New Study Released on Reverse Mortgages for Seniors in Dayton, Ohio

8/14/2019 New Study Released on Reverse Mortgages for Seniors in Dayton, Ohio

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STUDY

Home EquityinRetirement

Te MetLie Study on the Changing Role o Home Equity

and Reverse Mortgages

JUNE 2009

Tapping


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The MetLife Mature Market InstituteEstablished in 1997, the Mature Market Institute (MMI) is MetLies research organization and

a recognized thought leader on the multi-dimensional and multi-generational issues o aging and

longevity. MMIs groundbreaking research, gerontology expertise, national partnerships, andeducational materials work to expand the knowledge and choices or those in, approaching,

or caring or those in the mature market.

MMI supports MetLies long-standing commitment to identiying emerging issues and innovative

solutions or the challenges o lie. MetLie, a subsidiary o MetLie, Inc. (NYSE: ME), is a leading

provider o insurance and nancial services to individual and institutional customers.

MetLie Bank is a provider o orward and reverse mortgages.

For more inormation about the MetLie Mature Market Institute, please visit:

www.MatureMarketInstitute.com.

Contact:

MetLie Mature Market Institute

57 Greens Farms Road

Westport, C 06880

(203) 221-6580 Fax (203) 454-5339

[email protected]

National Council on AgingTe National Council on Aging (NCOA) is a nonprot service and advocacy organization

headquartered in Washington, DC. NCOA is a national voice or older Americansespecially

those who are vulnerable and disadvantagedand the community organizations that serve them.

It brings together nonprot organizations, businesses, and government to develop creative solutions

that improve the lives o all older adults. NCOA works with thousands o organizations across

the country to help older adults nd jobs and benets, improve their health, live independently,

and remain active in their communities.

Contact:

National Council on Aging1901 L Street, SW, Fourth Floor

Washington, DC 20036

(202) 479-1200

www.ncoa.org

Research or this study was conducted by Barbara R. Stucki, Ph.D., Director o the

Reverse Mortgage Initiative or NCOA.

2009 MetLie


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TAPPING HOME EQUITY IN RETIREMENT 3

Executive Summary............................................................................................................................... 4Introduction.............................................................................................................................................. 6

Home Equity as a Resource ................................................................................................................ 8

How Much Equity Is Le? ..............................................................................................................8

Diverse Needs ...................................................................................................................................9

Issues and Challenges ................................................................................................................... 11

Strategy #1Increase Income Security ...................................................................................... 12

Sustain Cash Flow ......................................................................................................................... 12

Increase Annuitized Income ....................................................................................................... 14


Strategy #2Enhance Financial Resilience ............................................................................... 17

Sel-Insurance ................................................................................................................................ 17

Financial Buer ............................................................................................................................. 19


Strategy #3Improve Debt Management.................................................................................. 21

ranser Debt ................................................................................................................................. 21

Deer Mortgage Payments ........................................................................................................... 22


Implications........................................................................................................................................... 25

Need or Financial Flexibility ...................................................................................................... 25

Guiding Principles ........................................................................................................................ 26

Partnering to Promote Innovation ............................................................................................. 26

Endnotes ................................................................................................................................................. 28

able o Contents


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4

Maintaining nancial security as an older adult

in America has always been dicult and achallenge. odays issues o living longer, risingcosts, ewer dened benet pension programs,and diminished investment values have putextraordinary pressure on nding new sourceso income and creative ways to stretch outaccumulated savings. o supplement theirbudgets, older homeowners are starting totap their housing wealth by taking out home-equity loans or reverse mortgages. But with

little guidance, they are oen unsure abouthow to use this asset as an integral part o theirnancial strategy, rather than as a last-resortnancial resource. Older adults with lower tomoderate incomes ace the biggest challenges,since the bulk o their non-pension wealth isusually tied up in their homes.

Te purpose o this study is to examinedierent options or using home equity torespond to these new retirement realities. Te

study approaches the issue rom a consumer

perspective, since older Americans whoseincomes are under duress are on the rontline o change. Te analysis reviews nationaldemographic data to provide a snapshot ohow households age 62 and older use this assetto cope with nancial shortalls. It examinesrecent surveys o the changing attitudes o olderadults and Baby Boomers to provide a glimpseinto the problems which may lie ahead and theneed or new solutions. Te study also includes

existing economic and housing research thatevaluates the capacity o housing wealth tosustain consumption in retirement.Te aim o this eort is to encourage thedevelopment o a more robust and holisticapproach to managing nancial risk inretirement through the use o home equity.It reects a growing awareness that narrowvisions and simple strategies will not beenough to allow Americans to grow old with

dignity and security. Te diverse data presentedhere also oers a oundation to begin discussionabout new ways to view reverse mortgages aspart o a nancial strategy to increase incomesecurity, enhance nancial resilience, andimprove debt management.

Te research indicates that a small but growingnumber o older people use housing wealthearlier in retirement to maintain nancialindependence, rather than saving this asset as a

last resort. Some are beginning to tap this assetto ensure that they will have enough incometo meet basic expenses. With limited savings,other older homeowners are using a portion otheir home equity as a nancial buer to copewith unexpected health and household expenses.For many older adults, these decisions are drivenby growing consumer debt.

Executive Summary


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Te ndings o this study suggest that homeequity will not oer a simple solution to thegrowing nancial problems o aging Americans.Te choices that these older homeowners make,

and the problems they ace, also highlight thediculty o shiing rom a nancial planningstrategy that aims to preserve housing wealthto one that uses this asset as a retirementresource. As millions o Baby Boomers begin toenter retirement, it appears that many indicateinterest in using this asset to maintain theirliestyle throughout retirement, i necessary.Te ndings suggest that the nancial servicesindustry, policymakers, and advocates or olderadults cannot ignore home equity in their eorts

to promote retirement security.

Te diverse needs and expectations o olderhomeowners indicate that it will be importantto strengthen retirement planning strategiesbeyond simple models o asset accumulationand decumulation. Te study identies our keyprinciples that should guide the developmento a more comprehensive approach to ensuringnancial security in later lie:

Use a holistic, person-centered rameworkStrategies need to shi rom product-ocusedsolutions to comprehensive nancial plansthat include home equity as an integral parto retirement security.

Promote exibilityOlder homeownersneed multiple, aordable products that canmeet both their long- and short-term

nancial goals in retirement.

Address changes over the lie courseFinancial, health, amily needs, and riskschange as people grow older and need to beconsidered when home equity is includedin nancial planning.

Oer solutions that strengthen fnancialsecurityA house is more than a nancialasset; it is also a home. Older homeownersacross the economic spectrum are looking or

cost-eective options that give them peaceo mind through additional sources oretirement income.

Tese guiding principles provide a oundationupon which to develop home-equity productsand public policy that can better serve aginghomeowners. Tey also highlight the importanceo greater mutual understanding and cooperationto accelerate learning and spur the developmento aordable solutions and eective public policy

to better serve older homeowners. Financialproessionals can work with consumer advocatesto strengthen nancial literacy programs orhomeowners o all ages. Organizations that oerreverse mortgage counseling, debt management,and benets counseling need to work togetherto make sure that older Americans use homeequity wisely. By working together, the nancialservices industry, U.S. Department o Housingand Urban Development (HUD), and agingorganizations may be able to speed up thedevelopment and testing o lower-ee reversemortgages and other nancial products thatcan meet the needs o homeowners withmodest housing wealth.

Recent trends show a small but increasinguse o home equity among older homeownerswhen considering the size o the eligiblepopulation. However, they serve to remindus that people are not complacent about their

growing retirement risks. Americans are proudo their resourceulness. Growing numbers oolder homeowners will benet rom additionalsupport and guidance, since the decisions thathomeowners make about this valuable asset willhave long-term ramications or the well-beingo older Americans and or our nation.


