Reverse Mortgages Spike 20% In 2013 As Baby Boomers Scramble For Cash

Tyler Durden's picture

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

So what exactly is a reverse mortgage?

In a nutshell, it’s a specific type of home equity loan available only to people aged 62 and over, which has the added benefit of not carrying any interest payments and is only due upon death or once the homeowner is no longer using it as a primary residence. As you can see, this might be viewed as an attractive cash flow option for older Americans who didn’t save for retirement. That could be a lot of people, considering that Fidelity estimates 48% of baby boomers have not put away enough to retire.

While I have covered the various ways in which Americans are scraping by in the current feudal economy, from food stamps and disability fraud, to student loans and living in mom and pop’s basement, this reverse mortgage thing is a piece of the puzzle I have been missing.

These mortgages are not insignificant either. According to Inside Mortgage Financeoriginations were up 20% in 2013, hitting $15.3 billion. So when you see that older guy working the cashier at Wal-Mart and wonder to yourself how he is surviving, the answer may increasingly be a reverse mortgage.

Oh, and since the FHA is originating many of these loans, you the taxpayer will be on the hook!

Let’s start out with some excerpts from the U.S. Department of Housing and Urban Development’s post: Frequently Asked Questions about HUD’s Reverse Mortgages.

The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program, which enables you to withdraw some of the equity in your home.  The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more.


1. What is a reverse mortgage?


A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.


5. What are the differences between a reverse mortgage and a home equity loan?


With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.

See there really is a magic money tree. Thanks FHA!

6. Will we have an estate that we can leave to heirs?


When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.

Moving along, we learn from the New York Post that:

Cash-strapped baby boomers, taking the TV advice of the Fonz and former US Sen. Fred Thompson, have opted for reverse mortgages in increasing numbers.


Inside Mortgage Finance, a trade publication covering the housing industry, said borrowers took out some $15.3 billion of these loans last year, an increase of 20 percent over 2012.


Reverse mortgages, which let homeowners age 62 and up borrow money against the value of their homes, have become a popular way for boomers without significant assets to fund retirement.

Is this something you’d expect to see five years into a genuine economic recovery, or it is a reaction to a ponzi consumption based economy plagued with zero income growth?

“I would only consider the reverse mortgage as a last resort. They cost a lot, and there are better ways to pay for retirement,” said Charles Hughes, a financial adviser.


“Gone are the days of gleefully burning the mortgage and passing the home on to the children,” he adds in a client publication.“They can be a valuable tool for those who need cash and have no other option,” says adviser Anthony Ogorek. Nevertheless, Ogorek asks clients to explore every option before taking the pricey loans.


Yes, a home with a reverse mortgage will never be foreclosed on in the owner’s lifetime. But it can be a different story for heirs, whom lending companies can strong-arm to pay the mortgage off in full after the borrower dies, under threat of foreclosure. At the very least, it means dealing with often-confusing red tape in a time of grief and stress.


For these unfortunates, a reverse mortgage was literally mortgaging the future.


Reuters provided a similar perspective a couple of weeks ago:

U.S. baby boomers desperate for retirement income are increasingly turning back to a financial product that, after the housing bust, had been left for dead: the reverse mortgage.


Many retirees haven’t saved enough to cover expenses for the rest of their lives. But many of them have one major asset – a home. A reverse mortgage allows them to borrow against that, and they don’t have to make any payments on the loan until they move or die.


Borrowers took out $15.3 billion of the loans in 2013, an increase of 20 percent from the year before, according to industry publication Inside Mortgage Finance. The record year was 2009, when there were $30.21 billion of reverse mortgage loans made.


But at this stage, most bigger lenders are uncomfortable with the loans – for example, in 2011, Wells Fargo & Co and Bank of America backed out of the business. Wells has cited factors including unpredictable home values and the level of delinquencies as reasons for it to stay away from reverse mortgages.


The government agency that guarantees these loans, the U.S. Federal Housing Administration, found them to be risky, too. Losses on reverse mortgages were a big reason for the agency’s $1.7 billion taxpayer bailout last year – and some experts worry it could end up in similar trouble again.


“The FHA is at risk from these loans, and the taxpayers are at risk too,” said James Bothwell, a consultant and former chief operating officer of the Federal Home Loan Bank system.

Ah, always nice to see that the government is willing to put the taxpayer on the hook for loans so risky even the banksters won’t touch them.

