Urban outlines the demographic breakdown of HECM borrowers
Since it was signed into federal law in 1975 the HMDA or Home Mortgage Disclosure Act has provided a wealth of data about mortgage borrowers. The HMDA has three primary objectives: to determine if lending institutions are serving the needs of their local community, to help determine where to best direct public and private investments, and third to identify any possible discriminatory practices.
In its recent report, the Urban Institute writes, “Five findings about the use of reverse mortgages and race add up to one big point: different racial and ethnic groups use reverse mortgages differently, so any changes to the HECM program should minimize the potential for disproportionate impact by race or ethnicity”.
The Urban Institute found the following breakdown of HECM borrowers by race or ethnicity.
*Over 7% of HDMA reports lacked ethnicity data.
One statistic while dramatic is well known. The low utilization of federally-insured reverse mortgages as a means to extract home equity. Out of two and a half million refinance transactions recorded in 2018 1.12 million were HELOCs (Home Equity Line of Credit), 1.09 million were cash-out refinances, 296,000 were closed-out cash-out home equity loans (seconds), and only 31,274 or 1.3% of all refinance transactions were HECMs (federally-insured reverse mortgages).
Black households tend to get a reverse mortgage at older ages than other ethnic groups. The study authors write, “Black homeowners’ delayed use of reverse mortgages likely reflects a much slower pace of home equity accumulation relative to other racial and ethnic groups, as seen in data from the Federal Reserve’s 2016 Survey of Consumer Finances”.
One question asked is if additional underwriting guidelines, insurance premiums, and principal limit factors will disproportionately impact minority homeowners. The authors point to a lack of HDMA for reverse mortgage transactions to draw any conclusion however they note the importance of future HECM changes avoiding disparate outcomes.
Read the Urban Institute study