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Tis study examines dierent options or using

home equity to cope with nancial shortalls inlater lie. Te study incorporates a wide array oconsumer data to highlight the decisions thattodays older adults make about this asset, andthe need or new solutions as the oldest BabyBoomers begin to enter retirement. Te 2007American Housing Survey and the 2007 Surveyof Consumer Finances provide a snapshot othe prevalence o home loans among olderhomeowners. Other consumer surveys cited

highlight the changing attitudes o older adultsand Baby Boomers toward the house as asource o cash. Tis data provides a glimpseinto the opportunities and issues which maylie ahead and the potential or new solutionsto an evolving challenge.

Te concerns o homeowners in or nearing

retirement put a human ace on a complexeconomic issue. Te choices that they make,and the problems they ace, also highlight thediculty o shiing rom a nancial planningstrategy that aims to preserve housing wealth toone that uses this asset as a retirement resource.Most older adults have limited amounts ohome equity, and ace dicult decisions andtrade-os:

Should they tap housing wealth early inretirement to sustain income security?

Should they wait and use this asset as ainancial buer to cope with an increasinglyuncertain uture?

How will the need to manage growingamounts o consumer debt inluencethese decisions?

It is not just older Americans who worry aboutusing home equity wisely. Policymakers areconcerned that older adults who tap this assetto pay or everyday expenses will have ewerresources to deal with declining health in laterlie. Many states already struggle to pay orpublic programs, such as Medicaid, that assistolder adults with low incomes and those whoare impoverished by health expenses. Financialshortalls among middle income older adultsthat accelerate the need or public assistance

could make these scal pressures evengreater. Some nancial proessionals are alsoquestioning the value o retirement planningmodels based on steady asset accumulationand decumulation in our uncertain economicclimate.1 It is unclear whether such traditionalnancial advice will help older homeowners use

Introduction


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home equity eectively to manage retirementrisks. o provide a more comprehensiveperspective, the study includes existingeconomic and housing research that evaluates

the capacity o housing wealth to sustainconsumption in retirement.

Te aim o this study is to encourage thedevelopment o a more robust and holisticapproach to managing nancial risk inretirement through the use o home equity.Tis eort reects a growing awareness thatnarrow visions and simplistic strategies willnot be enough to allow Americans to grow

old with dignity and security. An importantobjective o this study is to use the experienceso older homeowners, along with existingresearch, to outline specic principles that

can guide the design o new solutions. Tediverse data presented here also oers aoundation to promote discussion amongthe nancial services industry, governmentpolicymakers, and aging organizations. Greatermutual understanding and cooperation canaccelerate learning and spur the development oaordable solutions and eective public policyto better serve older Americans.


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Among todays older adults, the decision toliquidate home equity is oen inuenced bydeeply held values. As a consequence, someeconomists and policymakers have questioned

whether home equity should be viewed as aretirement asset. Older homeowners tend to seethe house as a place to live rather than a sourceo cash. Many are oriented to leaving the amilyhome as a bequest to their children. In 2007,almost 65% o the 21.7 million homeownerhouseholds headed by someone age 62 andolder owned their homes ree and clear o anymortgage (see Figure 1).

Although older adults want to preserve home

equity, many are nding it harder to achievethis goal in the ace o rising economicchallenges. Te proportion o households age65 and older that have a home loan has grownsignicantly in recent years, from 24% in 1999to 32% in 2007.5 Tere are two explanationsor this trend. One reason is that morehomeowners are entering retirement withouthaving paid o their regular mortgage. In2007, about one in ve homeowner householdsage 62 and older still had a regular mortgage(see Figure 1). Due to historically low interestrates at the early part o this decade, many(some older workers and retirees) may havebeen able to renance their mortgage andreduce their monthly payments to levels theyeel they can handle in retirement.

Some older homeowners are also cashing-outa portion o their housing wealth. Over 13%o homeowner households had a home equity

lump sum payment or line o credit in 2007.A signicant proportion o these borrowersare making monthly payments on both anexisting mortgage as well as a home-equityloan. In addition, about 1% o older householdshave taken out a reverse mortgage. Althoughthe number o these borrowers is small,

the rapidly growing interest in and knowledgeo reverse mortgages is oen seen as a signal thatolder homeowners are becoming more willingto use home equity as a retirement resource. Te

popularity o these loans may also reect the actthat, unlike conventional loans, lenders do notconsider a borrowers income or credit historyto determine eligibility or a reverse mortgage.However, the maximum amount that can beborrowed is limited by the value o the home,the homeowners age, and an overall limit setby the Federal Housing Administration (FHA).

Diverse NeedsTe resources that people can accumulate

during their working years have a major impacton their nancial well-being as they growolder. Periods o economic boom and recessionalso aect how people born at dierent timesexperience retirement, and the challengesthey ace. o gain insights into these diverseexperiences, and the need to tap home equity,homeowners households were divided intoour groups. Tese groups reect dierences inannual income and home values, and include:

House-poor and cash-poorLow incomes(under $20,000) and home equity under$125,000.6

House-rich and cash-poorLow incomesand homes worth at least $250,000. 7

Moderate wealthTis group includedtwo types o households: a) those with lowincomes and homes worth $125,000 to

under $250,000, and b) those with moderateincomes between $20,000 and $40,000 andhomes worth less than $250,000.

House-rich or cash-richTis groupincluded two types o households: a) thecash-richthose with incomes above


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$40,000 and homes worth less than $250,000,and b) the house-richthose with moderateincomes between $20,000 and $40,000 andhomes worth at least $250,000.

House-rich and cash-richHouseholds withincomes of at least $40,000 and homes worthat least $250,000.

One in ve older households is cash-poor (seeable 1). Tey are typically among the oldesthomeowners, with a median age o 76. For theseolder adults, whose lives were likely touchedby the Great Depression, the current economicslump is nothing new. Many have learned

over many years how to cope with nancialshortalls. Teir lie experiences may also havelimited their ability to get a good start in lie,which may account or their lower educationlevels. With very modest incomes, and anaversion to debt, most o these older adults do

not have a mortgage. Encouraging them totake out a home loan could be risky, since theirlimited nancial literacy oen makes themtargets or nancial raud and abuse. Te HUD

HECM (Home Equity Conversion Mortgage)reverse mortgage program was originallydesigned to help house-rich and cash-poor olderadults use their substantial housing wealth toimprove their nancial well-being.

About 30% o older homeowner households allinto the moderate wealth group. While theseolder adults are not poor, they may still allshort o economic security due to their modestincomes and housing wealth. As a result, they

may be interested in using home equity as abuer against unexpected health expenses orhome repairs. At the higher end o the middle-income group, house-rich or cash-rich olderhomeowners have a more substantial nancialcushion to sustain them in retirement. Most

Table 1: Attributes of Homeowner Households Age 62 and Older,by Wealth Status

Source: National Council on Aging (NCOA) calculations based on data from theAmerican Housing Survey, 2007.

Median Household Values

Age of householder 69 70 73 76 76

Home value $409,000 $175,000 $125,000 $350,000 $65,000

Household income $81,900 $49,800 $25,324 $12,468 $12,000

Other Household Demographics

Married 75.9% 64.9% 48.0% 27.3% 22.7%

Has a college education 55.2% 34.1% 15.6% 20.7% 8.3%Householder worked last week 32.6% 24.8% 12.5% 5.7% 5.5%

No mortgage 48.1% 59.7% 71.6% 70.8% 79.3%

Total

Homeowner households age 62+ 4,353,625 6,449,825 6,562,602 1,037,121 3,348,454

% of total households (21.75 million) 20.0% 29.7% 30.2% 4.8% 15.4%

House-richand cash-

rich

House-richor cash-rich

Moderatewealth

House-richand cash-

poor

House-poorand cash-

poor

MIDDLE INCOMEAFFLUENT POOR

Home Equity as a Resource


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homeowner households in this group aremarried (64.9%) and one-quarter (24.8%) arestill working. However, ewer have paid o theirmortgage (59.7%), which can be an additional

stress on the monthly budget.

