Another Clute Institute 2009 Publication: Is a Reverse Mortgage a Viable Option For Baby Boomers?

Neil, Benjamin A., and Neil, Brian A. (2009) “Is a Reverse Mortgage a Viable Option For Baby Boomers?” Journal of Business & Economics Research 7(6): 53-58.

Available at: http://journals.cluteonline.com/index.php/JBER/article/view/7767/7831

Neil and Neil, page 53	Andrew D. Eschtruth, Wei Sun and Anthony Webb, “Will Reverse Mortgages Rescue the Baby Boomers?”, Center for Retirement Research; Boston College, September 2006, Number 54, page 1. [Source is correctly cited by Neil and Neil, but they do not indicate when they are quoting directly from it]
Many of today’s workers are at risk of having insufficient resources in retirement. The reason for this gloomy picture is a rapidly changing retirement landscape defined by a rising Social Security retirement age, a sharp decline in traditional pensions coupled with modest 401(k) balances, low savings rates, and longer life spans. However, one potential bright spot is housing equity, which has grown rapidly in recent years and is the largest non-pension asset for most households. [“Will Reverse Mortgages Rescue the Baby Boomers?”, Andrew D. Eschtruth, Wei Sun and Anthony Webb, Center for Retirement Research; Boston College, September 2006, Number 54].	Many of today’s workers are at risk of having insufficient resources in retirement. The reason for this gloomy picture is a rapidly changing retirement landscape defined by a rising Social Security retirement age, a sharp decline in traditional pensions coupled with modest 401(k) balances, low saving rates, and longer lifespans. However, one potential bright spot is housing equity, which has grown rapidly in recent years and is the largest non-pension asset for most households.
Neil and Neil, page 54	Federal Trade Commission. Reverse Mortgages.
In a "regular" mortgage, you make monthly payments to the lender. But in a "reverse" mortgage you receive money from the lender and generally don’t have to pay it back for as long as you live there. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence.	In a "regular" mortgage, you make monthly payments to the lender. In a "reverse" mortgage, you receive money from the lender, and generally don’t have to pay it back for as long as you live in your home. The loan is repaid when you die, sell your home, or when your home is no longer your primary residence.
Neil and Neil, page 54	Andrew D. Eschtruth, Wei Sun and Anthony Webb, “Will Reverse Mortgages Rescue the Baby Boomers?”, Center for Retirement Research; Boston College, September 2006, Number 54, page 2. [Source is correctly cited by Neil and Neil, but they do not indicate when they are quoting directly from it]
The HECM program emerged from the National Housing Act of 1987. During the 1990’s, the demand for reverse mortgages was extremely small, with less than one percent of eligible homeowners opting for one. In recent years, though, the market has begun to expand with the number of reverse mortgages rising from 6,640 in 2000 to 43,131 in 2005 [National Reverse Mortgage Lenders Association, (2006)]. Given that many baby boomers will reach retirement with insufficient wealth from other sources, reverse mortgages are likely to become more popular. [Eschtruth, Sun, Webb].	The HECM program emerged from the National Housing Act of 1987. … During the 1990s, the demand for reverse mortgages was extremely small — with less than one percent of eligible homeowners opting for one.[4] In recent years, though, the market has begun to expand with the number of reverse mortgages rising from 6,640 in 2000 to 43,131 in 2005 (see Figure 1). Given that many baby boomers will reach retirement with insufficient wealth from other sources, reverse mortgages are likely to become more popular.
Neil and Neil, page 56	Hank C. Sentowski, Mortgages: Fundamentals, Issues and Perspectives, page 61.
One option is for the homeowners to use reverse mortgages to fund long-term care directly. Primarily, this would involve paying for home modifications and in-home care which would permit them to “age-in-place”. Under its “Use Your Home to Stay at Home” initiative, the National Council for the Aging (NCOA) is encouraging the use of reverse mortgages to fund long-term care. Of the nearly 28 million American households age 62 and older, NCOA has found that about 13.2 million (48%) are good candidates for a reverse mortgage. According to NCOA, an estimated $953 billion could be available for reverse mortgages for immediate long-term care needs and to promote aging in place. [Stuck, Barbara R., “Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action”, The National Council on the Aging, Jan 18, 2005, p. 9].	One option is for the homeowners to use reverse mortgages to fund long-term care directly. Primarily, this would involve paying for home modifications and in-home care which would permit them to “age-in-place”. Under its “Use Your Home to Stay at Home” initiative, the National Council for the Aging (NCOA) is encouraging the use of reverse mortgages to fund long-term care. Of the nearly 28 million American households age 62 and older, NCOA has found that about 13.2 million (48%) are good candidates for a reverse mortgage. According to NCOA, an estimated $953 billion could be available for reverse mortgages for immediate long-term care needs and to promote aging in place. [15] [the cite to reference 15 is to: Stuck, Barbara R., Use Your Home to Stay at Home: Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action, The National Council on the Aging, January 2005, p. 9]
Neil and Neil, page 56	Michael C. Fratantori “Reverse Mortgage Choices: A Theoretical and Empirical Analysis of the Borrowing Decisions of Elderly Homeowners”, Journal of Housing Research, Volume 10, Issue 2, page 189. [Source is correctly cited by Neil and Neil, but they do not indicate when they are quoting directly from it]
Reverse mortgages provide a means for elderly and aging baby boomers to access their home equity while continuing to live in their homes. This could be an effective means for reducing poverty among the elderly if this group had no other means for accessing its home equity. Despite this potential benefit, consumer interest in reverse mortgages has been relatively modest to date. Estimates of the potential market for this product have varied widely, but these estimates are generally much larger than current volumes. Whether this is because of resistance to reverse mortgages generally or more specific difficulties with the products that are available is unclear at this point. [“Reverse Mortgage Choices: A Theoretical and Empirical Analysis of the Borrowing Decisions of Elderly Homeowners”, Journal of Housing Research, Volume 10, Issue 2, Michael C. Fratantori].	Reverse mortgages provide a means for elderly homeowners to access their home equity while continuing to live in their homes. This could be an effective means for reducing poverty among the elderly if this group has no other means for accessing its home equity. Despite this potential benefit, consumer interest in reverse mortgages has been relatively modest to date. Estimates of the potential market for this product have varied widely, but these esti- mates are generally much larger than current volumes. Whether this is because of resistance to reverse mortgages generally or more specific difficulties with the products that are avail- able is unclear at this point.
Neil and Neil, page 56	Mortgages: Fundamentals, Issues and Perspectives By Hank C. Sentowski Page, 62-63
Though there has been growth in the use of reverse mortgages in recent years, it is still a relatively little used option for elderly homeowners. Many elderly homeowners do not understand the program and are reluctant to participate. After spending many years paying for their homes, elderly owners may not want to mortgage the property again.	Though there has been growth in the use of reverse mortgages in recent years, it is still a relatively little used option for elderly homeowners. Many elderly homeowners do not understand the program and are reluctant to participate. After spending many years paying for their homes, elderly owners may not want to mortgage the property again.
Neil and Neil, page 57	Baby Boomers and Reverse Mortgages, another Perfect Storm for Lenders by Tony Tobin:
Since the sub-prime loan sector is shut down, the mortgage industry is looking for new products to sell, products with less risk and with a broad appeal. With the baby boomer generation reaching retirement, the industry will find the perfect product in the reverse mortgage.	Since the subprime loan sector is shut down, the mortgage industry is looking for new products to sell, products with less risk and with a broad appeal. With the baby boomer generation reaching retirement, the industry will find the perfect product in the reverse mortgage.