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Home Equity Among Retirees

home equity

According to a study by the National Reverse Mortgage Lenders Association, housing equity for homeowners aged 62 and older increased by $149 billion between Q3 2017 and Q4 2017, hitting a massive total of $6.6 trillion. The National Reverse Mortgage Lenders Association [1] revealed that figure in today’s quarterly release of its NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI).

The RMMI rating rose to 238.11 in Q4, marking an all-time high point since the Index began publication way back in 2000. The index reported an estimated 2.0 percent increase in home values, which works out to $163 billion. It wasn’t all good news for seniors, however. Senior-held mortgage debt was also on the rise, inching up by 0.9 percent. That might not sound like much, but that equates to a $13.4 billion increase.

The RMMI increased by 8.3 percent in 2017, up compared to 2016’s annual increase of 8.0 percent and 8.5 percent in 2015.

"Today's retirees are more likely to leave the workforce with a mortgage and other debts that can put stress on monthly cash flow," said NRMLA President and CEO Peter Bell. "In these situations, financial products that convert home equity to cash could be used to pay off revolving debt from credit cards and reduce or defer monthly mortgage payments. It's worth doing the math to find out if a mortgage refinance, home equity line of credit, or reverse mortgage loan can help increase financial security during retirement."

The reverse mortgage securities market is also booming. According to New View Advisors [2], a financial services advisory firm located in New York, issuers of home-equity conversion mortgage-backed securities (HMBS) sold 129 pools in February, totaling $1.47 billion [3]. That made for the second-highest month on record, surpassed only by the December 2009.

However, New View’s February report points out that principal limit factors are dragging down origination volume. PLFs are set by HUD [4], and the Department altered the rules regarding them last October [5] as part of an overall tightening of restrictions on the reverse mortgage program.

According to New View’s report, production of original new loan pools totaled $604 million in February 2018, down from $657 million in January and $747 in December 2017. New View predicts that this trend will continue, with reverse mortgage originations decreasing “as issuers run out their remaining supply of unsecuritized loans with the old, higher principal limit factors.”