Afuent older homeowners are relativelyyoung (median age 69) and are predominantlymarried couples. Tese households have sizablenancial resources, which may reect the actthat one-third (32.6%) are still in the labororce. Over hal (51.9%) are also still makingmonthly mortgage payments. A challenge ormany o these homeowners will be whether theycan aord to retire. Tey may be interested in

exploring new options to incorporate housingwealth in their asset allocation strategies.

Issues and ChallengesDespite their limited retirement resources,only 14% of homeowners age 62 and olderhave decided to use a home-equity loanor reverse mortgage to get cash rom theirhouses. raditional attitudes toward the housemay explain why some older Americans arereluctant to tap home equity. Te act that olderadults still overwhelmingly select home loans thatrequire monthly payments may also be a actor inthis decision. Borrowers are vulnerable to nancialstress or oreclosure when aced with risingexpenses or declining income (i.e., reduction inSocial Security benets or loss o spouses pension).

Reverse mortgages generally do not aect SocialSecurity and Medicare benets. However,needs-based benets, such as Medicaid and

Supplemental Security Income (SSI), may beimpacted. Most reverse mortgages, in additionto interest charges, have an origination ee,closing costs, a mortgage insurance premium,and a monthly service ee. Tese amounts canbe paid by the reverse mortgage itsel, so there isno immediate burden to the borrower. Te costsare added to the principal and paid with interestwhen the loan becomes due.

Unlike a home-equity loan or traditionalmortgage, with a reverse mortgage there areno monthly payments. Te loan becomes duewhen the borrower sells the home, permanently

moves out, vacates or a period o 12 months,or when all the homeowners are deceased.At that time, the loan principal, interestcharges, and any ees must be paid in ull.

Te need to tap home equity depends onthe availability o both nancial and socialresources. Tese actors vary signicantlyamong the our dierent housing groups. Asa result, older homeowners may decide to taphome equity or many dierent reasons, such

as a source o additional monthly income or tomanage debt. Older adults nancial situationsalso aect the loan options that they can use toliquidate a portion o their housing wealth.

Afuent older adults can select rom a widerange o conventional loans. Older homeownerswho do not qualiy nancially or a regularmortgage may end up with a subprime loanwhich carries a higher interest rate and therisk o nancial exploitation. Tese ndingssuggest that one-size-ts-all solutions will notbe adequate to ensure retirement security orhomeowners across the economic spectrum.

Although the numbers are small, it appearsthat older Americans increasingly see theirhomes not just as secure places to live, but alsoas collateral or a loan. It will be importantto monitor this evolving trend to understandhow homeowners who are in or nearing

retirement use this asset to solve nancialproblems. Researchers should also trackchanges in mortgage lending to older adults.One challenge is that ederal sources o data onlending practices, such as the Home MortgageDisclosure Act (HMDA) database, do notcollect inormation on the age o borrowers.


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Te oundation or retirement security has

traditionally likened to a three-legged stoolconsisting o savings, pensions, and Social Security.Recent nancial trends suggest that this conventionalapproach is becoming less eective. Te savings rateamong Americans has declined signicantly sincethe 1980sreaching its lowest level in 2004 sincethe Great Depressionalthough it recently turnedupward (see Figure 2). Compounding these cashshortalls is the decline o dened benet plans,which leaves many Americans acing a uture

with less guaranteed retirement income.

o maintain their standard o living, someolder homeowners are starting to converthome equity to monthly income. Tis approachis a relatively new concept that has gainedmomentum with the development o reversemortgages. Financial proessionals are alsobeginning to explore dierent options or usinghome equity to increase annuitized income.

Sustain Cash Flow

As the cost o living continues to rise, manyolder Americans nd it hard to make endsmeet. Researchers estimate that nearly 78%o all older adult households do not havesucient resources to sustain them throughtheir retirement years.8 Baby Boomers are alsoconcerned about being able to maintain theirstandard o living as they grow older. Olderworkers who expect inadequate retirementincome, or a less reliable source o income, such

as a dened benet plan, are more likely to plan touse home equity to pay or retirement expenses.9

Cash-poor older households oen nd itdicult to pay the bills each month. Highmonthly expenses can be especially problematicor households who are house-rich and cash-poor. A high proportion o these homeownersare elderly widows who may have seen theirincome drop signicantly when their husbands

Strategy #1Increase Income Security

Figure 2: Shifts in Family Resources

Source: Bureau of Economic Analysis National Economic Accounts; Prices for homes with conventionalsingle-family non-farm loans, Federal Housing Bureau Historical Summary, Table 36.

12%

10%

8%

6%

4%

2%

0%

PersonalSavings

Single-FamilyHome Price

% of disposableincome

Median sale price,in thousands

$260

$240

$220

$200

$180

$160$140

$120

$1001992 1994 1996 1998 2000 2002 2004 2006 2008

Personal Savings Single-Family Home Price


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died (see able 2). Almost 71% live in centralcities and suburbs where the cost o livingand property taxes tend to be high. Tey alsohave a substantial amount o housing wealth(median value $350,000; see able 1). By

selecting a tenure payment plan, a 75-year-oldreverse mortgage borrower with a home worth$350,000 could receive almost $1,500 eachmonth tax ree or as long as they live in theirhome. Tis amount would more than doubletheir monthly income.

Older homeowners who are house-poorand cash-poor may be less likely to benetrom a reverse mortgage. Most o these olderadults live in smaller communities and rural

areas where home values are relatively low(median value $65,000; see able 1). Teyalso tend to live in older homes that mayneed additional repairs in order to qualiyor a reverse mortgage. As a result, most othese homeowners would receive very little

additional income each month by annuitizingtheir housing wealth.Most middle-income older adults also havelimited amounts o housing wealth that they

could use to supplement their incomes. Forexample, a 75-year-old borrower with a homeworth $125,000 could receive about $500 eachmonth rom a reverse mortgage. Tis amountmight not signicantly increase their standardo living. Tese unds could increase retirementsecurity or households with moderate wealthby lling gaps between the cost o living andavailable income. As they eel the pinch, 70% oAmericans age 60 and older are already cuttingback on essentials such as transportation or

ood.10 Others are economizing by lowering theheat or turning o lights, which can signicantlyincrease the chances o a serious accident orillness. One in three older adults all each year,most commonly in their homes, resulting inalmost 1.7 million injuries annually.11

Table 2: Financial Challenges of Homeowner Households Age 62 and Older,by Wealth Status

Source: NCOA calculations based on data from the American Housing Survey, 2007.

Housing Attributes

Year bought the home 1988 1984 1982 1979 1980

Home built after 1975 37.3% 28.8% 25.3% 25.3% 20.9%

Electricity bill more than $100/mo. 59.0% 49.0% 38.0% 36.3% 31.8%

Real estate taxes $3,000 or more 48.1% 19.8% 8.5% 29.9% 3.7%

Other Household Demographics

Single women householders 15.4% 24.1% 39.1% 57.6% 60.8%

Lives in central city or suburb 63.4% 55.3% 48.1% 70.9% 38.0%

House-richand cash-

rich


Moderatewealth

House-richand cash-

poor

House-poorand cash-

poor



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Increase Annuitized IncomeWhile some aging homeowners must dealwith immediate cash shortalls, others lookahead and worry that they may come up short.

