There are two big trends that are driving more older homeowners to loan products: rising consumer prices and and aging American population.
As lenders continue to seek out new opportunities to shore up mortgage loan volume lost in the downturn, reverse mortgage lending continues to attract attention. One look at the most recent data shows why.
Recently, Reverse Market Insight released industry data from May 2023 showing that only 2 of the top 8 reverse mortgage lenders lost loan volume during the month. In addition, 3 leading companies saw double-digit growth in May.
Overall, May brought encouraging signs, with total volume rising 21.8%, the second highest reading of 2023. Equity Takeout cases issued (new reverses that are neither purchase nor refinances) bounced back 21.8%, purchase (H4P) rose 44%, and H2H refinance case numbers gained 14.1%.
This shouldn’t have been much of a surprise, because there are at least two big trends that are driving more older homeowners to these loan products.
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) in July 2023 increased 3.2% over the last 12 months to an index level of 305.691 (1982-84=100). For the month, the index increased 0.2 percent prior to seasonal adjustment.
The index for shelter was by far the largest contributor to the monthly all items increase, accounting for over 90% of the increase, with the index for motor vehicle insurance also contributing. The food index increased 0.2% in July after increasing 0.1% the previous month. The index for food at home increased 0.3% over the month while the index for food away from home rose 0.2% in July. The energy index rose 0.1 percent in July as the major energy component indexes were mixed.
The all-items index increased 3.2% for the 12 months ending July, slightly more than the 3.0% increase for the 12 months ending in June. Everything older homeowners need to buy is becoming more expensive.
The Federal Reserve has been raising interest rates in an effort to combat inflation. However, it is unclear how effective this will be. But with higher interest rates, the old rate-and-term refinance loan that worked to solve money problems in the past is no longer available.
This has sent more older borrowers to reverse mortgage lenders.
The second trend involves the number of these borrowers currently in the market. It’s no secret that the United States is facing an aging population. The number of people aged 65 and older is projected to grow from 44.7 million in 2020 to 98.2 million in 2060, an increase of 120%.
The increase in senior citizens is a major demographic trend that is having a significant impact on the United States. But it’s also a significant opportunity for reverse mortgage lenders.
While the FHA’s HECM product requires the borrower to be at least 62 years old, other reverse products will consider borrowers who are 55 and older. As of 2023, there are an estimated 117.8 million Americans aged 55 and older, accounting for 34% of the total population. This number is projected to grow to 170.3 million by 2060, making up 41% of the population.
Given all of this, no one should be surprised that more lenders are looking into originating these products, which is sending many of them to us, as MCP is the leading platform that can originate reverse mortgages as easily as traditional forward mortgage loans. Find out more by contacting us today.
By George Morales, Reverse Mortgage Product Manager at Mortgage Cadence
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