The Evolution And Expansion Of HECM Loans

BLOG VIEW: The Home Equity Conversion Mortgage (HECM), or reverse mortgage, seems like a relatively recent loan service, but its origins go back to 1961 when Nelson Haynes of Deering Savings & Loan designed the loan type to help a widow stay in her home after the loss of her husband. In 1969, Yung Ping Chen introduced the Senate Committee on Aging to the idea of a mortgage plan that utilized a property such as a housing annuity, and that would enable homeowners to remain in their homes and still have access to the equity.

The first congressional hearing about the subject took place in 1983, when the Senate heard a proposal from Sen. John Heinz, who put forth the idea to have reverse mortgages insured by the Federal Housing Administration (FHA). Groundwork for the development of this type of mortgage continued, and in 1987, Congress passed a bill called the Home Equity Conversion Mortgage Demonstration. In 1988, the U.S. Department of Housing and Urban Development assumed authority to insure reverse mortgages, and in 1989, the first FHA-insured HECM loan was issued.

In the early years, up until about 2003, HECM loan originations were less than 20,000 per year. In 2004, this figure rose to nearly 40,000 loans in a single year. By 2006, the HECM loans were securitized and sold to investors, and interest in the loan type and its benefits grew. Prior to this change, the only purchaser of HECM loans was Fannie Mae. Not long after, market competition resulted in new reverse mortgage products being developed, which brought more interest by the private sector.

Since then, the program has expanded to fill the need of an aging population of baby boomers who, by 2007, were starting to meet the minimum age requirement of 62 years needed to qualify for a HECM loan. By the end of 2007, there were about 400,000 HECM loans already in the program. HECM loan originations were still significant in 2010-2012, but the numbers ranged from 60,000 to 80,000 loans per year during that time.

2012 was an eventful year for reverse mortgages extending beyond origination of loans. The legislation of Dodd-Frank transferred regulatory authority of HECM loans to the Consumer Financial Protection Bureau. Three leading lenders exited the reverse environment: Wells Fargo, Bank of America and MetLife. However, Reverse Mortgage Solutions was bought by Walters Investment Management Corp., which anticipates large growth in the industry during the coming years.

AARP’s 2007 report, “Reverse Mortgages: Niche Product or Mainstream Solution?” surveyed a segment of the senior population to find out why older homeowners were interested in reverse mortgages. What follows are the main reasons given:

  • Pay off mortgage;
  • Improve quality of life;
  • Home repairs or improvements;
  • Emergencies or the unexpected;
  • Everyday expenses; and
  • Health or disability.

Today’s seniors are still seeking reverse mortgages for these same reasons. We believe that the demand for HECM and reverse mortgage loans is strong and will continue to increase in the coming years.

Wynetta M. Byers is chief appraiser at LRES, a national residential and commercial real estate services company providing valuations, real estate owned asset management, homeowners association and technology solutions for the mortgage and real estate industry.


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