HECM line of credit option continues to dominate with 90% share

Home Equity Conversion Mortgage (HECM) endorsements continued to decline in the 2024 fiscal year from a recent peak observed in 2022, while the HECM line of credit continued its dominance as a payment option. Single women were the single largest cohort served by the HECM program.

This is according to program data from the Federal Housing Administration (FHA) as detailed in the agency’s Annual Report to Congress, released in November.

It’s all about the line of credit

Once again, following a spike in HECM endorsements fueled by the HECM-to-HECM (H2H) refinance boom stemming from the COVID-19 coronavirus pandemic, HECM endorsements continued to slide this past fiscal year. They dropped 17% from the totals seen in FY 2023 to 26,501 units, with a maximum claim amount (MCA) of $13.36 billion.

“HECM endorsements increased from FY 2019 to FY 2022 by 106%, when mortgage rates were at historically low levels,” the report said. “Over the past two years in a higher rate environment, HECM endorsements declined by 59%.”

But the data also illustrated the clear dominant preference of borrowers among the five payment options within the program. Borrowers can choose to take their proceeds in a lump sum; in a term payment 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.

Reverse mortgage industry professionals often aim to explain the flexibility of the product’s standby line of credit as a key disbursement option, particularly when it comes to employing a HECM loan as part of a retirement plan. That attention has consistently kept the line of credit as the most-used payment option for most of the past decade, a trend that continued in FY 2024.

All other payment options are dwarfed by the line of credit, which maintained well over 90% adoption among HECM borrowers. Combined, all other options garnered roughly 5% adoption.

“The line of credit draw option remained the most popular payment plan type with HECM borrowers in FY 2024 due to its flexibility,” the report said. “Borrowers with fixed-rate HECMs cannot request a change in payment option. Borrowers with adjustable-rate HECMs originated after FY 2014 may request a change in payment option after the first 12-month disbursement period if the outstanding mortgage balance is less than the principal limit.”

MCA increases slightly, single females remain largest borrower cohort

The average MCA on a per-HECM basis inched up in FY 2024, to $504,027 from $490,417 in FY 2023. The higher MCA largely corresponded to home-price appreciation levels for the year, according to the report.

Calendar 2024 has been operating off of a HECM limit of $1,149,825, a 5.56% increase over the prior year as statutorily determined by increases in home values nationwide. The limit is uniformly applied across the country as opposed to the regional limit structure used for FHA’s forward mortgage programs.

Single female clients have been the largest single cohort of HECM borrowers for years, and FY 2024 was no different. However, the share of single female clients among the total number of HECM borrowers served did increase slightly this past fiscal year, according to FHA.

“In FY 2024, 41.09% of HECM endorsements served singular female borrowers, 21.64% served singular male borrowers, and 33.35% served multiple borrowers,” the report explained. “The composition of HECM borrowers has remained relatively consistent since FY 2015.”

In FY 2023, single female clients made up 39.4% of all HECM borrowers, while single males made up 20.82% of borrowers. 35.25% of loans served multiple borrowers, likely in the form of married couples or cohabitating family members.”