March-April 2021

on my radar because of the work I had done as a counselor. I soon realized that there wasn’t a lot of data or understanding of what was happening to reverse mortgages borrowers. There was some bad press about reverse mortgage borrowers being evicted. Ed knew that wasn’t the whole story, but there was no data. I reached out to Mark Cole at what was then Consumer Credit Counseling Services of Atlanta to brainstorm ideas to build a new dataset. I then contacted two of my closest collaborators at OSU, Donald Haurin, one of the top housing economists in the country, and Cäzilia Loibl, an expert in consumer sciences, and asked them if they would be interested in working with me on a project related to reverse mortgages. They were both intrigued by the idea and that led to our first funded study that examined the reverse mortgage borrower experience. It was an opportunity to examine the outcomes of reverse mortgage borrowers across multiple dimensions. We surveyed reverse mortgage borrowers and analyzed credit and loan data and through this research painted a picture of how reverse mortgages affect homeowner well-being. (Editor’s note: Ed Szymanoski was an economist at the Department of Housing and Urban Development who participated on the team that developed the Home Equity Conversion Mortgage program in 1989.) RM : After completing this first study, you kept pub- lishing more research on other reverse mortgage topics. What led to this fascination with reverse mortgages? SM: When I go about doing research, I like to go really deep. Some researchers flip from topic to topic, but I like to embed myself in a topic and build a portfolio of research. I do a lot of work on state housing finance agencies and credit counseling. Reverse mortgages—and home equity for older adults more generally—is a third area I have done a lot of work in. Part of it is, of course, understanding the kinds of individuals who seek reverse mortgages and their experiences. But, it’s also understanding how housing wealth shapes people’s outcomes in life. Home equity is a key asset for many older adults. RM: You recently published a paper with the Federal Reserve Bank of Philadelphia. Please highlight some of the key takeaways. SM: We saw a considerable reduction in defaults attributable to Financial Assessment and to a lesser extent upfront draw restrictions. A “default” was defined as someone who has no money left in his or her line of credit and has had a corporate advance made by the lender on their behalf of $1,000 or more in the first three years after getting a reverse mortgage. It does not mean they were foreclosed on, rather that they experienced a corporate advance of $1,000 or more to pay for property taxes or homeowner’s insurance. Prior to these policy changes, the default rate was 8.7 percent. Now, it’s 2.2 percent. That’s a very positive outcome. Stepping back, it seems like Financial Assessment had the biggest bite. While initial draw limits lowered default rates, the reduction was offset almost one-to-one by an increase in unscheduled draws by the lender out of the borrower’s line of credit to pay for T&I. If upfront draw limits had been the only policy change made, it is unclear whether the positive outcomes would persist over time, as people will eventually run out of money on their line of credit. RM: As you pointed out, there are still situations where defaults could still occur. What additional consumer protections would you recommend? SM: A few years ago, we conducted a study in which low-touch reminders were randomly mailed to a group of reverse mortgage borrowers who had been counseled through ClearPoint Credit Counseling, reminding them about their obligations to pay taxes and insurance. We found that this form of preventative servicing can reduce T&I defaults quite considerably—particularly for reverse mortgage borrowers who previously had a forward mortgage with an escrow for T&I. There is no policy requirement that this must be done. But I recommend that if loan servicers and counseling agencies are not doing this, it would be a good practice to start. It is possible that the borrowers who might have been at most risk are now covered by a Life Expectancy Set Aside, but there is still a vintage of borrowers pre-Financial Assessment, who are being serviced by lenders who probably need special attention, particularly those who have had unscheduled disbursements out of the line of credit to pay for T&I. Another issue that needs attention are the losses to homes that end up in foreclosure. It’s not really an issue about the flow of defaults, but it’s the issue of what happens when a loan is called due and payable, either pre-assignment or post-assignment, and how they are resolved through the From the Top continued on page 14 From the Top REVERSE MORTGAGE / MARCH-APR I L 2021 13