Home Equity and Enhanced Retirement Security ... as home equity lines of credit (HELOCs), second loans,

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  • National Council on Aging ■ 251 18th Street South, Suite 500 ■ Arlington, VA 22202 571-527-3900 ■ ncoa.org ■ @NCOAging

    Home Equity and Enhanced Retirement Security: Understanding the Views of Older Homeowners & Financial Advisors

    Research Findings Presented by The National Council on The Aging

    Eileen J. Tell and Amy Ford*

    Eileen J. Tell Is Principal and Owner with ET Consulting, LLC.

    Amy Ford Is Senior Director, Home Equity Initiatives and Social Accountability, National Council on Aging

    *Data analysis provided by Stephanie Moulton and Todd Ives Stephanie Moulton is Associate Professor, Ohio State University, and Todd Ives graduated from The Ohio State University with his Master’s degree in Public Affairs.

  • © 2017. National Council on Aging. All Rights Reserved.

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    TABLE OF CONTENTS

    EXECUTIVE SUMMARY ........................................................................................................... 3 INTRODUCTION AND RESEARCH OVERVIEW .....................................................................17 QUANTITATIVE RESEARCH COMPONENT ...........................................................................18

    Introduction to Survey and Sample ........................................................................................18

    Survey Methodology ..........................................................................................................18

    Sample Characteristics ......................................................................................................18

    Descriptive Statistics .............................................................................................................23

    Home Equity Borrowing and Reverse Mortgages ...............................................................23

    Consumer Concerns and Expectations ..............................................................................25

    Factor Analysis of Consumer Concerns .............................................................................29

    Multivariate Regression Results ............................................................................................32

    Home Equity Borrowing .....................................................................................................32

    Reverse Mortgages ............................................................................................................33

    Bequest Motives ................................................................................................................36

    Product Name Experiment .....................................................................................................38

    Educational Needs and Standards of Excellence (SOE) ........................................................43

    Conclusion and Implications ..................................................................................................46

    Financial Advisor Findings .....................................................................................................47

    QUALITATIVE RESEARCH COMPONENT .............................................................................54 Introduction ...........................................................................................................................54

    Findings .................................................................................................................................58

    Educational Information .........................................................................................................69

    Standards of Excellence ........................................................................................................76

    Limitations of the Research ...................................................................................................77

    Conclusions ...........................................................................................................................78

    APPENDIX A – Consumer Survey Questions ........................................................................80 Demographic Variables .........................................................................................................80

    Concern Variables .................................................................................................................85

    Nursing and Bequest Variables .............................................................................................87

    Attitudes on Drawing Home Equity ........................................................................................87

    Attitudes on Nonprofit Partnership with Lender ......................................................................88

    Attitudes towards RLOC ........................................................................................................89

    APPENDIX B – Multivariate Regression Results ..................................................................91

  • © 2017. National Council on Aging. All Rights Reserved.

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    EXECUTIVE SUMMARY

    Introduction Many older adults are neither financially nor emotionally prepared for the issues they will face in retirement. Specifically, over 80% of consumers are concerned about outliving their retirement savings and just under 70% are concerned about being able to live comfortably in retirement.1 Results from the Employee Benefit Research Institute’s (EBRI) 2014 Retirement Security Study indicate that 43% of early baby boomers are not financially ready for retirement.2 Among senior homeowners, nearly 37% indicate they are concerned about their financial situation in retirement.3

    A significant asset for many seniors is the equity in their homes. More than 80 percent of senior households in the U.S. own their home, and nearly half of the net worth for the median senior is in the form of home equity.4 As of 2013, the average senior in the U.S. had about $200,000 in home equity.5 Additionally, most older adults express a desire to remain in their current homes. Prior research finds that 78 percent of homeowners age 65 and older report that they would like to stay in their current residence as long as possible.6 Given the desire to remain at home, and the importance of home equity as part of the financial portfolio of the majority of older adults, it is important to understand seniors’ perceptions of the options available to them to use home equity to meet retirement needs.

    Some homeowners may prefer the option to access home equity by selling the home and downsizing. Other options for accessing home equity are to borrow through loan vehicles such as home equity lines of credit (HELOCs), second loans, cash out refinancing of a first mortgage, or borrowing through a reverse mortgage, the most common type of which is the federally insured Home Equity Conversion Mortgage (HECM). But prior research indicates that seniors are reluctant to borrow against home equity. According to data from Fannie Mae’s 2016 National Housing Survey, only 6 percent of seniors indicated that they were somewhat or very interested in tapping into home equity in retirement. Part of this reluctance may be due to lack of familiarity with the home equity release products available.

    Of those seniors who extract home equity through borrowing, the dominant loan vehicle among older homeowners is the HELOC, followed by home equity loans (second loans). Together, these two borrowing channels represented 86% of the home equity lending market in 2016.

    1 NCOA, Martino Flynn/Mintel Comperermedia, 2016 2 Jack VanDerhei, Why Does Retirement Readiness Vary: Results from EBRI’s 2014 Retirement Security Survey. 3 Fannie Mae National Housing Survey Q2 2016 Topic Analysis, “Older Homeowners: Accessing Home Equity in Retirement.” http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/Q2-2016- accessing-home-equity-in-retirement.pdf 4 Authors’ calculations using the Federal Reserve Board’s 2013 Survey of Consumer Finances. 5 Rosnick, David, and Dean Baker. 2014. The wealth of households: An analysis of the 2013 Survey of Consumer Finances. Washington: Center for Economic and Policy Research. 6 Keenan, T. A. (2010). Home and community preferences of the 45+ population. Washington, D.C.: AARP

    http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/Q2-2016-accessing-home-equity-in-retirement.pdf http://www.fanniemae.com/resources/file/research/housingsurvey/pdf/Q2-2016-accessing-home-equity-in-retirement.pdf

  • © 2017. National Council on Aging. All Rights Reserved.

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    Specifically, the home equity lending market in 2016 to homeowners age 62 and older is characterized as follows7:

    • 185,000 HELOCs; • 110,000 home equity loans (second loans); and • 48,000 reverse mortgages, or HECMs.

    An important question is why the reverse mortgage, or HECM, represents only a small portion of the current home equity release product market. In part, the difference may derive from lack of familiarity with the product. According to the Fannie Mae study, while 62 percent of older homeowners indicated familiarity with HELOCs, fewer than half indicated familiarity with reverse mortgages.8

    Purposes of this study In 2016, with a grant from Reverse Mortgage Funding LLC, the National Council on Aging (NCOA) commissioned a series of research