Reverse Mortgage History

What is the history of reverse mortgages?

Who invented the reverse mortgage? How long have they existed? How much have they changed since they were conceived?

When did reverse mortgages start?

The first known use of a reverse mortgage in the U.S. occurred in Maine in 1961. It was created by a savings and loan specifically to help a widow remain in her home following the untimely death of her husband.

Like many reverse mortgage borrowers to follow, the widow had little to live on following her husband’s death, but the couple did have significant equity in their home. So the financial institution devised a way to let the widow live off the home’s equity. Thus, the reverse mortgage was born.

It took several years for the concept to catch on nationally, however. In 1969, a UCLA professor testifying before the U.S. Senate Committee on Aging proposed an “actuarial mortgage plan in the form of a housing annuity.”

The professor’s comments were well received, but only a handful of private lenders jumped on the opportunity in the 1970s. The concept didn’t garner full federal government support until the 1980s.

Congressional discussion about reverse mortgages began in the early part of the decade, and in 1988, President Ronald Reagan signed a law that gave the U.S. Department of Housing and Urban Development (HUD to insure reverse mortgages through the Federal Housing Administration (FHA).

The first FHA-insured Home Equity Conversion Mortgage (HECM) was issued the following year in Kansas by Kansas City-based James B. Nutter Company.

Ongoing changes to protect consumers

The HECM program remained mostly unchanged during its early years, but as they become popular with lenders and consumers, they also garnered more government scrutiny. Over the past ten years, the federal government has added regulations or changed current rules to better protect homeowners and to minimize the risk of loan default:

  • In 2004, the FHA implemented rules to allow the refinancing of existing HECMs.
  • In 2006, a national limit on how much of a home’s value can be considered for a reverse mortgage loan was introduced. The first limit was set at $417,000; a few years later it was raised to $625,500, where it currently stands.
  • In 2008, Congress added safeguards for consumers, including limits on origination fees, rules against cross-selling (e.g., pushing borrowers also to buy products like annuities as a condition of getting a reverse mortgage), and guidelines for counseling.
  • In 2009, the HECM for Purchase program was introduced, allowing seniors to purchase a new home using a reverse mortgage.
  • In 2013, the FHA established a limit of how much borrowers can access in the first year, setting it at 60 percent of the overall principal limit.
  • In 2014, HUD implemented safeguards for widows and widowers who were not part of the reverse mortgage contract, establishing them as eligible non-borrowing spouses. The designation protects surviving spouses from having to move out and sell their homes following the death of the reverse mortgage borrower.
  • In 2015, the FHA started requiring income and credit assessments of borrowers to minimize the risk of defaults caused by delinquent property tax and insurance bills.

Reverse mortgage trends

There have distinct trends in the volume of reverse mortgage loans, the characteristics of borrowers, and the method of how homeowners receive their reverse mortgage funds.

The number of reverse mortgages grew slow and steady through the 1990s, reaching just shy of 20,000 annual loans in 2003. Growth exploded after that, with 40,000 HECMs originated in both 2004 and 2005, and nearly 80,000 in 2006.

The industry really received a jumpstart in 2008 when the first Baby Boomers, at that time the largest generation in U.S. history, turned 62, making them eligible for reverse mortgages. The industry peaked in 2009 with nearly 115,000 loans originated, but the number has fallen every year since.

The average age of reverse mortgage borrowers has steadily declined since 1990. The average age of borrowers in the early years of HECMs was over 76. Today, the average is under 72.

In 2008, the fixed-rate lump sum option was introduced, and it’s quickly become a popular option, accounting for almost 80 percent of HECM originations. Before this option, the HECM line of credit was by far the most popular option, with monthly payments accounting for a small fraction of reverse mortgages since the 1990s.