Every day, 10,000 baby boomers turn 65, the traditional retirement age in the United States. And 48 percent of them report they are not on track to cover the basics in retirement, according to financial services company Fidelity. Sixty percent have less than $100,000 in retirement savings, estimates brokerage Charles Schwab Corp.

Walter’s larger rival, Ocwen Financial Corp, estimates the potential size of the reverse mortgage market at $1.9 trillion, leaving a lot of room for growth from the $90 billion of these loans outstanding at the end of September.


Lenders charge high fees for making these mortgages, and then bundle them into U.S. government-guaranteed bonds that are sold to investors. The margins on selling these loans can be three to five times the margins on regular mortgages, said Don Currie, president of lender High Tech Lending. Banks can also collect fees for performing tasks like sending out account statements to borrowers.


To tout the benefits of the product, reverse mortgage lenders have turned to Hollywood pitchmen. Liberty Home Equity Solutions, which Ocwen purchased in April 2013, uses Robert Wagner, star of the “Hart to Hart” television series, in its advertisements. Commercials for Quicken Loans’ One Reverse Mortgage featured “Happy Days” star Henry Winkler. Fred Thompson, a former U.S. Senator and star on television’s Law & Order series, promotes loans for American Advisors Group.

Hollywood, good for pumping Obamacare and reverse mortgages. Nice.

“There are lots of mortgage lenders who see declining volumes and may view (reverse mortgages) as an opportunity to increase revenues,” said David Stevens, president of the MBA and a former commissioner of the FHA.


For some homeowners, reverse mortgages can fill a real need. Janie Baratta, 63, was getting hounded by bill collectors after her husband died in 2012. The former biological researcher at the University of California at Irvine had $50,000 in credit card bills she had run up during his illness, and there was still a $1,500 mortgage on her three-bedroom ranch in Irvine, California. Her $4,000 pension and social security were not enough to cover her expenses.


Then in 2012, she got a $300,000 reverse mortgage from High Tech Lending. Today, her credit cards are paid off. So is her regular home loan.


Reverse mortgages also discourage elderly homeowners from undertaking repairs and maintenance that someone else might do more proactively, said Mark Calabria, a former staff member of the Senate Banking Committee. That can hurt the value of the property, which in turn cuts into the proceeds that lenders will receive when it comes time to sell the home, leaving the FHA potentially on the hook because of its guarantee.

Still confused? Don’t worry, former U.S. Senator Fred Thomson is here to clear things up for ya.

Nice touch with the goatee, Fred. Really makes you seemed connected with the average man on the street.

Pay close attention to this trend. I expect it to become increasingly covered in the mainstream media.

What a joke.

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Kirk2NCC1701's picture

Yeah, well, sliding down the employment stairs, plus the runaway costs of Sick-care will do that to you. Not to mention Elder Care.

flacon's picture

What will become of the younger generation once the older generation spends all their capital and even spends the debt? Will we will be living in tents in the countryside while suburbia lies vacant and abandoned - owned by the banks?

Singelguy's picture

Don't worry. Before that happens, the debt will be so large that government will not be able to pay the interest even after raising taxes to 70%. They will speed up the printing presses and we get hyperinflation. Then the dollar crashes, defaults on the debt multiplies until it crashes and the debt has to be written off, either voluntarily or looking down the barrel of a gun. If it happens soon enough the younger generation might be lucky and start with a clean slate.

caShOnlY's picture

The boomers really made out as they not only had cheap education and then good jobs but were also left inheritances that they spent.  This generation without a doubt is like a locust.

Pooper Popper's picture

boomers suck ASS!

They have destroyed this country,with their stupidity and GREED.

They have left nothing for their children but DEBT.


Selfish Bastards!

Squiddly Diddly's picture

How about some cheese to go with that whine.  Jealousy degenerating into inter-generational hostility is stupid.  OK, you missed the historical sweet spot, your generation has it's  advantages too.  There is more to life than  "cheap education and then good jobs but were also left inheritances that they spent".  I agree we "boomers" are not acquitting ourselves well on the field of morality for future generations.  I have a difficult time trying to convince members of my generation (who are to be blamed for being clueless by now) that Kennedy and 911 were part of the elite long term Fabian socialist undermining of the country by the financial industry.  Now that I have a hazy idea of what the agenda is (globalism) younger generations don't seem all that able to grasp it either or don't care when I explain my understanding.  As conspiracy theories increasingly morph into historical fact it becomes trendy to wear a tinfoil hat, wasn't so a while back Bircher's  were generally ridiculed.   In history empires rise and fall which is highly correlated with morality or lack thereof  (fiat money).  The inter generational moral capital has been spent. You are living in the normal historical vicissitudes of life, so get one as humble as it may seem.