At age 65, American men can expect to livean additional 17 years, and women 20 years,on average.12 With increasing longevity, thereis some chance that they may outlive theirretirement resources. Maintaining nancialsecurity over many years will be especiallychallenging or many Baby Boomers who cannotrely on guaranteed retirement income rom anemployer-sponsored dened benet pension plan.

One option to increase monthly annuitized

retirement income is to deer Social Securitypayments. Retirees receive a reduced monthlybenet at age 62 and progressively largerbenets or each month they postponebenets up to age 70. Elderly widows couldsee the greatest benet, since deerral wouldincrease the expected value o their monthlysurvivor benets.13 o maximize their monthlypayments, as well as that o their spouses andother dependents, people near retirement

could continue working. However, this optionmay be dicult or workers in physicallydemanding occupations, and those who arelimited by health problems. o help workers

who anticipate a long lie, and who must retirebeore age 70, some nancial proessionalsare recommending a term home-equity loanor reverse mortgage to help pay or everydayexpenses or a ew years until they are eligibleor maximum Social Security benets.

Figure 3 highlights how this strategy couldwork or a middle-income woman age 62with a home worth $150,000 and with anannual salary o $50,000. I she chose to retire

at age 62, her monthly Social Securitypayment would be $1,013. I she waited untilage 70, she would receive $1,953 per month.o maximize her benet:

She would need to get an additional $1,013per month rom a reverse mortgage or eightyears (total $97,248) if she stopped workingat age 62, but deerred her Social Securitybeneits until age 70. his approach wouldrapidly deplete home equity.


Figure 3: Equity Draw-Down with a Reverse Mortgage to Defer Social Security

Source: NCOA calculations using the Reverse Mortgage AnalyzerHECM monthly CTM 200 loan;appreciation rate 2%, expected interest rate 4.91%.

$150,000

$100,000

$50,000

$0

RemainingHome Equity

1 3 5 7 9 11 13 17 19

Duration of Loan (years)

4 years, $500/mo 8 years, $500/mo 8 years, $1,013/mo


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I she switched to part-time work at age 62,and drew $500 per month rom a reversemortgage to supplement her income until age70, she could lock in an additional $940 per

month in Social Security beneits starting atage 70, and still retain a signiicant amounto home equity.

I she worked ull-time until age 66, thenswitched to part-time work and drew $500per month rom a reverse mortgage orour years, the potential impact on herhome equity might be minimal, at currentinterest rates and with modest (2%) homeappreciation per year.

Te net benet o this approach would depend onhow long a person (and spouse) lived aer age 70,changes in interest rates, and the duration o theloan. Borrowers who moved soon aer reachingage 70, and paid o their reverse mortgages,would pay less in total interest on their loansthan those who continued to live in the samehouse or many years. Given the complexity othis nancing option, older workers would need

to careully evaluate the potential long-termramications o this approach.

Financial proessionals are also exploring thepossibility o using home equity to supplementincome when the nancial market conditionsare depressed. In 2008, workers with 401(k)plans worth over $200,000 saw their accountbalances decline by over 25%.14 apping homeequity would reduce the need or retirees tospend money rom a recovering retirementaccount or to liquidate income-generatingassets to support consumption.

Another option or older homeowners toensure retirement income would be to buy alongevity annuity with their savings, and tapsmall amounts o home equity to ll nancialgaps until they start to receive their annuity

payments. Longevity annuities require a smallerinvestment than an immediate annuity becausethey usually do not begin payouts until aer age80 or 85. Tis approach could be attractive to

older Americans who worry that purchasing animmediate annuity will leave them little cash topay or unexpected expenses or to leave a bequest.Consumers should careully examine the eesassociated with longevity annuities, since theycan be expensive.

Issues and ChallengesA undamental component o retirementsecurity is having enough income to meet basicexpenses. Conventional wisdom encourages

people to save as much as possible duringtheir working years so they can maintain theirstandard o living in retirement. But withsizable losses to retirement savings plans inrecent years, along with the growing cost obasic necessities, it is harder or many peopleto accumulate enough unds to ensure acomortable retirement. As Americans entertheir retirement years, they may need toreevaluate their nancial situation and convertsome o their housing wealth to income tosupplement the amily budget.

Researchers generally agree that using a reversemortgage to supplement income can be animportant option or house-rich and cash-poor older homeowners who may otherwiselive in poverty.15 However, as shown in able 1,low-income older adults with sizable housingwealth are relatively rare, and represent lessthan 5% o all older households. Without

additional support, the majority o poor olderhomeowners are unlikely to benet romliquidating housing wealth through a homeloan. Combining public benets with modestamounts o home equity could be anotheroption to enable some older homeowners withmodest means to continue to live at home withgreater dignity and security.


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Tere is less consensus about the value oannuitizing home equity to support incomesecurity among middle-income households.A recent study estimated that the median

increase in income or these older adults maybe able to increase their income by less than28% through a reverse mortgage.16 Many eelthat such modest amounts o extra cash willnot guarantee retirement security or manyolder homeowners.17

A major barrier to annuitizing housing wealthis consumer receptivity to this approach. akingout a loan to support everyday consumption,rather than to make home improvements

or otherwise increase wealth, goes againstconventional wisdom. Many older homeownerseel that this strategy is only appropriate ornancially desperate older adults. When asked,36% o homeowners age 65 and older can thinko no benet or older adults to use home equityto stay at home.18 Older Americans are usuallyreluctant to annuitize their retirement wealth.Tis attitude may reect the act that many

older adults today already have a sizable portiono their income annuitized through denedbenet pension plans and Social Security.

Baby Boomers who tap home equity duringtheir working years will have less housingwealth le in retirement. Tese homeownersmay be interested in targeted, short-term homeloans that can help them deer Social Securitypayments or delay the liquidation o depressedequity. Such strategies highlight the new waysin which nancial proessionals are beginningto incorporate home equity as a retirementresource. Older homeowners need to scrutinizethese nancing options careully, to ensure that

short-term solutions do not grow into long-term problems. Younger borrowers shouldalso weigh the benets o taking out a reversemortgage early in retirement, since the amountthat a borrower can receive rom these loansincreases substantially with age. Mandatoryreverse mortgage counseling by HUD-approvedagencies is an important source o independentinormation about these loans.

Consumer advocates and the nancial servicesindustry have raised concerns about cross-selling annuities and other nancial productswith reverse mortgages. Te Housing andEconomic Recovery Act o 2008 strengthensconsumer protections by orbidding lendersrom requiring borrowers to buy other nancialproducts (such as annuities or insurance) as acondition or taking out a reverse mortgage.Also, the Financial Industry RegulatoryAuthority (FINRA) has an investor notice

strongly cautioning investors against usinghome equity to purchase investments. FINRAhas also put nancial service rms on noticethat recommending the use o home equityto purchase investments is not a suitablerecommendation. Homeowners who areconsidering these options will need additionalnancial education to make wise decisions.



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Strategy #2Enhance Financial Resilience

Retirement has always been a time o nancial

uncertainty. Not knowing how long they willlive, or the extent o their health needs, makesit dicult or older people to decide when tospend their nancial resources. With increasingeconomic uncertainty, they ace even greaterchallenges. As an alternative to using homeequity or regular consumption, older adultsmay want to improve their retirement securityby preserving this asset as a cushion againstunexpected events.

Older Americans who own their homes reeand clear o any mortgage oen value the houseas a type o insurance. Te challenge orhomeowners who opt or this traditional useo home equity is knowing how long to wait,especially i they ace increasing nancialhardship. Tey also need to decide how to tapthis asset when that rainy day arrives.

