and put into place. This became the first year that an older homeowner could purchase a home using a HECM reverse mortgage and enjoy the benefits and protections of the HECM program. As the housing crisis worsened, the HECM lending limit was increased to $625,500 allowing new borrowers to obtain a reverse mortgage.
During this time, there was an incredible surge in people securing a reverse mortgage for themselves and the volume of the HECM program saw record production levels. 2009 still holds the record for the year with the most HECM endorsements. The massive decline in the stock market in 2008 combined with overall fear about the real estate market and overall economy, gave rise to people (and advisors) taking notice of the potential benefits of the reverse mortgage product and how it could serve as a hedge in a declining bear market.
Reverse Mortgage History - The 2010's: New Safeguards and Transformation
The 2010's: Home prices "bottomed" early in the decade and began an unprecedented appreciation over the next decade and beyond. The rising home equity and widespread availability of reverse mortgages saw more and more mainstream adoption. The decade also saw a number of safeguards and changes to the product to make reverse mortgages much safer and shape what the have become today.
2010
2010 saw a large number of changes. The HECM Saver is introduced by HUD via Mortgagee Letter 2010-34. The HECM saver allowed for lower upfront closing costs by reducing the upfront initial MIP (mortgage insurance premium) to 0.01% providing a lower closing cost option for a borrower not needing the maximum funds as the saver provided a reduced principal limit compared to the HECM standard.
HUD made a number of other changes in 2010. HUD reduced the principal limit factor by 10% to protect the mortgage insurance program in the face of falling home prices. They also increased the ongoing MIP rate from 0.50% to 1.25% to provide further protection to the mortgage insurance fund.
2013
2013 saw the passing of the Reverse Mortgage Stabilization Act. This was considered a sweeping change of the HECM reverse mortgage program with the intention to make the program safer for both the borrower and the lenders. This act is also credited for helping setup the longevity of the reverse mortgage program which had been showing signs of defaults on property taxes and issues with younger spouses who were not borrowers.
Highlights of the Reverse Mortgage Stabilization Act of 2013 include:
- Introduced the groundwork for the future financial assessment which underwrites and reviews borrower credit and income for safety qualifications - financial assessment is being perfected and is set to begin in 2015
- Created a new single disbursement limit for fixed rate HECM loans
- Restrictions are placed on 1st year proceeds that can be drawn at time of closing - creating a 12 month waiting period for additional funds to be drawn. These rules on the proceeds that unlock 1 year and 1 day after closing are for the variable rate HECM reverse mortgages as the new rules require a fixed rate product to have a lump sum.
- Creation of the LESA - Life Expectancy Set-Aside where the reverse mortgage is setup with a set-aside account which is funded and designed to pay future property taxes and homeowners insurance premiums directly for the borrower while the set-aside still has funds. Generally this is for borrowers who do not pass financial assessment, though it can be elected by borrower voluntarily.
- Added protections for the Non-Borrowing Spouse (NBS) providing a safer path for the NBS to remain in the home after death of borrower if certain conditions are met.
- Provisions that empower HUD itself to make certain changes to the HECM program via mortgagee letters without congress needing to pass new legislation.
2014
In 2014, HUD continues working on finalizing the rules for the upcoming Financial Assessment which is set to kick in 2015. Financial Assessment reviews borrower's income and credit to determine the ability for them to meeting their current obligations. Financial Assessment also serves as a review of borrower's situation after the reverse mortgage closes as a check if the reverse mortgage being applied for will be a viable solution for the borrower as underwriting assesses their ability to pay ongoing future property taxes and homeowner's insurance. Borrower's who fail financial assessment will have a LESA imposed (lifetime expectancy set-aside). The goal of this review is to make the HECM stronger and safer for the borrower with less risk of default or failure.
2015
In 2015 Financial Assessment is implemented for all new HECMS originated going forward. This implementation was transformational as prior reverse mortgages had no review of the borrower's ability to handle their ongoing expenses. Future years would show that financial assessment was considered to be a massive success as it significantly reduced the number of HECM defaults related to non-payment of property taxes and homeowner's insurance bills.
2016
In 2016, the economy had begun to stabilize and home prices were on the rise again. The Federal Reserve raised interest rates for the first time in many years.
2017
In 2017, HUD releases Mortgagee Letter 2017-12 which adjusted principal limits and set the initial MIP mortgage insurance premiums at 2.00% of the maximum claim. Ongoing MIP rates were reduced from 1.25% to 0.50% which was a positive for borrowers. 2017 also saw the first increase in maximum claim limit to $636,150 which had not changed since 2009.
2018
In 2018 HUD released Mortgage Letter 2018-06 which introduced the possibility of a 2nd appraisal requirement on a HECM. This was part of their updated collateral risk assessment on the appraisal which is used to support the value accepted for the lending on a HECM. HUD uses its own proprietary internal and automated review in determining if a 2nd appraisal is needed. With this new rule, if HUD flags the appraisal for a 2nd appraisal - then a 2nd appraisal is done and the HECM loan is based on the lower of the two appraisal values.
2018 also sees the rise of the Jumbo Reverse Mortgage also known as a proprietary reverse mortgage. The reduction in lending percentages set in October 2017 gave rise for Wall Street and the private mortgage market to focus on bolstering the proprietary reverse mortgage. There was a huge surge in these types of reverse mortgages which are not insured by FHA and offer loan amounts up to $4 million. As is generally the case with a free market economy, when the government programs tighten, often time wall street finds innovation to fill the void left by the restrictive rule changes. The strong real estate market also played a major factor in the rise of the proprietary reverse mortgage market expanding.
