Reverse Mortgages: Niche Product or ...

[Pages:228]#2007-22 December 2007

Reverse Mortgages: Niche Product or Mainstream Solution?

Report on the 2006 AARP National Survey of Reverse Mortgage Shoppers

by

Donald L. Redfoot AARP Public Policy Institute

Ken Scholen AARP Foundation

S. Kathi Brown AARP Knowledge Management

AARP's Public Policy Institute informs and stimulates public debate on the issues we face as we age. Through research, analysis and dialogue with the nation's leading experts, PPI promotes development of sound, creative policies to address our common need for economic security, health care, and quality of life. The views expressed herein are for information, debate, and discussion, and do not necessarily represent official policies of AARP. ? 2007, AARP. Reprinting with permission only. AARP, 601 E Street, NW, Washington, DC 20049

ACKNOWLEDGMENTS The authors gratefully acknowledge the large number of organizations and individuals who contributed to the completion and refinement of this report. We are grateful to ICR, an independent research company based in Media, PA, for conducting both the 2006 AARP survey of reverse mortgage shoppers and the 2007 national opinion survey regarding reverse mortgages and for conducting some of the data analysis. Focus group research to prepare for the survey of shoppers was conducted by Turtle Bay Institute, Inc. of Princeton, NJ. Maurice Weinrobe of Clark University provided important technical support in the creation and refinement of the survey research instrument, conducted the research on the Connecticut Reverse Annuity Mortgage program reported in Appendix E, and reviewed the entire report. Also providing valuable external reviews were Barbara Stucki with the National Council on Aging and Edward J. Szymanoski with the U. S. Department of Housing and Urban Development. We are especially grateful to our colleagues at AARP for their support and helpful reviews. This project was a true interdepartmental collaboration, with authors from three different divisions and help from many more. Bronwyn Belling with the AARP Foundation put in countless hours managing the contracts, helping create the research instruments, overseeing the focus groups, reviewing drafts, and providing sage advice at all stages of this project. Thanks to all the colleagues who reviewed all or parts of the report, including:

? Enid Kassner, Andrew Kochera, Jean Accius, George Gaberlavage, and Ryan Wilson from the Public Policy Institute;

? Rhonda Richards and Susanna Montezemolo from the Federal Affairs Department; ? Aisha Bonner from Knowledge Management; ? Sally Hurme from the AARP Foundation; ? Jean Constantine-Davis and Nina Simon from the Litigation Unit; and ? Edgar Rivas from the AARP Diversity Office.

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TABLE OF CONTENTS

Foreword ................................................................................................................................................. iv Executive Summary ..................................................................................................................................v I. Introduction--Niche Market or Mainstream Solution?.....................................................................1 II. Purposes of the Report ......................................................................................................................2 III. Methodology .....................................................................................................................................3 IV. Building the Infrastructure of the Reverse Mortgage Industry and Consumer Services:

How Far Have We Come? ................................................................................................................5 A. How Have Reverse Mortgages Changed Over Time? ...............................................................5 B. Reverse Mortgage Borrower and Non-borrower Characteristics.............................................13 V. Why Are Older Homeowners Interested in Reverse Mortgages?...................................................22 A. Needs Driven or Seeking Extras? ............................................................................................22 B. Specific Reasons for Looking into Reverse Mortgages and Actual Uses................................26 C. Uses of Reverse Mortgages to Deal with Health and Disabilities ...........................................29

C(1). Homeowners Who Had Granted a Power of Attorney (POA) to Make Decisions Regarding a Reverse Mortgage.....................................................................41

D. Retiring Debts with Reverse Mortgages ..................................................................................47 E. Reverse Mortgages as a Way to Supplement Income ..............................................................55 F. Reverse Mortgages and Homeowner-Related Expenses ..........................................................62 G. Reverse Mortgages to Help Family Members or for Investments, Annuities,

or Long-Term Care Insurance..................................................................................................69 VI. The Other 99 Percent--Reasons for Not Taking Out a Loan..........................................................71

