Support for Home Equity Conversion Mortgage (HECM) continued to decline in fiscal 2024 after a recent peak in 2022, while the HECM line of credit continued to maintain its dominant role as a payment option. Single women were the largest cohort served by the HECM program.
This is evident from program data from the Federal Housing Administration (FHA), as described in the agency’s annual report to Congress, which was released in November.
It’s all about the line of credit
After a spike in HECM recommendations fueled by the HECM-to-HECM (H2H) refinancing boom due to the COVID-19 coronavirus pandemic, HECM recommendations continued to decline over the past fiscal year. They fell 17% from FY2023 totals to 26,501 units, with a maximum claim amount (MCA) of $13.36 billion.
“HECM recommendations increased 106% between FY 2019 and FY 2022, when mortgage rates were at historically low levels,” the report said. “In a higher rate environment, HECM recommendations have declined 59% over the past two years.”
But the data also illustrated the clear dominant preference among borrowers among the five payment options within the program. Borrowers can choose to withdraw their proceeds all at once; in installments over a fixed monthly period; a tenure payment of equal monthly payments; a standby line of credit; or a term or tenure option with a line of credit.
Professionals in the reverse mortgage industry often try to explain the flexibility of the product’s standby line of credit as an important payout option, especially when it comes to using a HECM loan as part of a retirement plan. That attention has kept the line of credit consistently the most widely used payment option for most of the past decade, a trend that has continued into FY 2024.
All other payment options pale in comparison to the line of credit, which had over 90% acceptance among HECM borrowers. Combined, all other options received approximately 5% adoption.
“The drawdown line of credit option remained the most popular payment plan type among HECM borrowers in FY 2024 due to its flexibility,” the report said. “Borrowers with fixed-rate HECMs cannot request a payment option change. Borrowers with adjustable rate HECMs originated after FY 2014 may request a payment option change after the initial twelve-month payout period if the outstanding mortgage balance is less than the principal limit.
The MCA increases slightly, single women remain the largest borrower cohort
The average MCA per HECM rose in FY 2024 from $490,417 to $504,027 in FY 2023. The higher MCA largely reflected the increase in home prices during the year, according to the report.
Calendar 2024 operated with a HECM limit of $1,149,825, an increase of 5.56% over the previous year, as determined by law due to nationwide increases in home values. The limit is applied uniformly across the country, unlike the regional limit structure used for FHA’s term mortgage programs.
Single female customers have been the largest cohort of HECM borrowers for years, and FY 2024 was no different. However, according to FHA, the share of single female customers among total HECM borrowers increased slightly over the past fiscal year.
“In FY 2024, 41.09% of HECM recommendations were for single female borrowers, 21.64% for single male borrowers and 33.35% for multiple borrowers,” the report said. “The composition of HECM borrowers has remained relatively consistent since FY 2015.”
In FY 2023, single female customers made up 39.4% of all HECM borrowers, while single men made up 20.82% of borrowers. 35.25% of loans were made to multiple borrowers, most likely in the form of married couples or cohabiting family members.”