MT 6:

31Therefore do not be anxious, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ 32For the Gentiles seek after all these things, and your heavenly Father knows that you need them all. 33But seek first the kingdom of God and his righteousness, and all these things will be added to you.

34“Therefore do not be anxious about tomorrow, for tomorrow will be anxious for itself. Sufficient for the day is its own trouble.

BandGap's picture

My ex-wife has the house and a home equity line of credit. She can take out 80% of the equity and just pay interest. She has burned through 50K in three years, and she is employed. The loan was taken out many years ago, who knows the worth, who knows what the 80% means. There are so many "deals" like this out there it would make your head explode. But they all result in selling your dreams down the river in the end. Cue sunset........

boogerbently's picture

Sub prime lending was a "deal".

yogibear's picture

It's not an income problem, it's a spending problem for many. 

natty light's picture

Patrick Ewing: "We make a lot of money, but we spend a lot of money."

Offthebeach's picture

Once again the rich get richer, sort of. Even though I had made massive Obama recovery investments on my van down by the river, including new rubber roof, upgrading rotting, sinking tires to concrete block foundation and new astroturf exterior carpet, and more, I couldn't get a reverse on the humble Thoreauvian abode.( Granted land ownership is a bit opaque. ).

Well, it's not the end of the world. Roadside canning has improved with the snow melt. The Misses still has her part time Dollar General job. Its nice to be part of a growing retail trend. Lately all her pay was going to our Obamacare non-care premiums but the local BBS newsletter informed us of how to sell our coverage to Dr. Hamad's office for "visits" we dont even have to go to, plus us early adopters, we get a Oxy script which will fund our winter bus vaykay to the Gulf, and the office covers the deduct. There's also a recruitment incentive program (1099) of which I'm looking into.

Thanks Obama!

Georgia_Boy's picture

No worries, it gets better you know. He's just waiting for this mess to get big enough for NPR and the NYTimes to get the sheep all outraged, then come out with a MyReverseMortgage government program. Because we ALL deserve a secure retirement!

TahoeBilly2012's picture

Taxpayers are at risk? Hell they are the walking dead!

Greenskeeper_Carl's picture

Gotta love how this one is going to play out. Grandma owns a house 'worth' 300k, and owns it free and clear, no mortgage. Takes out a 250k reverse mortgage. Uses the money to pay her bills, go on cruises, etc, burns through most of it, passes away. Meanwhile, housing takes its next inevitable decline, and now this house is worth only 150k. The bank gets it, leaving nothing for her family( not what I would do, but it was her property to do with as she pleased). The bank owns the house, but can now get 100k less out of it that this reverse mortgage. So who ends up eating that 100k shit sandwich? The American taxpayer. Same as always.

ghostfaceinvestah's picture

Yup, as I said below, this product only exists thanks to the FHA.  Private reverse mortgage are almost entirely extinct, and when they did exist, were offered at much more stringent terms (less ability to suck equity out of the house).

Only the government has the wisdom to to evaluate and retain this type of risk.  /sarc

A Nanny Moose's picture

REMO's....just another fucking government program.

samcontrol's picture

actually , if I was grandma. in the Us of A i would do the same thing.

if I "knew" my house was going down a hundred k and my kids and grandchildren lived as far from me as possible , fuck yea I would be on cruises sucking some old timer off.

ParkAveFlasher's picture

It is precisely this kind of desperation that The Me Generation finds itself in.

Doubleguns's picture

The me generation is leaving behind trillions in debt. Nothing else. When will the youngters wake up and canx the social security, medicare and medicaid to pay the trillions in debt.

Greenskeeper_Carl's picture

If us youngsters ever do that, it won't be canx-ing SS, Medicare, etc to pay those trillions of dollars in debt, that will be canx-ed as well. If there is ever a sufficient awakening by my generation to realize what was done to us by past generations, we will say that these debts amounted to taxation without representation, and therefore it is invalid. These programs will be gone by the time we are old enough for them, which means my generation is expected to pay for all these entitlements out of our paychecks, then be left with nothing but an insolvent govt when we retire.

detached.amusement's picture

yep, that's pretty much my bet...if I want to "retire" I know I am going to have to move into the back woods and live off the land.