Self-Insurance

Most Americans want to continue to stayat home or as long as possible. Tey worryabout large and unexpected out-o-pocketcosts that can disrupt their ability to sustainthemselves nancially. One o the biggestuncertainties is out-o-pocket costs dueto declining health and ability. Medicaland long-term care expenses oen lead toconsiderable wealth depletion among olderadults who live in the community.19 Marriedcouples may also want to keep their assets

until late in lie, to cover the substantialend-o-lie medical and uneral costs thatcan leave widows impoverished.20

Consumer surveys nd that olderhomeowners today typically preserve homeequity to protect themselves nanciallyagainst potentially catastrophic expenses.

Tose who see home equity as a last resort

typically wait to liquidate home equityuntil they ace a major lie change, such aswidowhood or the nursing home needs o aspouse.21 At this point in lie, homeownersusually decide to sell their homes.

A small proportion o older homeowners arebeginning to use home-equity loans to pay orhealth and long-term care needs. A 2007 surveyby the Commonwealth Fund ound that 8% o

older adults with medical bills or medical debtproblems took out a mortgage or loan to pay orthese costs.22 About 28% o reverse mortgage


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18

borrowers take out this loan due to concernsabout out-o-pocket health and disability-related expenses.23 Only about 5% o theseborrowers use their loan unds or immediate

health needs, suggesting that they may beplanning ahead or these nancial risks.

Te possibility o receiving help at home, ratherthan in an institution, may also encourageyounger homeowners to tap home equitybeore they ace a health crisis in retirement.A recent survey ound that a high proportiono Boomers turning age 62 see long-termcare as an important reason to consider areverse mortgage (see Figure 4).24 Over 70%

o those with very modest retirement assets(household net worth o less than $50,000) maybe planning to use home equity to pay theseexpenses as they grow older.Older Americans oen rely on housing wealthbecause they did not purchase long-termcare insurance. Tose who wait until their

retirement years may also nd that they do notqualiy or coverage due to an existing healthcondition or nd they can no longer aord it.Policymakers, advocates, and insurance

companies have raised serious concerns aboutusing home equity to purchase long-term careinsurance.

However, home equity may play a dierent roleto support Baby Boomers who buy long-termcare insurance. A recent survey found that 84%o Americans who purchased a policy in 2008were under age 65.25 o save costs, 76% o thesebuyers opted or coverage that would pay ora claim lasting ve years or less. As they grow

older and start to need help, policyholders maywant to save their limited insurance coverageto pay or serious disabilities. Tey could taphome equity to pay or low-cost services thatmake it easier to stay at home. Small amountso home equity could also pay or earlyinterventions that can reduce health problems.


Figure 4: Reasons Boomers at Age 62 Might Consider a Reverse Mortgage

Source: MetLife Mature Market Institute, Boomers: Ready to Launch, 2007.

$500K+

$250$500K

$100$250K

$51$100K


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Financial BufferOne o the greatest ears o older Americansis ending up in a nursing home. Due toimprovements in health and growing optionsor community living, however, the risko needing institutional care has declinedsignicantly. As a result, a greater challengeor many retirees will be to maintain nancial

stability as their needs change over time.Older adults oen require assistance withtransportation, grocery shopping, or otherhousehold chores to cope with declining health.For many people, these added expenses are areal burden.

Te homes o older adults are also getting olderand may erode in value i homeowners donot keep up with repairs and improvements.Researchers have ound that appreciation rates

or similar homes are considerably smallerwhen the household head is over 75 years old.26Tis can be a serious nancial drain or olderadults who already own modest value homes(see Figure 5).

With limited amounts o home equity, olderhomeowners may benet rom using theseunds sparingly as a nancial buer to manage

the unexpected. Te most common approachtoday is to take out a home equity line o credit(HELOC). Homeowners oen use a HELOCto pay or home renovations. Many reversemortgage borrowers also select a line o creditpayment option to address a wide array o basicnecessities. Tis nancing strategy can be cost-eective, since borrowers only pay interest onthe amount that they use rom the loan.

Te popularity o HELOCs, and increasinglyreverse mortgages with line o credit paymentplans, suggests that an important reason whyolder Americans already tap home equity is toenhance their nancial resilience. In act, 93%o reverse mortgage borrowers reported thatthese loans have had a positive eect on theirlives.27 Having a cushion o readily accessibleunds can encourage older homeowners to act

sooner, to keep small problems rom becominga costly crisis. For example, carbon monoxideumes rom aulty urnaces, gas water heaters, andranges can have a serious eect on people withheart disease.28 Replacing a leaky roo or aultyurnace beore they cause structural damage or aserious illness reduces the chances that a personwill exhaust their retirement savings.

Figure 5: Rising Home Values, by Age

Median value of primary residence.Source: Survey of Consumer Finances Chartbook, 2007.

200

100

$0

Thousands of2007 dollars

Year

1989 1992 1995 1998 2001 2004 2007

5564 6574 75 or older


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20

Issues and ChallengesWhile many older Americans worry aboutoutliving their savings, an equally importantrisk may be under-spending that can

compromise an older persons health andhome environment. Te ability to live at homeis a dynamic process, where the situationcan change rapidly. o make sure that theycan stay in control, older adults and amilycaregivers need to be able to implementeective solutions quickly. A growingchallenge will be to help older adults nd abalance between using home equity to addressimmediate needs and preserving this assetto help ensure retirement security.

Saving home equity as a last resort may seemto be the saest way to protect this valuableasset, but during periods o economic volatility,such conventional wisdom may no longerserve older adults well. Tose who plan totap this asset only when they have an urgentneed may not know how much home equitywill be available when they need it, due touctuating interest rates and changing homevalues. It may also be dicult to get a homeloan quickly to deal with a crisis situation.Te recent crash o the real estate marketurther highlights the diculties that olderadults can ace when they need to sell theirhome in a hurry.

Homeowners who are looking or shorter-termsolutions need to be careul about the typeo loan they select. Borrowers who opt or aHELOC must have sucient unds available to

pay the loan at the end o the term. Tey mayalso want to have an emergency cash und toensure that they can continue to make monthlyloan payments. As non-recourse loans, reversemortgages provide important protections againstoreclosure. However, using these loans to accesssmall amounts o unds may not be worth thehigh transaction costs. More research is neededto evaluate the trade os between the costsversus protections o dierent home loans.

Te suitability o using home equity as a nancialbuer will also be inuenced by the abilityo older homeowners to continue to live intheir homes. While most older adults want tostay at home or as long as possible, HUD hasound that over hal o reverse mortgages areterminated within six years aer origination.29Without additional support or communityliving, it may be more appropriate or an olderhomeowner to sell the house rather than incursubstantial transaction costs to liquidate homeequity through a home loan.30 Tese ndingsalso highlight the growing need to strengthenpartnerships between aging organizations andthe lending community to ensure that olderborrowers can meet their lie goals.



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A common characteristic o todays older

adults, especially those whose lives weretouched by the Great Depression, is theiraversion to debt. Tese attitudes may alsoreect the act that there were ew opportunitiesto cash out home equity beore the 1980s.Since then, Congress has enacted severallaws that have liberalized lending standardsand promoted the development o new loanproducts, including home-equity loans andsubprime loans. As retiree incomes are beingsqueezed, older Americans have been takingadvantage o easier access to credit.

Several studies show that consumer spendingtends to increase as home values rise.31Having this extra nancial cushion may givehomeowners more condence to spend ratherthan save or a rainy day. But or some people,their expenditures have been growing asterthan their incomes. Younger retirees and BabyBoomers are nding it especially hard to ollow

the traditional advice o work hard, save

money, and stay out o debt. A recent study

found that 40% of people age 62 to 75 alreadyhave, or expect to have, mortgage debt inretirement.32 Tese nancial diculties increasethe need or debt management among olderhomeowners.

Transfer DebtIt is dicult to maintain nancial stabilityin the ace o rising household expenses. Forolder adults living on a xed income, the mostreadily available solution may be their creditcards. Te proportion o older amilies who usethis nancing option is growing. Since 1998,sel-reported credit card use among amiliesheaded by someone age 75 and older has almostdoubled to 19% (see Figure 6). Among amiliesage 55 to 64, about half carry credit card debt.

