Like many in the mortgage industry, I love my line of work because of the transformative power homeownership holds for families and individuals. Homes are more than just a place to make memories, they also empower people financially.
Like many in the NEXT community, supporting women financially and beyond is near and dear to my heart. Considering March is Women’s History Month, I’d like to talk about how as mortgage professionals we are uniquely positioned to match women with home lending programs that help them attain their financial goals as they age.
Systemic sexism puts women at greater risk of financial insecurity in retirement.
Despite working more hours and earning college degrees in greater numbers, women earn only 82 cents on the dollar compared to men, with women of color earning even less on average. A recent Payscale study further demonstrates the impact the wage gap has over time. When the average annual woman’s salary of $49,800 is multiplied over 40-years, with a three percent base increase per year, she will net $900,000 less in lifetime earnings than her average male counterpart.
Even for many of the women reading this who have shattered the glass ceiling, the reasons for the gender-wage disparity are quite familiar. Women perform unpaid and uncounted work, such as childcare and household management, in outsized numbers.
Despite frequent media stories around the gender-wage gap, the sobering result of reduced earnings is rarely articulated: that women are at greater risk of financial insecurity in retirement than men. Because women earn less and must make their money last longer (U.S. women outlive men by five years on average), women tend to be in worse shape than men on nearly every important retirement metric. This point is further underscored by a 2019 Bank of America report finding that women average roughly one-third of the retirement savings of men.
Mortgage professionals must understand the value of HECMs to serve older borrowers
Even though the HECM is a government loan, many lenders and many mortgage professionals are unfamiliar with the lending program. Meaning, borrowers are not being offered HECMs as a in the course of normal disclosure of a lending program.
The mortgage industry’s knowledge gap around HECM loans does a disservice to senior borrowers, particularly women, who could benefit from the program. According to the National Reverse Mortgage Lenders Association (NRMLA), older homeowners hold $7.82 trillion in housing wealth.
Further underscoring the market for HECMs is 2019 HMDA data sourced by the Mortgage Bankers Association, which revealed that older consumers play a substantial role in the housing market. The numbers show that 1.6 million borrowers aged 62+ took out a residential purchase, refinance or HELOC loan in 2019, representing $335.4 billion in total volume. Of those borrowers, 335,789 were women with no co-applicants, representing $56.2 billion in total volume.
HECMs offer women a flexible way to leverage their home equity in retirement.
The Home Equity Conversion Mortgage (HECM) is an FHA-insured loan program tailored to meet the needs of homeowners ages 62+ and can offer substantive benefits. With a HECM, homeowners have the flexibility to make monthly mortgage payments (so long as they remain in the home, perform basic maintenance, and pay taxes/insurance/HOA dues). The flexibility to make monthly payments can give homeowners more monthly income to use as they choose.
Another attractive HECM feature is the line of credit options, which allows borrowers to withdraw equity similar to a HELOC, but without the pressure to pay it back. Best of all, a HECM line of credit grows over time, automatically making more funds available to the borrower as an additional source of retirement income.
In fact, a 2012 study by Salter, Pfeiffer and Evensky found that homeowners entering retirement with both home equity and a retirement savings nest egg could improve the “survival rate” of their savings over a 30-year horizon by as much as 85% using a HECM line of credit as an alternate source of income in times of poor stock market performance.
At the end of the day, the HECM program can prevent a residence from being foreclosed on for missing a monthly payment or provide a homeowner with a line of credit that grows every year. The HECM program also provides lenders with a distinct opportunity to foster lifelong relationships with their customers and communities.
Lenders seeking to meet borrowers where they are in life need a deeper understanding of the unique benefits of HECMs and how they can be leveraged to help women achieve their financial objectives in their senior years.