Meet the new ‘needs-based’ borrower

Get ready to discard any old notions of who a needs-based borrower really is

Early in my reverse mortgage career, the term needs-based borrower was bandied about. Typically it meant someone who was house-rich but cash-poor; often very cash poor. Their income sources were typically Social Security and a modest monthly pension payout. For some cash flow was tight enough it required them to work part-time just to make ends meet. 

The year was 2005 and the annual-adjusted inflation rate was 3.39%. Just high enough for many Americans to complain about but generally a concern limited to the working-poor or retirees living on a fixed income.

Home values surged each year and gave some of America’s poorest retirees the means to transform their retirement by simply eliminating required mortgage payments. HECM loan volumes began to surge against the backdrop of a strong national TV campaign and major bank distribution channels that increased boosted the reverse mortgage’s credibility. 

Seventeen years later HECM continues to meet the needs and wants of older homeowners. However, many who never thought they would need to supplement their monthly cash flow, much less ever get a reverse mortgage may, in fact, become our newest ‘needs-based’ borrowers.

For example, Earl and Lorna Wilson have amassed about $570,000 in retirement savings, most invested in the stock market and mutual funds. Each month they withdraw $3,050 selling off investments or shares. Those withdrawals along with their Social Security benefits bring in just over $4,500 a month of income. Their monthly principal and interest mortgage payments are $1,325. While their mortgage payments are fixed, their monthly living expenses have increased by over 11% thanks to inflation. Their portfolio’s earnings have diminished considerably in the new Bear market.

Then came the news the Wilsons never wanted to hear. Last Thursday their financial advisor calls to inform them that their savings will only last another 9 years, instead of the originally-projected twenty years due to inflation and an underperforming market. Now, this once comfortably-retired couple is terrified they could actually outlive their money- that is unless something changes. Earl and Lorna who represent the ‘mass affluent’ retiree have just become the new needs-based borrower of tomorrow.

But there’s good news. Older homeowners like the Wilson’s are estimated to hold nearly 40% of the nation’s estimated $27.8 trillion of home equity. That is according to data from the Federal Reserve and the National Reverse Mortgage Lenders Association’s RiskSpan index. For the first time, these retirees and their advisors may be forced to reconsider the role of housing wealth in creating a more robust and sustainable retirement. 

With the vast majority of age and equity-eligible households not having a reverse mortgage, the potential to expand both reverse mortgage awareness and acceptance remains a bright spot amid a tumultuous market and economy. In the end, inflation and a bear market will leave all but the wealthiest feeling the pangs of need. 


Melinda Hipp June 21, 2022 at 6:25 am

Loved this article, Shannon. It was a quick and easy idea on how to reach these folks that just recently retired and now are facing a shortfall. Thanks for bringing us a way to show a bright spot to our clients.

Shannon Hicks June 21, 2022 at 9:14 am

Thank you, Melinda!

JIM CULLEN June 22, 2022 at 7:54 am

This is most definitely the scenario I am seeing more and more. I would safely say that 75% of new clients are looking to retire an existing mortgage and eliminate the monthly principal and interest payment. Unfortunately with very low principal limits many of those folks are not able to pay off the “forward” mortgage without bringing a substantial amount of cash to closing. We definitely need an increase in the PLF to help thse folks.

James E. Veale, MBT June 23, 2022 at 3:59 pm


Here is to “wishin’ and hopin.'” Those were part of the lyrics to a song that Dusty Springfield made popular in 1964. And, yes, those lyrics are still true today. I am afraid without the proper message and support, that is all we can do when it comes to higher PLFs.

Despite all that has been said about the 10/2/2017 PLF and MIP changes reflected in Mortgagee Letter 2017-12, the fact is HUD instituted those changes to protect the MMIF (Mutual Mortgage Insurance Fund) which is overseen by FHA. Personally, I believe that the changes have not been all that effective when looking at the projected discounted cash flow for each HUD fiscal year since the fiscal year ended 9/30/2017.

NRMLA is one body that could carry the water for such change. Are they, or will they? Only time will tell. While the originators in the industry support increases, until those who directly oversee the MMIF and/or their superiors support such change, we will continue dreaming about the day when….

So far now, keep up the good fight.


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