Anusocracy's picture

The only reason the US economy is still afloat is because of all the gases created by its decomposing body.

daveO's picture

Just one last FU from the ME Generation. Banks and Corp's will end up owning all the housing.

OldPhart's picture

I'm one of the last boomers, actually Generation Jones, born in 1959.

I fit all the definitions of someone that has little assets.  My savings are less than $60k.  And I don't dare risk saving anything until our government, banks and markets are cleansed.  I've accelerated payments on my mortgage and will throw a party about five years from now when I pay off my 1998 7.5% mortgage.

I know I will be working until I die.  I will not be able to retire at 67 (yes, that's my retirement age for those of my tier). 

My plan is to die with what little honor I have left and save you youngsters the unjust costs associated with me as much as possible.  My vision, since the 80's, has been finalized as a dried up corpse on the side of a desert road.

I'm pretty sure that's how I will eventually wind up...and it won't be self inflicted, it will be due to starvation, some sort of germ warfare, nuclear blackout, or simple neglect by everyone. 

Skateboarder's picture

Beans and rice, OldPhart. Beans, rice, water, an MSR featherlite, and a shitton of white gas. ;-)

Don't worry about the money and shit. As long as you got your brain intact. Where we're going, money's gonna be the least of our concerns.

Son of Loki's picture

smells fishy, these reverse mortgages.....

Hobbleknee's picture

What?  You mean you will pass your house on to your kids instead of the bank?

OldPhart's picture

My older son is a highly successful contractor after 12 years as a DOD contractor in Afghanistan.

He doesn't need a dime from me.

My younger son is a Bi/Gay whateverthefuckyoucall them coffee pourers at Starbucks (and the only time I drink a sip of a cup of Starbucks is when my bi/gay son gives me a free cup that shit)...guess who gets the house.

Son in Afghanistan for last twelve years...barely made it out of high school....built all of that county's communication infrastructure after we decided to destroy it.

Younger Scout, earned it the hard way, with hard core scouter parents busting his ass.  I"m thinking that once he figures his personal shit out...we're going to be in relatively better circumstances.

(not that either actually approves of us.)

duo's picture

GI Joe to Pajama Boy in two generations

A Nanny Moose's picture

For those about to rock...we salute you.

OldPhart's picture


My generation had hero grandparents...

I can't let them down.

detached.amusement's picture

ditto...and my mom says she aint ever going to the doc, if she goes dementia crazy she'll take herself out back & shoot herself before making us kids take care of her. 

MachoMan's picture

She would shoot herself, but she keeps forgetting...

waterhorse's picture

Then let her go for a nice walk in the woods.  That's what I will be doing (if my family remembers).

Almost Solvent's picture

Look at the flowers!



BandGap's picture

Same here, born in 1961. Like you have paid into this sytem all my life and will have little to show. Have some property and savings worth a bit more thasn 100K. Party on Garth.

I don't plan on dying, just running until the engine gives out. Wish I could pull off that Monte Python scene where the old guy is chased by topless women on roller skates over the cliff. That's about the only life goal I have left. 

JR's picture

My plan is to die with what little honor I have left and save you youngsters the unjust costs associated with me as much as possible.

Hang in there, OP, the sleeping giant, America's middle class, is beginning to stir to face the ultimate battle, the people versus the banks. Without a legacy of individual value and human dignity, there can be no civilized life for America's youngsters to inherit. Any "unjust costs" left by baby boomers are miniscule.

This continuing loss of liberty and growing tyranny, paid for by taking money from the taxpayers until even their very homes are wrenched from their estates and given to the international bankers, is planned. It was planned to wipe out America’s strength, i.e., her middle class and the inheritance it hoped to leave posterity.

A newsletter I received around 2001 from Aetna, at the time my 401k plan provider, contained a small news item that Fed Chair Alan Greenspan was concerned over the large inheritances that  boomers would receive from their parents.  Well, I believe he and Bernanke and Congress have taken care of that worry as both baby boomers and their parents deliberately are being forced to eat the seed corn of their estates --  their homes to reverse mortgages and  the value of their social security and pensions to double-digit inflation.

Why would Congress at the behest of the international bankers do this? The reason is to decimate the ethical past and moral compass of America’s middle class and its financial strength to oppose and resist world socialism, i.e., world hegemony.

It’s all in the Obama-Goldman Sachs-Robert Rubin road map for social security “reform” to increase the retirement age while cutting back and devaluing benefits.

