Fixing a Dysfunctional Market: The Case of HECM Reverse Mortgages

Abstract

The HECM reverse mortgage program offers senior home owners a range of well-designed draw options backed by federal insurance. However, although seniors’ need for income supplementation is large and growing, the program has barely dented the need. Major deterrents have been fear, ignorance, and distrust arising out of a dysfunctional market structure. This article lays out a three-step program for HUD to convert the existing “gotcha market” into a shopper’s market. Step 1 is to provide basic education on fund availability to the large group of senior home owners who could profit from an HECM reverse mortgage but don’t know it. Step 2 is to allow seniors who want to explore the potential uses of an HECM to find the exact amounts they can draw, including trade-offs between the different ways of drawing funds, without contacting a lender. The functionality for implementing steps 1 and 2 has been developed by my firm, Mortgage Professor LLC, and will be provided to HUD (and supported) free of charge. Step 3 is for HUD to certify multilender HECM origination entities, termed “HECM CLOs,” where seniors can access the offerings of multiple competing lenders.