Even though more older people use creditcards, their balance amounts are not excessive.Families age 65 to 74 typically owed about

$3,000 in 2007, while those age 75 and older

Strategy #3Improve Debt Management

Figure 6: Families with Credit Card Balances, by Age

Source: Survey ofConsumer Finances Chartbook, 2007.

60

50

40

30

20

10

0

%

Year

1989 1992 1995 1998 2001 2004 2007

5564 6574 75 or older


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22

had a balance o $800 on average.33 Techallenge or these amilies is that banks haverecently begun increasing interest rates sharplyand reducing credit card limits. As a result,

many borrowers nd they have to make highercredit card payments each month. Tey oenace substantial ees and other penalties whenthey are late on their payments. Borrowerson xed incomes may have little le aerpaying their credit cards to also make monthlymortgage payments.

One consequence o ready access to credit hasbeen the growing proportion o people age55 and older who ace bankruptcy. Between

1991 and 2007, the bankruptcy rate amongpeople age 55 to 64 grew from about 6% toover 15%.34 Te proportion o people age 75and older who ace bankruptcy, while small,grew substantially rom 0.3% to 2% during thisperiod. Te additional pressures that credit cardborrowers now ace will likely push more olderhomeowners into bankruptcy or oreclosure.

Debt consolidation is a common option todeal with this nancial challenge. Under thisapproach, older adults shi their unsecuredconsumer and credit card debt to a home loansuch as a HELOC or reverse mortgage. Whenused wisely, this strategy can lower monthlyexpenses since interest rates or home-secureddebt are much lower than those or credit cardstoday. Older homeowners who use a reversemortgage or this purpose may increase theiravailable monthly income because they aredeerring all payments on their bills until they

move out o their homes.

Using home equity to avoid bankruptcy canbe an important saety net or cash-strappedolder adults. However, this approach alsopresents some challenges. Homeowners needto maintain nancial discipline to avoid therisk o going urther in debt i they keep using

their credit cards. Tis can be dicult or low-income amilies who struggle to meet everydayexpenses each month.

Defer Mortgage PaymentsTe type o loan that homeowners select toresolve their nancial problems can have abig impact on their nancial well-being inretirement. One in ve older households thatare house-poor and cash-poor still has amortgage (see able 3). Tey may ace sizablemonthly payments, especially i they did notqualiy or a regular mortgage, and opted insteador a subprime loan with higher interest rates.

O the 7.7 million older households withhousing debt, almost 58% are middle-incomeamilies in the moderate wealth or house-richor cash-rich groups. Although they may notbe struggling, additional mortgage paymentscan increase their nancial vulnerability. Basedon the Elder Economic Security StandardIndex, single homeowners with a mortgagetypically need about $19,000 per year in basicincome to live in a moderate-cost city such asMinneapolis.35 Tey require over $33,000 peryear to maintain a basic standard o living inhigher cost areas such as Los Angeles.36

Over hal (51.9%) o afuent older homeownerhouseholds have some type o home loan (seeable 3). O households with home loans, theyare also most likely to have multiple loans(21.6%). Sizable housing debt can make it hardor afuent homeowners, many o whom stillwork, to retire and enjoy the balance o their

lives. Tese households are also most likely tobe pulling cash out o their houses with home-equity loans. About 45% use this nancingoption, oen in combination with a regularmortgage. Since these borrowers are relativelyyoung (median age 66), they run the risk ospending a large portion o their housing wealthearly in retirement.



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Borrowers who must continue to make regularmortgage payments in retirement, and thosewho get cash through a conventional home-equity loan, are placing their houses at risk.

As they age, people ace a growing possibility

that a costly health problem could disrupttheir amily budgets. When they cannot maketheir monthly loan payments, they may losetheir houses. A recent study ound that by theend of 2007, more than 684,000 homeownersage 50 and older were delinquent in mortgagepayments or in oreclosure.37

A reverse mortgage allows older homeownersto deer monthly mortgage payments on aconventional home loan. Borrowers (or their

heirs) do not have to repay the loan until thelast borrower dies, permanently moves out, orvacates for a period of 12 months. About 46%o reverse mortgage borrowers surveyed byAARP have paid o their regular mortgage inthis way.38 Some are transerring their existinghousing debt to meet the requirement that areverse mortgage be in primary lien position.

Anecdotal evidence suggests that growingnumbers o older homeowners are taking outthis type o loan specically to avoid the needto make monthly mortgage payments.

Issues and Challenges

Using home equity to manage debt becamepopular aer the ax Reorm Act o 1986phased out the deduction or interest on creditcards, auto loans, and most other types oconsumer debt while preserving tax deductionsor certain home loans. Since then, borrowershave shied rom installment plans to tax-advantaged mortgages and home-equity loansto pay or major purchases such as cars andappliances. Easy access to credit also providedlower-income households with greater liquidity

to purchase the goods and services that theyneed to continue to live at home.

Using housing wealth to manage consumerdebt can enhance a persons standard o living.But i this resource is not used wisely, it canalso be a source o nancial insecurity. Olderhomeowners oen take on sizable debt without

Table 3: Type of Home Loans Used by Homeowner Households, Age 62and Older with Housing Debt, by Wealth Status

Source: NCOA calculations based on data from the American Housing Survey, 2007.

Type of Loan

Regular mortgage only 54.4% 60.6% 63.0% 64.0% 71.6%

Regular mortgage & home-equity loan 21.6% 12.3% 8.5% 12.2% 5.3%

Home-equity loan only 23.2% 24.7% 25.8% 18.1% 21.5%

Reverse mortgage 0.8% 2.3% 2.7% 5.8% 1.6%

Total with a Home Loan

Homeowner households age 62+ 2,260,049 2,597,712 1,865,671 302,601 694,258

Percent of total households in group 51.9% 40.3% 28.4% 29.2% 20.7%

House-richand cash-

rich


Moderatewealth

House-richand cash-

poor

House-poorand cash-

poor



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24

considering the potential impact o these loanson their long-term retirement security. Shiingdebt rom credit cards to a home loan canextend payments over many years. Even at low

interest rates, this decision will reduce an eldershard-earned home equity. For homeownerswho only qualiy or a subprime mortgage,stretching payments over many years can endup costing more than twice as much as witha credit card.39 Tese additional expensescan signicantly deplete the already limitedretirement resources o older adults withmodest means.

Using a reverse mortgage to deer debt

payments can also be risky. Borrowers whouse loan unds early in their retirement mayhave little home equity later in lie. Borrowerscontinue to accumulate interest payments onthe loan balance as long as they stay in theirhomes. Tose who continue to live in theirhomes or many years may nd that they have

little or no home equity le aer they repay theloan. Tis could be problematic or older adultswho need to move to an assisted living acilityor other supportive setting as they become rail

and in need o care. Without sucient unds,some may need to turn to Medicaid to payor long-term care. When the reverse mortgagebecomes due, borrowers or their heirs must paythe amount borrowed plus interest charges andany service fees (see page 14 ofTe Essentials:Reverse Mortgages).41 I the borrowers or heirswant to maintain ownership o the home, theymust repay all amounts due, even i thoseamounts are more than the value o the house.

