Financial advisors increasingly recommend Home Equity Conversion

March 5th, 2017  | by Alex Spanko  | Reverse Mortgage

As financial planners and scholars increasingly advise certain borrowers to take out Home Equity Conversion Mortgages as early as possible as part of their retirement plans, some loan originators are noticing increased interest for the products from younger borrowers. At the same time, many in the industry are working to adapt their strategies to target individual age subsets of the consumer marketplace for home equity conversion marketplace, each with their own set of concerns.

Laurie MacNaughton, a reverse mortgage specialist at Southern Trust Mortgage in northern Virginia, says an age gap has become more and more apparent in her business as financial advisors increasingly recommend HECM loans for younger borrowers as a retirement-planning option, while elder law attorneys continue to refer clients in their 80s who may applying to meet immediate financial needs.

But for those who didn’t explore HECMs as an option in their early 60s, there may not be a sense of urgency, MacNaughton said — especially as people in their 70s remain active longer and may not think they’ll run into financial issues in the future.

“In the ‘60s, [people in their] 60s were the old people, but now they’re still working and running marathons — it’s kind of an Indian summer,” MacNaughton said, noting that in her home region of the Washington, D.C. suburbs, many who work in government and politics remain on the job as consultants or contractors into their mid-70s. She terms consumers in their 70s the “silent generation” for HECM borrowers — not to be confused with actual Silent Generation, a term for people who were born between 1925 and 1945.

National data from the Department of Housing and Urban Development doesn’t quite back up MacNaughton’s anecdotal observation around the nation’s capital: Borrowers aged 70 to 79 accounted for 39.3% of all HECM loans in fiscal 2016, up from 37.1% in fiscal 2015.

But the age gap in MacNaughton’s practice made sense to Mike Gruley, who highlighted the different approaches he generally uses when reaching out to baby-boom borrowers and older potential clients. Gruley, an executive vice president of reverse mortgage lending at 1st Nations Reverse Mortgage in Ann Arbor, Mich., says people in their 80s tend to be far more suspicious of credit in general, having been raised in a generation where mortgages and other loans were seen as burdens that needed to be retired as quickly as possible.

“We don’t hear about many baby boomers having mortgage-burning parties,” Gruley says, noting that people in their 60s have fewer qualms about using home equity to both cover necessary expenses and pay for indulgences such as vacations and second homes.

As a result, Gruley doesn’t usually take the home-equity approach when working with older borrowers, instead focusing on the practical benefits of securing additional funds to help pay bills and other necessities.

“We don’t need a second house,” he said, summarizing their attitudes. “This one just got paid for.”

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