San Diego Reverse Mortgage: A Tale of High Values and the Greying of the West
By Grant W. Martin
The popularity of the reverse mortgage in a given area depends upon the presence of a sizable senior population and a concentration of relatively valuable real estate. San Diego has both, and is an example of broader demographic shifts as revealed in the 2010 census.
The census showed that citizens age 65 and over constitute 13.4% of the U.S. population, a record high. This growth of the senior portion of the population is being called the largest demographic shift in history. Over the past decade, the senior population grew 15.1% nationwide, but grew 23.5% in the West, meaning that region is leading the demographic shift. California already is the state with the largest number of senior residents, with 4.2 million, followed by Florida with 3.3 million, New York and Texas each with 2.6 million, and Pennsylvania with 2 million.
Within California, San Diego further exemplifies these demographics. The median age is increasing in San Diego and is expected to continue to rise as the baby boomers age. The senior population is not just growing, it is growing at a faster pace than the total population in the county. The census predicted that from 2000 to 2030 the 60+ population of San Diego county will grow by 130%, and the 65+ population will grow at the same rate, while the county population as a whole will only have a 38% increase.
Given that the reverse mortgage is only available to those age 62 and over, it should not be surprising that given the statistics above, that loan product has seen remarkable growth in popularity. Originally signed into law by President Ronald Reagan in February 1988, it allows borrowers to access equity in their homes without having to make monthly payments. Instead of monthly payments, the principal balance increases over time. This is the “reverse” of how a forward mortgage works, where monthly payments are made and the principal balance decreases over time.
This program had a pretty slow start, as it took the lending industry a while to understand it and for the public in general to become aware of it. There were 6637 loans created in 2000, with a dollar volume of $827M. This grew to 114,641 loans in 2009, with a dollar volume of $30.2 billion. Understandable by demographics, California and Florida have been vying with each other for the most reverse mortgages originated each year, with California having a wide lead in the overall number of reverse mortgages originated.
But an aging population is not the only factor in determining if a Home Equity Conversion Mortgage (the program’s more technical name), or HECM, will take hold in a given region. Home value is critical. Especially because the borrower can only get a portion of the value, depending on the age of the youngest borrower, the program becomes more attractive as the value of the home increases and the size of the loan proceeds thus grows.
However, the home values can’t be too high either. The highest value FHA will recognize for purposes of the loan is $625,500. San Diego’s median home value is about $300,000, something of a Goldilocks median value (just right), and certainly more generally attractive for loan purposes than the median value of homes across US, which is about $125,000. This makes San Diego a prime candidate for reverse mortgages, being part of the West’s aging demographic and having the kind of property values where this kind of loan can make a big impact on a borrower’s finances. But this is not to say that San Diego is unique. This article could easily have taken Los Angeles or San Francisco or other cities as similar examples of demographic and programmatic convergence.
To find more information about reverse mortgages, information that is thorough and objective, go to http://www.reversemortgageeducator.org. This is also the place to go for finding a local professional who can help you with a San Diego reverse mortgage.
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