Te current economic crisis heightens therisk that older homeowners with modest orxed incomes will be unable to make monthlypayments on their conventional home loans.Tey may be better o with a reverse mortgage,since the risk o oreclosure is much lower withthese loans. However, the high transactioncosts o reverse mortgages oen deter olderadults rom selecting this loan. Costs at closing(origination ee, upront mortgage insurancepremium, appraisal, and other closing costs)are rarely olded into the interest rate, so theycan be sizable, ranging rom about $6,000 or a$100,000 home to over $16,000 for a $400,000home. Among older adults who receivedcounseling and decided not to take out a reversemortgage, 63% were discouraged by up-rontloan costs.41

Four states have developed programs that oerreverse mortgages at reduced cost. Montana

and Connecticut have state-run and state-nanced reverse mortgage programs that targetolder adults with modest incomes. New Jerseyand Rhode Island oer reduced originationees to borrowers who get a reverse mortgage.Policymakers should consider these and otherincentives to make this option more aordableto lower- to middle-income amilies.



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Te proportion o older homeowners who use

home equity as a retirement resource is stillsmall. As a consequence, it is easy to overlookthis emerging trend. Although the indicatorsare aint, they are important because they serveto remind us that people are not complacentabout rising retirement risks. Americansare proud o their resourceulness. Growingnumbers already use this asset to meet a widearray o unmet nancial needs. Tese includemaintaining a steady ow o income, providinga nancial buer to cope with health and

homeowner expenses, and managing monthlycredit card and other consumer debt. As BabyBoomers enter retirement, millions o agingAmericans may soon turn to their homes aspart o their nancial plans.

Tese ndings suggest that the nancialservices industry, policymakers, and consumeradvocates cannot ignore home equity in theireorts to promote retirement security. Te

home is still the most important retirementasset or many older homeowners, especiallyamilies with lower to middle incomes. Beorethe housing bubble burst, people age 65 andolder owned in total over $4 trillion in housingwealth.42 It will be useul to develop moreaordable solutions and eective public policyor older homeowners, since the decisions thatthey make about this valuable asset will havelong-term ramications or their well-being,and or our nation.

Need for Financial FlexibilityAmericans in or nearing retirement areconcerned about economic uctuations thatcan aect their well-being as they grow older.As a result, homeowners are looking or newstrategies to increase their exibility to respondto changing nancial needs. Te ndings o this

study indicate that older adults rarely tap homeequity to support basic consumption. Instead,they tend to use this asset to enhance their

ability to ll cash shortalls and provide a bueragainst cash ow shortages that may disruptthe amily budget. Home equity can play animportant role to strengthen the capacityo older homeowners to cope with nancialuncertainties in later lie. Small inusions ocash can also help older homeowners to remainexible and adaptive, and to respondto problems while they are still manageable.

Te idea o using home equity to increase

nancial resilience is a concept that isonly beginning to receive attention romthe nancial services industry. Financialproessionals who ocus on asset accumulationstill encourage older homeowners to preservehousing wealth. However, or those who areunable to save enough to ensure a secureretirement, they may need to use home equity

Implications


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26

as more than just a last resort. In this changingretirement landscape, nancial proessionalsshould re-examine the role o housing wealth asan integral part o nancial risk management.

Homeowners who tap home equity earlier inretirement will likely ace new and potentiallyunanticipated risks. Additional research willbe required to assess the changing needsand vulnerabilities o older homeowners,and the suitability o dierent nancialsolutions. o support these eorts, and tomonitor lending trends to older adults, theFederal Reserve Board should expand HomeMortgage Disclosure Act (HMDA) reporting

requirements by adding variables on the ageo the borrower and co-borrower. Such timelydata can also help to ensure that consumerprotections or older homeowners keep pacewith the evolving home mortgage marketplace.

Guiding PrinciplesTe ndings o this study suggest that homeequity will not oer a simple solution tothe growing nancial problems o agingAmericans. Te diverse needs and expectationso older homeowners also highlight the needto strengthen retirement planning strategiesbeyond simple models o asset accumulationand decumulation. Te ollowing principlesoer guidelines that can aid the developmento a more comprehensive approach to nancialsecurity in later lie:

Use a holistic, person-centered rameworkStrategies need to shi rom product-ocused

approaches to comprehensive nancial plansthat include home equity as an integral parto retirement security.

Promote exibilityOlder homeownersneed multiple, aordable products that canmeet both long- and short-term nancialgoals in retirement.

Address changes over the lie courseAdvice and solutions that include homeequity need to take into consideration hownancial, health, and amily needs and risks

change as people grow older.

Oer solutions that strengthen fnancialsecurityA house is more than a nancialasset; it is also a home. Older homeownersacross the economic spectrum are lookingor cost-eective options that can give thempeace o mind.

Tese guiding principles provide a oundationupon which to develop loan products and public

policy that can better serve aging homeowners.Greater ocus on these issues can also serve asa ramework or strengthening ties betweenexperts rom many dierent disciplines thatseek to improve the quality o lie or olderhomeowners.

Partnering to Promote InnovationAs Americans increasingly rely on home equityto manage cash ow in retirement, they willbe looking or additional advice and eectivetools. Meeting this challenge opens the doorto a wide array o collaborative eorts. Tenancial services industry proessionals canwork with consumer advocates to strengthennancial literacy programs or homeowners atall ages. As the number and complexity o theoptions grow, older workers and retirees willneed more sophisticated decision-support tools.Additional advice will be important or lower-and middle-income amilies who have not

traditionally used nancial planning services.

Organizations that oer debt management,reverse mortgage counseling, and benetscounseling should work together to help olderAmericans understand their options. As trustedcommunity resources, Area Agencies on Agingand Aging and Disability Resource Centers can

Implications


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help older homeowners combine home equitywith assistance rom public programs to helpthem stay home longer. Tese agencies can alsoacilitate the transition rom the home to other

living arrangements. o support these eorts,it will be important that mandatory reversemortgage counseling programs keep pace withthe growing interest in these loans.

For many Americans, out-o-pocket healthand long-term care expenses represent theirgreatest uncovered nancial risk in retirement.Organizations that serve older adults needto work together with the nancial servicesindustry to promote the development o

cost-eective loan products and innovativeprograms that can help impaired olderhomeowners meet this growing challenge.It will also be important to conductdemonstration projects that test dierentmodels or using home equity. In our agingsociety, it is still too early to say which solutionsmay work best to enhance nancial securityor dierent segments o the older adultpopulation. Americans should also considerat an earlier age how they will pay or potentiallong-term care expenses.

As part o this eort, ederal and statepolicymakers will want to consider the needsand resources o older homeowners as theydevelop new programs and public policy tonance long-term care. Home equity can bean important new source o unds to pay orearly interventions that can reduce the needor costly nursing home care. o supplement

tax deductions or mortgage payments,policymakers might consider oeringgovernment incentives to lower the cost oreverse mortgages to help nancially vulnerableolder adults continue to live at home. Marriedcouples may need additional protections tomake sure that one spouse does not becomeimpoverished i they tap home equity to pay orthe health or long-term care needs o the other.

When they ace a nancial shortall today,aging Americans turn to amiliar solutionssuch as credit cards or conventional loans thatoer ew consumer protections. Tese ndings

suggest a growing need or more exible andaordable home loans. Beore the crash o thehousing market, lenders were developing manynew proprietary reverse mortgage products orafuent homeowners. By working together, thenancial services industry, HUD, and agingorganizations may be able to accelerate thedevelopment and testing o reverse mortgagesand other nancial products that are designedto meet the needs o homeowners with modesthousing wealth.

Solving everyday nancial problems isbecoming increasingly complex and dicultin later lie. Although there are still manyunanswered questions, the nancial servicesindustry, policymakers, and consumeradvocates cannot be complacent about thepotential benets and risks o using this asset toaddress the challenges acing older Americans.


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28

1 Ernst & Young (2007). Te New Frontier o

Retirement Cash Flow Management. 2 Zillow.com (2009).Americans lose $1.4 trillion

in home values in Q4; More than was lost in allo 2007. Press release available at: http://zillow.mediaroom.com/index.php?s=159&item=103.

