Default Rate Trends for Reverse Mortgages: What the Data Shows

White letters spelling “Trends” on a bright yellow background, representing reverse mortgage default rate patterns.

Understanding the Reverse Mortgage Loan Landscape

A reverse mortgage loan is a special type of home loan that allows older homeowners to borrow against the equity they’ve built up in their homes. Instead of making monthly mortgage payments, the borrower receives funds—either as a lump sum, monthly payments, or a line of credit—while continuing to live in the home.

These loans are often used as part of a retirement strategy. For seniors who are “house rich but cash poor,” a reverse mortgage can provide access to needed funds without requiring them to sell their home.

Most reverse mortgages today are Home Equity Conversion Mortgages (HECM loans), which are insured by the Federal Housing Administration (FHA). This program was created to help older homeowners remain in their principal residence while tapping into their home equity. The loan does not become due until the homeowner moves out, sells the home, or passes away.

But reverse mortgages are not without risks. One of the key concerns is the reverse mortgage default rate, which has been the focus of much research and government oversight in recent years.

What Is the Reverse Mortgage Default Rate?

The reverse mortgage default rate refers to the percentage of loans that fall into default status due to unpaid property charges, failure to meet loan terms, or other financial challenges. While defaults on traditional mortgage loans often result from missed monthly mortgage payments, reverse mortgage defaults are different.

Because borrowers don’t have to make monthly payments toward the loan balance, defaults generally happen when the homeowner fails to pay taxes, homeowners insurance, or other housing-related costs, like homeowner association fees or flood insurance premiums.

In some cases, the loan may also go into default if the homeowner no longer uses the property as their principal residence, such as moving to a nursing facility for an extended time period or permanently leaving the home.

The U.S. Government Accountability Office (GAO) has tracked these issues and highlighted the risks in their report on HECM defaults. They emphasized the need for better consumer protections and more thorough housing counseling to help seniors understand their obligations under these loans.

Reverse Mortgage Default Trends in Recent Years

A 2019 USA Today investigation revealed troubling trends in reverse mortgage foreclosures. Thousands of elderly homeowners were facing foreclosure due to unpaid property charges. Some homeowners said they didn’t realize they had to continue paying property taxes, insurance, and maintenance costs. Others had experienced income loss or health problems that made it impossible to keep up.

In many cases, older borrowers were living on fixed retirement incomes, and even modest increases in housing costs put them at risk. This challenge has been compounded by rising insurance rates and property taxes in many states.

Defaults and foreclosures don’t just hurt the homeowner; they also affect the FHA insurance fund and contribute to losses in the reverse mortgage portfolio.

Delinquency Rates and the Role of Property Charges

One of the most common causes of delinquency rates among reverse mortgage borrowers is failure to pay property taxes or maintain homeowners insurance coverage. The HUD-required “financial assessment,” implemented in 2015, was intended to reduce these delinquencies by ensuring that borrowers had sufficient resources to meet these ongoing obligations.

According to HUD’s latest actuarial report on HECMs, the financial assessment has significantly lowered the number of new loans entering default. However, older loans—particularly those originated before 2015—continue to show high rates of delinquency and charge offs.

Charge off refers to a loan that is written off as a loss by the lender, typically after attempts to bring the loan current have failed. While this can relieve the borrower’s estate of responsibility, it also represents a financial loss to the program as a whole.

Why It’s Still Important to Pay Taxes Under a Reverse Mortgage Program

One of the biggest misconceptions about a reverse mortgage program is that homeowners no longer need to pay taxes. While it’s true that monthly loan payments are not required, you are still responsible for covering ongoing housing costs. These include:

  • Property taxes
  • Homeowners insurance
  • Flood insurance premiums, if applicable
  • Routine maintenance on your home

Failure to pay taxes or maintain insurance can lead to default, even if you’re current on all other aspects of the loan. This misunderstanding is common, especially when families assume the loan covers “everything.” It does not.

In fact, the Department of Housing and Urban Development (HUD), which oversees the HECM program, has made it clear in multiple bulletins that the borrower’s responsibilities remain in place for the duration of the loan.

If you’re unsure whether a tax bill applies to you—or if you received a note or letter from your servicer that’s unclear—it’s okay to request clarification. Don’t ignore the message. Reach out for help.

You can also ask a counselor to review your HECM portfolio to see what’s required and whether there are any upcoming obligations you may have missed.

Commercial Banks and the Changing Reverse Mortgage Market

In the early days of the HECM program, commercial banks played a major role in the reverse mortgage market. Big names like Bank of America and Wells Fargo once issued large volumes of these loans. But after the housing crash and growing scrutiny of reverse mortgage risks, most large banks exited the space.

Today, the reverse mortgage market is primarily made up of non-bank lenders and specialty firms. While this has created more flexible offerings, it also raises concerns about oversight and education. Without the traditional infrastructure of commercial lending, many borrowers rely on independent brokers or marketing campaigns that may not fully explain the long-term obligations involved.

This shift makes it even more important for borrowers to receive thorough complete counseling and use trustworthy resources, like Credit.org’s reverse mortgage eligibility guide, before deciding.

Principal Residence Requirements: A Common Source of Confusion

A key requirement of every HECM loan is that the property must remain the borrower’s principal residence. That means they must live in the home for the majority of the year. Vacating the home for more than thirty days due to medical issues or relocating to assisted living can trigger loan default if not handled properly.

