Various types of reverse mortgages have come and gone since then, but the most popular program today is the official federally-insured home equity conversion mortgage, or HECM (which is often pronounced “heck-um by industry insiders). Originally introduced in 1989, the HECM remains a work in progress as the Department of Housing and Urban Development (HUD) continues to refine and make it work better for seniors.
An Overview of Reverse Mortgage History
The following includes some of the most notable events in reverse mortgage history. These events formed the foundation for and helped to shape the HECM reverse mortgage we know today.
- 1961 – Reverse mortgage history begins in Portland, ME when the Deering Savings & Loan issued a reverse mortgage to the widow of a football coach.
- 1969 – UCLA professor Yung-Ping Chen testifies before Congress on the merits of a “housing annuity” to enable seniors to “remain in their homes” and “realize the fruits of savings in the form of home equity”.
- 1975 – Academics continue researching the feasibility of the reverse mortgage concept. Jack Guttentag, current Emeritus Professor of Finance at Wharton and editor of mtgprofessor.com, publishes a paper arguing that “the reverse mortgage is badly needed.”
- 1981– Interest in reverse mortgages grows even as rising interest rates reduce the viability of the concept. Newsweek promotes the reverse mortgage idea in March 1981.
- 1982 – President Reagan signs the Depository Amendments Act of 1982, which (in part) removes some legal hurdles for reverse mortgages.
- 1983– Senator John Heinz proposes further investigation into the feasibility of a federally-insured reverse mortgage. The Senate approves the proposal and a Senate/House conference committee calls for a HUD study of the idea.
- 1984 – American Homestead generates significant interest in reverse mortgages when it unveils its Century Plan and further lays the groundwork for government-insured reverse mortgages.
- 1985 – HUD holds a conference to study the feasibility of a federally-insured reverse mortgage.
- 1986 – HUD concludes their study and chooses to oppose the idea of an FHA-insured reverse mortgage. AARP offers a critique of the decision written by Ken Scholen, who is widely considered the “godfather” of the reverse mortgage industry.
- 1987 – Congress passes a reverse mortgage pilot program called the Home Equity Conversion Mortgage (HECM) Demonstration as part of the sweeping Housing and Community Development Act of 1987. The popular reverse mortgage program we know today comes into being.
- 1988 – President Reagan makes reverse mortgage history by signing the Housing and Community Development Act of 1987 into law. HUD invites up to 50 lenders to participate in the new HECM pilot program, which will insure up to 2500 HECMs through September 1991. AARP partners with HUD to train HECM counselors.
- 1989 –The first FHA-insured reverse mortgage is issued to Marjorie Mason of Fairway, KS by the James B. Nutter & Company. Fannie Mae agrees to purchase FHA-insured HECMs to provide liquidity to the program.
- 1990 – A total of 157 HECMs are issued. The HECM program is extended through 1995 and the volume cap raised to 25,000. The program is opened up to any FHA-approved lender.
- 1991 – The program continues to grow slowly as it gains its “footing”. A total of 389 HECMs are issued.
- 1992 – HUD submits a favorable report about the HECM program to Congress. As of mid-August 1992 a total of 2,155 loans had been issued.
- 1994 – The HECM program begins to grow rapidly. As of July 19, a total of 7991 HECMs had been issued.
- 1995 – Fannie Mae rolls out its own reverse mortgage called the HomeKeeper. The HECM volume cap is raised to 30,000 and the program is extended through 1996.
- 1996 – The volume cap is raised to 50,000 HECMs and the program is extended through 2000. The restriction on securing the HECM with only single-family residences is changed to include owner-occupied 1-4 family residences.
- 1997 – The number of active lenders peaks at 195 and begins to decline due to lender concerns over the profitability of the program. The National Reverse Mortgage Lenders Association (NRMLA) is established to represent lender interests in Washington, DC.
- 1998 -The HECM program is made permanent and the volume cap is raised to 150,000 HECMs.
- 1999 -Total HECMs issued reaches 38,000. Of those, 9063 were paid in full and just 388 resulted in claims against the insurance fund. The program is a decade old and considered a success. The insurance fund has built up substantial reserves to cover future claims.