A. Only a Minority of Older Households Could Potentially Take Out a Reverse Mortgage .......71 B. Lack of Consumer Knowledge and Confidence Regarding Reverse Mortgages.....................71 C. Informed Consumers Who Say No to Reverse Mortgages ......................................................73 VII. Lenders, Counselors, and Information Sources..............................................................................86 A. Satisfaction with Lenders.........................................................................................................86 B. Reasons for Dissatisfaction with Lenders ................................................................................87 C. Lenders Recommending Other Financial Services Products ...................................................89 D. Satisfaction with Counselors....................................................................................................90 E. Reasons for Dissatisfaction with Counselors ...........................................................................91 F. Counselors Providing Information on Other Options...............................................................92 G. Satisfaction with Lenders versus Counselors...........................................................................95

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H. Sources of Helpful Information ...............................................................................................97 VIII. Borrower Outcomes .....................................................................................................................100

A. Meeting Borrower Needs .......................................................................................................100 B. Impact on Borrowers' Lives...................................................................................................101 C. Recommending Reverse Mortgages.......................................................................................104 D. Initial Versus Long-Term Satisfaction...................................................................................104 IX. Conclusions and Recommendations for Policy and Practice .......................................................106 A. Conclusions............................................................................................................................106 B. Recommendations ..................................................................................................................109 C. A Final Word..........................................................................................................................119 X. References.....................................................................................................................................120

APPENDICES

Appendix A: Description of Methodology for National Telephone Survey of Reverse Mortgage Counseling Recipients and Factor Analysis of Responses.....................................125 Appendix B: Reverse Mortgage Counseling Recipient Survey Annotated Questionnaire...................128 Appendix C: Description of Focus Groups and In-Depth Interviews Conducted in Preparation for the 2006 AARP Survey and Summary of Findings.....................................................180 Appendix D: Description of 2007 AARP Survey Regarding Familiarity with and Interest in Reverse Mortgages ...........................................................................................................................199 Appendix E: Description of Research on Connecticut Reverse Mortgage Program for Older Homeowners at Risk of Needing Long-Term Care Services by Dr. Maurice Weinrobe, Clark University ........................................................................................202

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FOREWORD

Economists and policymakers have long seen the $4 trillion of home equity held by older homeowners as a potential source of funding for long-term financial security. Until recently, however, older homeowners could only access this equity by selling their homes or by taking on mortgage debt with monthly payments.

The advent of reverse mortgages has allowed older homeowners to tap into their equity without selling their homes and without making loan repayments until they die, sell their homes, or move. But, despite the interest of academics and policymakers, little is known about the specific needs older homeowners seek to address with reverse mortgages.

Don Redfoot of AARP's Public Policy Institute, Ken Scholen of AARP Foundation's Reverse Mortgage Education Project, and Kathi Brown of AARP Knowledge Management have conducted the first nationally representative survey of reverse mortgage shoppers--older homeowners who have gone through reverse mortgage counseling and either taken out a loan or decided not to do so. This survey provides the first detailed look at consumer interest in reverse mortgages, consumer experiences with lenders and counselors, why some consumers decide against these loans, how borrowers use the loan proceeds, and how well reverse mortgages address borrower needs.

AARP's research team also analyzed trend data from the Department of Housing and Urban Development, conducted a survey to determine awareness and opinions of reverse mortgages among Americans 45 years and older, and looked at a small reverse mortgage program in Connecticut dedicated to addressing long-term care needs.

The picture that emerges from this comprehensive analysis shows older homeowners have had largely positive experiences with the federally insured reverse mortgage program. The study also shows that borrowers and non-borrowers consider the costs of reverse mortgages to be excessive and that the public appears to be wary of such loans. Moreover, some troubling signs of unethical marketing practices could taint the whole industry if not prevented.

Reverse mortgages offer new opportunities for older homeowners who are relatively house-rich but cash-poor--but they also call for new forms of financial literacy to help consumers manage this asset wisely. The Public Policy Institute offers this report to provide consumers with more information to make decisions, to give the reverse mortgage industry insight into consumer needs, and to brief policymakers about important issues related to reverse mortgages.

Susan C. Reinhard, RN, Ph.D. Senior Managing Director AARP Public Policy Institute

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