Posts Tagged ‘reverse mortgage industry statistics’
In last week’s report, we talked about how younger borrowers (read: Baby Boomers) are changing the face of the reverse mortgage industry by selecting reverse mortgages in greater numbers than their elders. Today, let’s dive a little deeper into reverse mortgage borrower dynamics.
One of the first questions that arises when looking at the age distribution chart from last week’s report is whether there was any difference between genders from an age perspective. As you can see from the chart below, single males are much more highly represented in younger ages than single females, with couples even further skewed to the young side.
In many ways this makes perfect sense given the shorter life expectancy for males, which naturally leads to fewer couples (assuming these are mostly married couples) and males at older ages. There are simply more single females that survive to higher ages as potential borrowers.
What’s perhaps less intuitive is that fixed rate borrowers are skewed younger as well, clearly evidenced in the chart below.
Perhaps younger borrowers are less daunted by the full draw requirement of a fixed rate loan because they’re more likely to be using proceeds to payoff an existing forward mortgage? As we start considering how potential usage of funds impacts borrower age, it makes sense to consider payment plan types, as in the chart below.
Since Line of Credit (LoC) is the payment plan option selected by a vast majority of borrowers and is currently mandatory on Fixed HECMs due to full draw requirements, we’ve narrowed our focus to just the HECM ARM population and chopped off the top 60% of the chart to see the change more clearly.
Under 8% of HECM ARM borrowers in their 60s select one of the four monthly payment options (excluding LoC), whereas 32% of those over 100 select a monthly payment option. Given the greater tenure payments available to older borrowers this would seem more attractive to older borrowers, but the level of change surprised us.
So what does all this mean? We suspect that many will see product development opportunities and others likely see sales and marketing implications. We’re as interested as everyone else to see what this means for our market, but the resounding bottom line remains that the reverse mortgage market is in great need of market segmentation and diversity in our approaches to growing the business.
We’d love to hear your thoughts in the comments below, or use our contact form to email us privately.
We just got back from the NRMLA Irvine Roadshow and as always, heard some very interesting ideas and discussions about the industry’s current opportunities and challenges. One of the most interesting points we heard came from John Nixon at Bank of America, discussing an analysis he had done of borrower age.
Many of us who have been in the industry for a while have watched average age drop from 77 a decade ago, to 74 five years ago and roughly 72 last year. What has been masked by that “average” (or mean for the mathematically precise amongst us) is that the number of borrowers at each age has changed dramatically. John mentioned that in the past few months, 62 year olds were the most common among his borrowers, which frankly shocked many folks in the audience.
We did an analysis of our own once we got back to our office and what we found suggests that Nixon’s comment is indicative of the industry as a whole rather than just at BofA, even if the industry’s peak age was 63 in 2009 rather than Nixon’s 62. (To be fair, John may be looking at loans we won’t see for a few months due to the timelines associated with loan endorsement.) The chart below show the percentage of borrowers (youngest borrower) in each year at each age.
As you can see, there has indeed been a dramatic shift toward younger borrowers in the past few years, and particularly in the most recent year. Whereas in 2000 there were more borrowers age 76 than any other age, that figure has shifted downward much more dramatically than the average age: 74 in 2003 and 71 in 2006 to 63 in 2009.
So what does this mean for the industry? Well, it suggests that a common refrain of baby boomers being much more likely to use reverse mortgages than the WWII generation and those before is coming true. At the very least, baby boomers seem to be less put off by recent changes to the product and industry that have dropped overall industry volume by -39% in the first six months of 2010.
This could be from higher expectations of living standards in the baby boomer generation, lower retirement savings preparation (and lower pension availability) or a greater receptivity to debt. We simply don’t know from the data we’re analyzing today.
But it did bring up some other interesting thoughts about fixed vs. ARM HECMs, payment plan types, and borrower gender that we’ll explore further in next week’s edition. In the meantime, let us know what you think this shift in borrower age might mean for the industry in comments below, or email us here.
For part 2 of this analysis, please click here: Reverse Mortgage Borrower Analysis, Part 2.
Since we already know that May’s volume levels rebounded a bit in June, it doesn’t feel quite so disheartening to show the headline graph from this month’s Reverse Mortgage Industry Trends report.
HECM Endorsement Trends by Year
Volumes for each month this year have been below 2009 thanks to startlingly low application counts, but now the task before us all is to improve on the 39% decline YTD. No one is expecting a 100,000 loan year anymore, but it’s shocking to realize that 80,000 would represent significant progress given what we’ve seen so far.
So where is the volume coming from next month and for the rest of the year? Last month we looked at HECM Purchase, which has been growing steadily (up almost70% last month vs. 2009), but started from nothing in late 2008 so we need more than just impressive growth figures (last eight months = 910 total loans). We continue to believe that the potential exists for 10,000 or more loans annually from this program, so we thought it would make sense to share that high level analysis with you here.
There are a few key steps in this quick analysis, and we’ll be the first to admit this is back of the envelope rather than something we can prove in our normal style from hard data. That being said, the numbers get interesting very quickly.
- There are 23.2 million senior homeowner households in the US as of 2008
- According to a 1991 study by the Real Estate Center at Texas A&M University, only 7.4 percent of seniors moved in a given year, which we’ve adjusted down to 6% due to their lower survey age
- Statistics range from 60-80% of seniors owning their homes outright, so we took the more conservative assumption that only 20% of seniors would use mortgage financing to purchase a home
That leaves some 280,000 seniors purchasing homes annually with mortgage financing, so HECM’s opportunity is to capture some portion of that. Whether you believe that HECM can capture 5% or 50%, we still have a large market to address. Of course, that also doesn’t consider seniors who otherwise would not be able to move or buy a house with traditional mortgage financing, but could through a HECM Purchase.
It’s not the only answer to today’s tough market conditions, but it certainly pencils as part of a larger solution.
Click on the image below to view the full Industry Trends report for this month.
