Reverse Mortgage Index at Record High

The National Reverse Mortgage Lenders Association (NRMLA) / RiskSpan Reverse Mortgage Market Index (RMMI), which quarterly analyzes trends in the home equity, home values and mortgage debt of homeowners age 62 and older, hit its record-high of 195.29 in the second quarter of this year.

This growth effectively surpasses the prior record of 192.03 the RMMI set in the fourth quarter in 2006. On a quarter-over-quarter basis, the index rose 3% in the second quarter, driven by a $117.1 billion increase in senior home equity, according to the RMMI. (Click chart to maximize image)

The increase in senior home equity, relative to the first quarter, was driven by an estimated $122.8 billion growth in the aggregate value of senior hosing, which the NRMLA/RiskSpan RMMI noted was offset by a $5.7 billion increase in senior-held mortgage debt.

“The strong gains in housing wealth among America’s seniors are an encouraging indicator for the millions of boomers who weathered the recession on the cusp of their retirement years,” said NRMLA President and CEO Peter Bell in a written statement. “The home equity they’ve worked so hard to build up can serve as a valuable financial management tool for years to come.”

The second quarter was the 13th consecutive quarter in which the RMMI has risen.

Additionally, the current estimate of $4.08 trillion for the aggregate value of senior home equity represents a 38% recovery from the post-Recession trough in the second quarter of 2011, when senior equity levels fell to an estimated $3 trillion, according to the NRMLA/RiskSpan analysis.

from RMD online September 22, 2015

Senior Home Equity Rises to Record-High $3.34 Trillion in Q2

October 15th, 2013  |  from Reverse Mortgage Daily

Senior home equity rose to a record-high $3.34 trillion during the second quarter of 2013, according to the latest Reverse Mortgage Market Index (RMMI) from the National Reverse Mortgage Lenders Association (NRMLA) and RiskSpan.

The RMMI rose 3.1% during the second quarter to a level of 160.1, which NRMLA/RiskSpan notes as the highest level since the fourth quarter of 2008.

The increase of $101 billion during the period, driven by an estimated $98 billion increase in senior housing and a decline in mortgage debt held by seniors, was also the highest quarterly gain since 2005.

During the first quarter, senior home equity rose an estimated $50 billion. The second quarter of 2013 now marks the fifth consecutive quarter in which the RMMI has risen.

Despite the record-high increase in seniors’ home equity reported during the quarter, it remains below prior peak levels.

The $3.34 trillion estimated value of home equity by seniors during the second quarter is still 17% below its peak level of $4 trillion recorded during the fourth quarter of 2006, according to the RMMI.

The RMMI has tracked the reverse mortgage market since 2000 by analyzing and reporting trends in senior home values and home equity levels.

The senior housing value estimate is based on the Federal Housing Finance Agency’s second quarter of 2013 all-transactions indices, which saw housing values increase 73% of the 412 metropolitan statistical areas covered by RiskSpan.

Reverse Mortgages Enter Financial Planning Mainstream

This month has seen a number of articles discussing reverse mortgages as a viable option for older Americans looking to supplement their retirement income.  The authors often admit that they were at first suspicious, even outright negative towards the product, and are now surprised to confess how useful they can be.

Long thought of as something retirees used in last-ditch efforts to stay in their houses, they were seen more as leaky lifeboats than as financial planning tools. They were badges for people soon to be broke.  Reverse mortgages were great examples of too little, too late.

But all that may be changing.

If a recent Journal of Financial Planning paper gets traction, the use of reverse mortgages will move from people who are desperate to practical people who have both home equity and some financial assets.

This will happen for a totally unexpected reason: if reverse mortgages are used early, rather than late, they can be as important in the retirement planning toolbox as life annuities.

A 4 percent guideline

Rather than wait until all financial assets were exhausted and then taking out a reverse mortgage, Barry Sacks, a San Francisco tax attorney and Stephen Sacks, Professor Emeritus at the University of Connecticut asked how things would turn out if retirees took out a reverse mortgage first or early. This would allow them to use withdrawals from the reverse mortgage to delay or reduce withdrawals from financial assets.

None of this matters, they found, if the retirement income withdrawal rate was set at an initial 4 percent, with the amount adjusted upward for inflation in each succeeding year. In that case, there was a 90 percent chance that investment money alone would last through 30 years of retirement.

Things change, however, when you up the withdrawal rate, as many retirees need to do. When the withdrawal rate is increased, they found that using a reverse mortgage increased the odds of remaining solvent throughout life.

Taking a 6 percent withdrawal rate and using a reverse mortgage first or early, for instance, provided an 80 percent probability of “cash flow survival” for 30 years, while using a reverse mortgage last provided only a 50 percent probability of cash flow survival.

Similarly, taking a 6.5 percent withdrawal rate and using a reverse mortgage first or early provided a 70 percent probability of cash flow survival for 30 years, while using a reverse mortgage last provided only a 40 percent probability of cash flow survival.

This enormous increase in retirement income seldom comes at the expense of net estate value. In a majority of cases, they found net worth at the end of 30 years (remaining home equity and remaining retirement assets value) was greater as often as three-fourths of the time. In other words, you can eat cake and still pass some on to your kids or favorite charity, too.