2019
In 2019, HUD raises the 2019 lending limit on the HECM to $726,525 as property values across the United States continue to rise. HUD also opened the possibility for a "Spot Condo Approval" for borrowers wanting to obtain a HECM on a condominium where the homeowner's association does not have active HUD approval on the entire HOA project. This single unit approval allows a borrower to obtain a HECM on their own unit if successful with approval. The jumbo or proprietary reverse mortgage continues to build on its own momentum as real estate continues to rise and the economy continues to recover from the great recession now a decade in the rear view mirror.
Reverse Mortgage History - The 2020's: Global Pandemic & Inflation
2020
As the new decade starts, HUD increases the 2020 Maximum claim lending limit for the HECM to $765,600.
In early 2020 the Global C-19 Pandemic is announced and the Federal Reverse lowers interest rates to historic low levels. Low rates combined with the new lending limit gave rise a surge in borrowing power with both the HECM and the Jumbo Reverse Mortgage. The volume of HECM refinancing and Jumbo Reverse Mortgages surged during the pandemic driven by surging real estate prices and low rates.
2021
In 2021, HUD increases the 2021 lending limit for max claim to $822,375 as real estate prices continue to soar. The SOFR Secured Overnight Financing Rate was introduced and as the LIBOR index was being phased out. New HECMs originations utilized the CMT - Constant Maturity Treasury which was the previous index for HECM reverse mortgages. Some additional safeguards on the rules for NBS non borrowing spouses were introduced.
2022
In 2022, real estate continues its monster rise and so HUD increases the 2022 lending limit for the HECM from $822,375 to $970,800. Inflation starts to rear its head in 2022 as a result of the low rates and government stimulus during the pandemic. The Federal Reserve starts to embark on a multi-year rate hiking cycle to start their battle with the impending inflation. The higher rates impact lending percentages and things begin to tighten.
2023
In 2023, HUD raises the 2023 lending limit via mortgagee letter 2022-21. The new HECM max claim lending limit at $1,089,300. This represents (150 percent of the Federal Home Loan Mortgage Corporation Freddie Mac national conforming limit. The Federal Reserve continues its war on inflation by embarking and accelerating its rate hiking cycle.
Reverse Mortgages in High Inflationary Environment and Higher Interest Rates
The Benefits of a Higher Rates on a HECM Reverse Mortgage Line-of-Credit:
In today's higher inflation and rate environment - many financial planners are embracing the GROWTH feature of the HECM Line-of-Credit. In short the available line-0f-credit grows at the current interest rate plus MIP rate to provide access to more funds over time. (what this means for someone with a reverse mortgage: higher the rate = higher the growth on their line-of-credit **) There are a number of strategies to take advantage of this unique growth feature of reverse mortgages.*
In short, Higher Interest Rates can be a huge positive for a borrower with a HECM reverse mortgage with a substantial line-of-credit, as the available line-of-credit will grow faster than during a lower rate period.
* Not tax advice - Borrower should consult their financial advisor or CPA
** Growth of the HECM Line-of-Credit occurs only on the available funds still held in the line-of-credit and not on those previously drawn out.
The History of The Reverse Mortgage Continues
Reverse Mortgage History - Today: Modern-Day Reverse Mortgages
Today: Today, reverse mortgages have become much safer than the original products and have attained widespread mainstream adoption. The HECM reverse mortgage program remains the most widely recognized and utilized form of reverse mortgage in the United States. It has been instrumental in helping seniors supplement their retirement income, cover healthcare expenses, and remain financially independent. For clients who have higher valued homes - the "jumbo" or "proprietary" reverse mortgages can allow for loan amounts up to $4 million - well beyond HUDs lending limits on the HECM.
Key features of modern reverse mortgages include:
Flexibility: Borrowers can choose between various ways to receive their disbursements from the loan proceeds, including lump sums, monthly payments, lines of credit, or a combination of these.
Non-Recourse Loan: Neither the borrower(s) nor their heirs are personally liable for repaying the loan balance. The home itself secures the loan, and in the event that the loan balance should ever exceeds the home's value upon sale neither the borrower nor the heirs are liable for any shortfall. When the borrower or heir sell the home, any equity after paying off the loan balance belongs to them.
Homeownership During Life of the Loan: During the life of the loan until a maturity event, borrowers retain full ownership of their homes, and they can live in them as long as they wish provided they continue to pay the ongoing property expenses such as property taxes, homeowners insurance and maintenance expenses to keep up home - and occupy the home as their primary residence.
- No Monthly Mortgage Payments Required *: Without a doubt, one of the most popular reasons people obtain a reverse mortgage is the flexible option to not have the burden of having to make any monthly mortgage payments during the life of the loan thru a maturity event.*
* Please note: Reverse Mortgages have no required monthly mortgage payments. However for the loan to remain in good standing, at least one borrower must continue to occupy the home as their primary residence and continue to pay ongoing property taxes, homeowner's insurance premiums plus maintain the home during the life of the loan.
I hope you have enjoyed and found value in this historical timeline on the history of the reverse mortgage.
Presented by
- John Correll, CRMP
Certified Reverse Mortgage Professional in California
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Additional Resource Source Documents on Reverse Mortgage History
1987 Ronald Regan Remarks on Signing Housing and Community Development Act of 1987
2009 UNC School of Law Reverse Mortgage Changes Brought about by the Housing and Economic Recovery Act
2012 Testimony of Peter Bell from NRMLA Before US House Select Committee on Reverse Mortgages
2013 Congress Summary Notes on Reverse Mortgage Stabilization Act of 2013
2021 CFPB Consumer Financial Protection Bureau Protections for Reverse Mortgage Borrowers
