Reverse mortgages have been around for quite a while and have seen many changes along the way.
1961, the reverse mortgage is born. The very first reverse mortgage is written to Nellie Young in Portland, Maine by Nelson Haynes of Deering Savings & Loan. Haynes designs this very unique type of loan to help the widowed wife of his high school football coach to stay in her home after losing her husband.
At a congressional hearing in 1969, the concept of a reverse mortgage intrigues the Senate Committee on Aging. When a UCLA professor named Yung Ping Chen states his support for an “actuarial mortgage plan in the form of a housing annuity” that would allow homeowners to stay in their homes while enjoying their saved home equity, the chairman expresses great interest.
During the first congressional hearing concerning reverse mortgages in 1983, the Senate approves a proposal by Senator John Heinz to have reverse mortgages insured by the Federal Housing Administration (FHA). Heinz also suggests that the idea of home equity conversion should be further explored.
In 1984, American Homestead sets the foundation for government-insured reverse mortgages when it unveils the Century Plan, which is the first mortgage that keeps the loan in place until a borrower permanently leaves the residence.
In 1987, Congress passes an FHA insurance bill called the Home Equity Conversion Mortgage Demonstration, which is a reverse mortgage pilot program that insures reverse mortgages.
In 1988, HUD gains the authority to insure reverse mortgages through the FHA when President Ronald Reagan signs the reverse mortgage bill into law. The reverse mortgage government insured loan is established.
In 1989, the first FHA-insured Home Equity Conversion Mortgage (HECM) is issued to Marjorie Mason of Fairway, Kansas by the James B. Nutter Company of Kansas City, Missouri.
In 1990, the HECM program has its 1 year anniversary, with HUD reporting to Congress that the program is steadily growing.
In 1994, Congress begins requiring lenders to disclose to borrowers the total annual loan costs at the start of the application process. This allows borrowers the chance to compare lender prices and shop around.
In 1996, the reverse mortgage program is adjusted to allow for loans on residences that have up to four units as long as the borrower occupies one unit as their primary residence.
In 1997, HECM reverse mortgage lender participation is at its highest number at 195.
1998 marks the year that the HECM is officially permanent! The HUD Appropriations Act makes the program official while Congress allots funds for counseling, outreach, and consumer education. Safeguards (like full disclosure of fees) are implemented to protect borrowers from unnecessary charges.
In 2000, HUD announces an increase in origination fees to either 2% of the Maximum Claim Amount, or $2000. HUD hopes this change will encourage more lenders to participate in reverse mortgages because of the higher revenue.
In 2001, HUD and the American Association of Retired Persons (AARP) team up to begin testing and training approved counselors. They also begin the establishment of consistent HECM counseling policies and procedures.
In 2004, the FHA implements rules of HECM refinancing. HECM refinancing allows existing HECM borrowers the chance to refinance and pay only the upfront Mortgage Insurance Premium and the difference between the original appraised value and the new appraised value/FHA loan limit.
In 2005, the First HECM refinances are made.
In 2006, the national loan limit of $417,000 is established. Also that year, AARP conducts its first national survey of reverse mortgage borrowers which reveal that the primary motivation for getting a reverse mortgage for borrowers is to plan for emergencies and to improve the quality of life.
In 2008, the first baby boomers turn 62, which results in a surge of loans which exceed past records. The SAFE Act is also established that year, which requires states to implement consistent procedures when licensing and registering HECM loan originators. Also, the Housing Economic Recovery Act puts up a few safeguards for consumers such as a limit on origination fees, rules against cross-selling, and guidelines for counseling independence.
In 2009, The HECM for Purchase is introduced. For the first time in reverse mortgage history, borrowers are allowed to purchase a new home without paying monthly mortgage payments. That year, Congress also increases the HECM loan limit to $625,500; meanwhile borrower proceeds are reduced when the FHA lowers principal limits for HECM’s by 10%.
2010 proves to be a busy year for the reverse mortgage. HUD introduces a new reverse mortgage option called the HECM Saver. Characterized by lower upfront Mortgage Insurance Premiums and closing costs, the HECM Saver makes the reverse mortgage more affordable by allowing homeowners to borrow a smaller amount than the standard reverse mortgage.
Also that year, AARP conducts another national survey of reverse mortgage borrowers which reveals borrower’s motivation for getting RM to be has changed from “quality of life improvement” to “debt alleviation”.
In addition, the Federal Housing Administration makes two changes:
– They increase Mortgage Insurance Premium from 0.25% to 1.25% per year
– They lower the interest rate floor from 5.5% to 5%, which is the first time in Reverse Mortgage history.
In 2013, HUD releases new HECM policies that make the product safer, stronger, and less risky for the borrower. These changes include a policy that allows borrowers to tap into only a portion of their equity the first year. They can then tap into the rest of their equity after the first year.
In 2014, HUD began to finalize guidelines for Financial Assessment, which will begin to be implemented in 2015. Financial Assessment will require lenders to analyze potential borrowers’ income sources and credit history to determine whether or not borrowers must have a mandatory set-aside of funds from proceeds to cover necessary expenses such as property taxes and homeowners insurance. These steps are expected to yet again protect consumers and reduce the number of borrowers who might fall into default from failing to comply with loan terms like continuing to pay for taxes and insurance.
In 2017, the loan limit for HECM reverse mortgage loans increased from $625,500 to $636,150. This is the first time the HECM lending limit has been raised since President Barack Obama signed into law the American Recovery and Reinvestment Act in 2009. Announced by the FHA on December 1, 2016, it went into effect on January 1, 2017 and will continue through December 31, 2017. The increase is 150% of the national conforming limit of $424,100 and is due to rising home prices.
Source: Mortgagee Letter 2016-19
In 2018, the loan limit for HECM reverse mortgage loans increased from $636,150 to $679,650.
Source: Mortgagee Letter 2017-17
In 2019, the loan limit for HECM reverse mortgage loans increased from $679,650 to $726,525.
Source: Mortgagee Letter 2018-12
In 2020, the loan limit for HECM reverse mortgage loans increased from $726,525 to $765,600.
Source: Mortgagee Letter 2019-20
In 2021, the loan limit for HECM reverse mortgage loans increased from $765,600 to $822,375.
Source: Mortgagee Letter 2020-42
In 2022, the loan limit for HECM reverse mortgage loans increased from $822,375 to $970,800.
Source: Mortgagee Letter 2021-29
In 2023, the loan limit for HECM reverse mortgage loans increased from $970,800 to $1,089,300. This is the first time in the history of the program that the lending limit has surpassed the $1 million dollar mark.
Source: Mortgagee Letter 2022-21
In its 62 years from its birth in 1961 to present day, the reverse mortgage has developed significantly, and there’s no end in sight. In 2022 we’ve seen the Federal Reserve increase interest rates, which has served to reduce borrowing power, however, the reverse mortgage has a bright future of continually improving and getting only better with time.
Additional Resources: Peter Bell Testimony of the HECM Program before the Subcommittee on Insurance, Housing & Community Opportunity
House Financial Services Committee