Already, as Fox News reports, except for low-income workers people retiring today are part of the first generation of workers who have paid more into Social Security taxes during their careers than they will receive in benefits after they retire.

In fact, most high-income workers started getting less in benefits than they paid in taxes in the 1990s, according to data from the Social Security Administration. 

The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating. -Thomas Jefferson

Something is very wrong.

plane jain's picture

Sucking the marrow from the bones.

I like the idea of granny blowing it all on cruises and slots.  Looks like just another way to scrape the barrel clean, bank gets the property, taxpayers get any debt left over.

IME a reverse mortgage is more about desperation than partying on.  I'm sure plenty of boomers are in the same situation as our parents.  

My mom had saved and took a big hit in the market at the same time she was laid off her job.  Unable to get another good one at her age, though she has had a couple pocket change part time gigs.  Now can't even find that and she is desperate, trying to survive on SS and pension of $14K a year.  Type 2 diabetic and has had to go without meds the last few months of the year once she hits the donut hole.  

My in laws were small business owners.  Sold out in 2003 IIRC.  Went big into a stock that has now gone to zero.  Invested in a natural gas deal that I suspect was a scam.  Not quite wiped out, but close, and IIRC they get $1400 a month or so.

Tom_333's picture

Big inheritances are a problem...?

You know there´s a problem when you read something like that. I would say we are staring a very malveolant problem right in the face. What was the official reasoning around this "problem".

Problem - my ass. There´s more real money around to further invest and put to good use and avoid living off the tax dollar. Problem? This is insane.

ParkAveFlasher's picture

Generation Dessikation, bitchez!

dogbreath's picture

Fumatious Shitutious

Why haven't you rewritten your mortgage at a lower rate.  Or are you locked in.

Let raise a glass to death.  Regards


DadzMad's picture

My dad just retired at the first of the year.  He did pretty well.  Skilled machinist, lived frugily, he's got plenty to get by.  Called him last week to see what he's been up to and he just put in a 50 hour work week.  He said reitrement wasn't all it's cracked up to be, he was bored in less than three months and driving my step mom crazy, so he went back to work part time for cash at a friends machine shop.  We talked about how this retirement idea is a relatively new phenomenon, generationally speaking.  All of his grandparents died on the farm and were happy up till the end while his parents rotted away in front of the TV watching Wheel of Fortune and the ballgame.  He said what he does like is he can take off anytime he wants to go fishing.  Walleye's are starting to run..... 

detached.amusement's picture

I remember being able to catch Walleyes back in the day in Lake Champlain before it became polluted as all hell.  Good eatin', those.

post turtle saver's picture

lemme get this straight... you have a 1998 7.5% mortgage (which I assume must have been a 30 year given the time frame and rate), and you didn't take advantage of refi to a 15 year at 3 some percent? even when you had money in the bank to do it???

do you have any idea how much money you would have saved over the course of the loan if you'd done that???


when are people going to grow up and stop acting like life doesn't require math? Jesus H. Christ on a toothpick...

OldPhart's picture

You are correct and the critiscm is warranted.  At the time of opportunity, the offers of re-fi wanted me to borrow a minimum of $25k more than what my mortgage balance was.  I refused to go further in debt, even though the rate was shown as lower.

I didn't trust the paper that the offers came on.  I didn't go further into debt and I didn't want to find that my interest magically changed into a variable rate.  I have no trust for bank contracts.  Never have, never will.

post turtle saver's picture

understood... not everyone has access to a credit union... and the tactic you note is how they basically keep you from saving yourself money with the refi... most people were looking at those deals and saying "ooo free extra $25k at a lower rate" or equally bad logic, not realizing that missed the whole point of doing the refi...

sorry if I came off too harshly... I wish you well

Zoomorph's picture

Life requires a lot of skills and nobody ever has all of them. There simply isn't enough time to know everything in this infinitely complex world. I'm sure we're all missing out on opportunities all around us.

BringingTheRukus's picture

Paging Dr. Kavorkian. Stat.

ebworthen's picture

Pretty sure my Mom did this last Fall so she could keep her standard of living and keep "helping out" some of her adult children (dirty little secret my Sister helped her arrange).

Not to mention the Fred Thompson/Henry Winkler/Robert Wagner non-stop commercials pushing this crap.

Tapeworms in a dying person, maggots on a corpse.

Parasites seem to be all that is left.

nickels's picture

Make sure your kids get nothing. They never call anyway.