Mortgage loan officer working to help overcome past stigma behind reverse mortgages
Reverse mortgages, also known as home equity conversion mortgages (HECM), continue to be among the more misunderstood lending products on the market. One loan officer believes that past abuses damaged HECM’s reputation, and it’s taking time for it to recover.
The National Reserve Mortgage Lenders Association (NRMLA) reported declining HECM loans for the last two fiscal years. After reporting 64,489 reverse mortgages in FY 2022, the number in FY 2023 was nearly half that, at 32,991. It dropped again in FY 2024 to 26,521.
With FY 2025 set to end on September 30, originations of reverse mortgages are on track for a third straight decline. There have been 16,994 in the current fiscal year, with about a third of the year remaining.
Renee Coleman (pictured top), mortgage loan officer at CrossCountry Mortgage, is a certified reverse mortgage professional (CRMP). She said they have a bad reputation because regulations were much different years ago.
“Other countries have been doing it for years,” Coleman told Mortgage Professional America. “In the States, it’s been around since 1989, so it’s not new. It has been around for a long time, but it’s just a little more accepted in other places. It wasn’t abused in other countries as it was here for a time.”
Even now, with better regulations in place, Coleman notes there are parts of the country where they are widely used, and parts where they aren’t used at all.
“California does a ton of reverse mortgages,” she said. “They’re well accepted, and people know about them. I live in the Northeast. I live in Boston. We’re a very conservative bunch here, and they are a lot more hesitant to do them.”
“It’s not right for everyone”
Coleman said things changed in 2015 to clean up regulations and make the reverse mortgage a product that people could trust.
“Prior to then, if there were two spouses and only one was on the loan, and that spouse passed, the loan comes due and the remaining spouse got kicked out,” she said. “Now, if there are two spouses and only one is on the mortgage, the second spouse doesn’t get kicked out of the house. They can stay for their lifetime.”
Another major change in the HECM process is borrowers are required to go through financial counseling before taking out the mortgage.
“Before they can do a loan, they have to sit down with a financial counselor,” Coleman said. “It’s basically all the information I’ve presented to them about the mortgages, but it’s unbiased to make sure they understand the program. They know what they’re getting into, and that nobody is forcing them to do this loan.
“We encourage the kids to be on the call with them. We encourage financial advisors, estate planners, whoever wants to be on the call. I want them to understand it.”
She said there are two primary reasons why she would tell a client that a reverse mortgage might not be the right product for them.
“The first one is if someone is only going to stay in the home for a couple of years,” Coleman said. “They’re expensive. If you’re going to stay in the house for a length of time, it pays for itself. But if you’re only staying a year or two, it might not be worth it.
“The other is a case where Mom and Dad put a reverse mortgage on the family vacation house. When they pass, they leave the house to the kids. The kids want to keep the house, right? Somebody has to have the means to pay off the reverse.”
Clearing up misconceptions
Coleman is one of a couple of hundred CRMPs in the nation. She likes to clear up misconceptions about reverse mortgages, so people will understand how useful of a tool it can be.
“It’s an equity loan,” she said. “You’re borrowing the equity in the house. It’s a loan, and it has to be paid back. It’s just that the payments are deferred. The loan comes due when you no longer live in the house as your primary residence. It’s like any other mortgage.”
The holder of the reverse mortgage can choose to sell the house and pay off the mortgage, or, when they pass away, if the house is left to survivors, they will have to refinance with a new mortgage. It is just like any other non-assumable mortgage loan.
With rising costs and limited senior housing, downsizing is becoming essential for many retirees. Elena Boland (pictured) of Wholesale Mortgage Services highlights how seniors are moving to smaller, manageable homes to cut maintenance and free up equity.https://t.co/3ganUdxnVv
— Mortgage Professional America Magazine (@MPAMagazineUS) February 19, 2025
The loan isn’t just for those on fixed incomes struggling to pay bills. Coleman said she has seen wealthy clients use it to use non-taxable loan proceeds instead of taking money out of retirement funds which would be taxable.
“I've had advisors say to me, ‘All my clients are wealthy. They don't need the money. There's no reason for them to do a reverse mortgage.’ However, the proceeds from a reverse mortgage are not income and, therefore, not taxable. If you've got investment portfolios and are withdrawing those funds to live off of, it's likely taxable income.
“Rather than taking it all from the retirement portfolio, take some of it from the equity in the house, because that's not a taxable event. So, we're leaving more in the assets under management for the financial advisor, which is good for them, but it's good for the borrower too, because their funds will continue to grow and earn in the market by leaving it.”
One of the more common uses of reverse mortgages are for a line of credit against the equity in the house. However, they can be used in refinance situations, as well as home purchases.
“Most people don’t know you can buy a house with a reverse mortgage,” Coleman said. “The amount of equity is based on three criteria. It’s based on your age, the value of the home, and the interest rate. The older you are, the more you can borrow. On FHA HECM programs you’ve got to be at least 62 years old. Some states have programs that go down to 55.
“If you’re 62, it’s around 30% to 35% of the equity. When you get up into your 80s, it’s closer to 50% of the equity. It’s an FHA loan. You buy the house, we’ll tell you how much you can borrow, and the rest you’ve got to put down. We see it a lot with downsizing or right sizing.”
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