3 National Association o Realtors (2009). Mediansales prices o existing single-amily homes ormetropolitan areas. Quarterly Report SingleFamily 4th Quarter 2008. Fact sheet availableat: http://www.realtor.org/wps/wcm/connect/a0a78e804d0074afa729ef8d0a12d865/REL08Q4T.pdf?MOD=AJPERES&CACHEID=a0a78e804d0074afa729ef8d

0a12d865.

4 U.S. Census Bureau (2008).American HousingSurvey or the United States: 2007. Current HousingReports, Series H150/07. Washington, DC: U.S.Government Printing Oce.

5 Data rom theAmerican Housing Survey or theUnited States, 1999 and 2007.

6 Te low income value ($20,000) used in this analysisis about 200% o the ederal poverty level (FPL) ora single person in 2007 ($20,420). e high income

value ($40,000) is close to 400% of the FPL for

singles ($40,840) or 300% of the FPL ($41,070)or couples.

7 Te upper level or home value used in this analysis($250,000) was selected to refect the average valueo homes owned by reverse mortgage (HECM)borrowers, which was $262,000 in 2007 and$239,000 in 2008. Source: HUD (2009). otalHECM Cases Endorsed or Insurance by Fiscal Yearo Endorsement Plus Selected Loan and BorrowerCharacteristics, available at: http://www.hud.gov/oces/hsg/comp/rpts/hecm/hecm0209.xls.

8 Meschede, ., Shapiro, .M., and Wheary, J. (2009).

Living on Less. Waltham, MA and New York, NY:Institute on Assets and Social Policy at BrandeisUniversity, and Demos.

9 Munnell, A.H., Soto, M., and Aubry, J-P. (2007).Do People Plan to ap Teir Home Equity inRetirement?Boston, MA: Retirement ResearchCenter at Boston College.

10 MetLie Mature Market Institute (2008). Feeling theEconomic Pinch. Westport, C: MetLie.

11 Schiller, J.S., Kramarow, E.A., and Dey, A.N. (2007).

Fall Injury Episodes Among Noninstitutionalized OlderAdults: United States 2001-2003. CDC Advance Datarom Vital and Health Statistics. Report No. 392.

12 National Center or Health Statistics (2009). Health,United States, 2008. Hyattsville, MD: NCHS.

13 Sass, S.A., Sun, W., and Webb, A. (2008). WhenShould Married Men Claim Social Security Benets?Center or Retirement Research at Boston College,Issue in Brief 8-4.

14 VanDerhei, J. (2009). Te Impact o the RecentFinancial Crisis on 401(k) Account Balances.EBRI Issue Brie 326.

15 See: Kutty, N. (1998). Te scope or povertyalleviation among elderly homeowners in theUnited States through reverse mortgages. UrbanStudies 35 (1): 113-29; Zedlewski, S., Cushing-Daniels, B., and Lewis, E. (2008). How muchcould reverse mortgages contribute to retirementincomes? Retirement Policy Program Brie SeriesNo. 23. Washington, DC: Urban Institute.; Mayer,C.J. and Simons, K.V. (2003). Reverse mortgagesand the liquidity o housing wealth. Real EstateEconomics 22(2): 235 255.

16

Zedlewski, et al. (2008).17 Eschtruth, A.D., Sun, W., and Webb, A. (2006).

Will Reverse Mortgages Rescue the Baby Boomers?Boston, MA: Retirement Research Center at BostonCollege; VanDerhei, J. and Copeland, C. (2003).Can America Aord omorrows Retirees: ResultsFrom the EBRI-ERF Retirement Security Projection

Model. Washington, DC: Employee BenetResearch Institute, Issue Brie 263.

18 Stucki, B. (2005). Use Your Home to Stay at Home.Washington, DC: National Council on Aging.

19 Coile, C. and Milligan, K. (2006). How Household

Portolios Evolve Afer Retirement: Te Eect oAging and Health Shocks; Lee, J. and Kim, H.(2003). An examination o the impact o health onwealth depletion in elderly individuals.Journal oGerontology: Social Sciences 58(2): S120S126.

20 French, E., De Nardi, M., Jones, J.B., Baker, O.,and Doctor, P. (2006). Right Beore the End: AssetDecumulation at the End o Lie. Federal ReserveBank o Chicago Economic Perspectives Q3: 2-13.

Endnotes


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21 Venti, S.F. and Wise, D.A. (2004). Aging andHousing Equity: Another Look. In Wise, D.A.(ed), Perspectives on the Economics o Aging, pp.127-175. Chicago, IL: University o Chicago Press;Walter, L. (2004). Elderly Households and Housing

Wealth: Do Tey Use It or Lose It?Ann Arbor, MI:Michigan Retirement Research Center WorkingPaper No. 2004-070.

22 Doty, M.M., Collins, S.R., Rustgi, S.D., and Kriss,J.L. (2008). Seeing Red: Te Growing Burden o

Medical Bills and Debt Faced by U.S. Families.Washington, DC: Te Commonwealth Fund.

23 Redoot, D.L., Sholen, K., and Brown, S.K. (2007).Reverse Mortgages: Niche Product or MainstreamSolution?Washington, DC: AARP.

24 MetLie Mature Market Institute (2007). Boomers:Ready to Launch. Westport, C: MetLie.

25 American Association or Long-erm CareInsurance (2009). Consumers purchasing moreaordable long-term care protection. Press releaseavailable at: www.aaltci.org/subpages/media_room/story_pages/media022509.html.

26 Davido, . (2006).Maintenance and the HomeEquity o the Elderly. Berkeley, CA: Haas School oBusiness, University o Caliornia at Berkeley.

27 Redoot, et al. (2007).

28 Environmental Protection Agency (2005).Environmental Hazards Weigh Heavy on the Heart.EPA Fact Sheet 100-F-05-020.

29 Szymanoski, E.J., Enriquez, J.C., and DiVenti,.R. (2007). Home equity conversion mortgageterminations: Inormation to enhance thedeveloping secondary market. Cityscape 9(1): 5-45.

30 Golant, S.M. (2004).Aging in Place: Are WeRomancing the Home?CSA Journal23:11-15.

31 Congressional Budget Oce (2007). HousingWealth and Consumer Spending. Washington, DC:CBO.

32 Ugine, G. and Olsen, A. (2007). Senior SentimentSurvey. Irvine, CA: Financial Freedom SeniorFunding Corp.

33 rend data rom the 2007 SCF Chartbook. Tisdata is described in Bucks, B.K., Kennickell, A.B.,Mach, .L., and Moore, K.B. (2009). Changes in U.S.family nances from 2004 to 2007: Evidence fromthe Survey o Consumer Finances, Federal Reserve

Bulletin Vol. 95 (February 2009): A1-A55.34 Torne, . and Warren, E. (2008). Generations o

Struggle. Washington, DC: AARP.

35 University o Massachusetts Gerontology Instituteand Wider Opportunities or Women (2009). ElderEconomic Security Standard Index or Minnesota.Boston, MA and Washington, DC: GerontologyInstitute at the University o Massachusetts Bostonand Wider Opportunities or Women.

36 Center or Community Economic Developmentact sheet available at: http://www.insightcced.org/communities/cess/elder-la-city.html.

37 Shelton, A. (2008).A First Look at Older Americansand the Mortgage Crisis. Washington, DC: AARP.


39 Demos and Center or Responsible Lending (2005).Te Plastic Saety Net.

40 MetLie Mature Market Institute (2009).Te Essentials: Reverse Mortgages.Westport, C: MetLie.


42 NRMLA (2007). Reverse Mortgage Market

Currently at $4.3 rillion, Less than 1% Penetrated.Washington, DC: National Reverse MortgageLenders Association.


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New Study Released on Reverse Mortgages for Seniors in Dayton, Ohio

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