- 2000 – HUD increases max allowable origination fees to attract more lenders. Servicers report a “small but increasing” number of borrowers falling behind on property taxes and insurance. HUD receives funding to partner with AARP to improve HECM counseling policies and procedures.
- 2004 – FHA implements new HECM refinance rules that allow borrowers to “pay the upfront MIP on the difference between the original appraised value and the new appraised value (or FHA loan limit, whichever is less)”.
- 2005 – The volume cap is raised again from 150,000 to 250,000 loans.
- 2006 – The volume cap is raised again to 275,000 loans and individual county loan limits are replaced with a standardized national loan limit of $417,000. Bank of America Securities, Deutsche Bank, and RBS Greenwich Capital begin issuing private-label HECM securities that provide a liquidity source other than Fannie Mae.
- 2007 – Ginnie Mae begins buying reverse mortgages, which provides more competition to Fannie Mae and sets the stage for Fannie Mae to exit the business. AARP reports that 93% of borrowers surveyed report satisfaction with the HECM program. Private-label HECM securitization ends as the financial crisis unfolds.
- 2008 – The industry makes reverse mortgage history as HECM endorsements peak at 115,052. The housing bubble bursts and the financial crisis takes hold. The SAFE Act of 2008 is passed to encourage the adoption of uniform procedures for licensing and registering of HECM loan originators. HUD announces the HECM for purchase program. FHA issues clarification that enables the introduction of a fixed-rate, closed-ended HECM. Wells Fargo is the leading lender in the industry with roughly 20% market share. The first baby boomers, a generation composed of 43 million households, become age-eligible for a HECM reverse mortgage.
- 2009 – Congress increases the HECM loan limit to $625,500. HUD reduces principal limits to reduce risk to the mortgage insurance fund due to falling home values. Fannie Mae scales back involvement in the reverse mortgage market, leaving Ginnie Mae as the sole buyer/issuer of HECM mortgage backed securities (HMBS) or guarantees. The fixed-rate HECM becomes the dominant product of choice versus the adjustable-rate HECM.
- 2010 – HECM Saver is introduced, which reduces upfront mortgage insurance (UFMIP) in exchange for lower proceeds. HUD again reduces principal limits to reduce risk to the mortgage insurance fund due to falling home values. FHA increases ongoing MIP from 0.50% to 1.25% to help shore up the mortgage insurance fund.
- 2011 – The Dodd-Frank Act transfers regulatory authority of the HECM to the Consumer Financial Protection Bureau (CFPB). Leading lenders Wells Fargo and Bank of America announce they are exiting the reverse mortgage business.
- 2012 – HECM defaults due to nonpayment of property taxes and homeowners insurance reach nearly 10%. Another leading lender, MetLife, also exits the reverse space.
- 2013 – Congress passes the Reverse Mortgage Stabilization Act of 2013, which authorizes HUD to takes steps to shore up the mortgage insurance fund. HUD ends the HECM Saver and announces changes that substantially limit the amount of proceeds that can be accessed within the first 12 months of the reverse mortgage.
- 2014 – HUD announces new financial assessment guidelines designed to stem defaults due to nonpayment of required property charges (property taxes, insurance, HOA dues, etc.). Due to program changes made in 2013, the adjustable-rate HECM becomes the dominant product of choice over the fixed-rate HECM.
- 2015 – Relative newcomer American Advisors Group achieves 24% market share as the leading lender in the industry by volume. FHA announces new protections for non-borrowing spouses who are under the age of 62.
- 2016 – FHA increases the HECM loan limit to $636,150.
The Reverse Mortgage Today and in the Future
The number of reverse mortgages funded in 2015 was significantly lower than the peak in 2008, but reverse mortgage history continues with the industry likely poised for substantial growth in the future. Though the HECM is still a work in progress, today it’s better than ever. Seniors and financial planners increasingly recognize that a reverse mortgage can be a fantastic addition to a solid financial plan for retirement.