Reverse mortgages edge up as U.S. economy squeezes older Americans

Several U.S. lenders told the Financial Times that sales of reverse mortgages have jumped this year as looming cuts to government benefits and persistent inflation have weighed heavily on older people. Photo by Getty Images/iStockphoto

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Cash-strapped American seniors are turning to reverse mortgages, a controversial type of loan that soared during the financial crisis, as a tightening economy drives aging homeowners to find ways to make ends meet.

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The number of federally insured reverse mortgages rose more than six per cent in the 12 months ending September, according to government data compiled by the National Reverse Mortgage Lenders Association.

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Several U.S. lenders told the Financial Times that sales of reverse mortgages have jumped this year as looming cuts to government benefits and persistent inflation have weighed heavily on older people.

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“In terms of the drivers here, it’s really that the math doesn’t math,” said Sarah Edelman, executive vice-president of policy and programs at housing non-profit National Community Stabilization Trust. “You’ve got people living longer with less retirement resources.”

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With a reverse mortgage, a borrower, typically age 62 or older, gets cash from a lender in exchange for the equity in their home, while continuing to live there and pay taxes and insurance. The loans must be repaid with interest at the end of their term, usually when the borrower moves out, sells the home or dies.

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Reverse mortgages are controversial because of the increased risk of foreclosure if customers fall behind on their tax or insurance payments.

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Mark Ferguson, 80, is typical of the borrowers turning to reverse mortgages. The retiree, who lives in Washington state, receives about $1,800 a month in financial support from the United States government.

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Ferguson took out a reverse mortgage with Finance of America 11 months ago. When he was confronted with a bill for new dental crowns that he struggled to afford, he used his reverse mortgage payments to cover it.

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Specialist lenders Finance of America, Longbridge Financial, New American Funding and Rate all said they had seen a significant rise in the number of customers seeking reverse mortgages, owing in part to increasing cost-of-living pressures.

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“For several quarters now, we have been hitting or exceeding forecasts for overall home volumes within the space,” said James Mittleman, an executive at Finance of America. “There is definitely a growing appetite for the products.”

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Call inquiries about reverse mortgages at New American Funding, a California-based lender with a US$73 billion loan book, were up 20 per cent compared with the year before, the company said.

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Rate said its annual growth in reverse mortgage clients was 64 per cent this year.

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Despite recent growth, the number of new reverse mortgages remains far below its financial crisis peak and lower than recent highs reached during the Biden administration.