For example, if a homeowner is hospitalized and later enters a rehab facility, the lender may send out an occupancy verification form. If the borrower or their surviving spouse does not respond or cannot prove residency, the loan may be considered in default.

Misunderstanding this rule is common, especially among older homeowners who may rely on family members or caregivers for help managing their finances. That’s why it’s so important to involve family during housing counseling sessions and discuss long-term plans.

FHA’s Financial Exposure and Industry Reforms

The Federal Housing Administration (FHA) insures the vast majority of hecm loans, which means taxpayers are on the hook when things go wrong. When a reverse mortgage loan ends in default or becomes a charge off, FHA pays the lender and absorbs the cost.

The 2023 HUD actuarial report on the HECM program revealed that losses on defaulted loans and foreclosures have strained the mutual mortgage insurance fund. The report showed that while financial assessments have reduced new defaults, older loans originated before the rule changes still represent the highest risk.

These findings have led to several policy changes, including:

  • Requiring financial assessments before loan approval
  • Limiting upfront draws on lump sum payouts
  • Setting aside funds to ensure borrowers can pay taxes and insurance

These changes have reduced delinquency rates, but challenges remain. Borrowers still need support, especially those aging into new stages of life.

Financial expert reviewing reverse mortgage default data and trends in a report with charts and calculator on desk.

What Happens When a Reverse Mortgage Is Charged Off

Sometimes, despite everyone’s best efforts, a reverse mortgage ends in a charge off. This means the lender has written the loan off as a loss, often after repeated attempts to collect property charges, reach the borrower, or resolve a serious default.

A charge off doesn’t necessarily end the obligation. The loan may still be in foreclosure, and the property could be repossessed to recover the unpaid money. For the borrower’s family or heirs, this can be an emotionally and financially stressful process.

Charge-offs often occur late in the loan life cycle, especially after the borrower dies, and no action is taken by the estate. The FHA tracks this in its annual reports by fiscal year, monitoring how many loans are charged off and how much is recovered from each HECM portfolio.

These figures are used to calculate the program’s ongoing financial health, including the interest earned, losses absorbed, and the broader impact on the Mutual Mortgage Insurance Fund. As these trends are made publicly released, they inform future changes to borrower protections and counseling requirements.

Ultimately, avoiding a charge-off is about being proactive. Keep communication open. Make sure your family is informed. And if you get a request for information from your lender, respond right away, even if you’re not sure what it means. A quick call could make all the difference.

Servicing Fees and Loan Maintenance

Another factor that affects borrower outcomes is how well their loan is serviced. Loan servicers are responsible for communicating with borrowers, sending occupancy certifications, and flagging problems before they lead to foreclosure.

Poor communication from a servicer can lead a homeowner to owe taxes or miss important notices, putting them at risk. Servicing fees are sometimes charged to maintain the loan, but not all servicers provide equal service. If a borrower dies and heirs don’t act within the allowed time to sell or refinance, the loan may enter foreclosure.

HECM servicing also involves managing home equity lines, coordinating with insurance companies, and responding to changes in the property’s appraised value. With aging borrowers, complex family dynamics, and communication challenges, good service is essential.

Borrowers should look for lenders and servicers with a strong reputation and transparent practices. Choosing a HUD-approved counselor like Credit.org for support can make a big difference.

The Role of Complete Counseling and Education

Complete counseling before initiating a reverse mortgage is not just recommended; it’s required. But not all counseling experiences are equal. Borrowers should choose a HUD-certified counselor who explains:

  • How the loan affects loan balance
  • What happens when the borrower dies
  • The consequences of failing to pay taxes
  • How the loan impacts a surviving spouse
  • What to do if they need long-term care or move

The counselor should also explain alternatives, such as downsizing, local assistance programs, or using a retirement planner calculator like this tool from Credit.org to project income needs and evaluate other resources.

Counselors can also help clarify how the loan affects home equity, how servicing fees work, and how to keep the home insured and maintained.

Publicly Released Data on Reverse Mortgage Performance

A 2016 brief from the Center for Retirement Research highlighted the percentage of borrowers struggling with ongoing housing costs. Their research showed that while reverse mortgages helped reduce some financial pressure, too many borrowers still failed to maintain the home, pay property charges, or understand their obligations.

Additional data has since been publicly released through the FHA and HUD, showing:

  • Delinquency rates spiked for loans issued before 2015
  • Defaults were highest among low-income borrowers with limited assets
  • Borrowers with inadequate income were more likely to default
  • Higher appraised value did not always prevent foreclosure

These findings highlight the importance of proactive planning, clear communication, and borrower education.

When the Borrower Dies: Timing and Responsibility

When the borrower dies, the reverse mortgage comes due. Heirs typically have thirty days to respond and six months to pay off the loan or sell the home. If there is a surviving spouse who qualifies under HUD guidelines, they may be able to remain in the home under a “non-borrowing spouse” provision.

However, these rules have changed over the years. Many heirs are caught off-guard by the timeline and don’t know their rights or responsibilities. That’s why it’s important for families to have early conversations and involve loved ones in financial decisions.

Without proper planning, heirs may face sudden foreclosure, and the remaining home equity could be lost. Ensuring that payments, insurance, and taxes are up to date can help avoid this outcome.

Real-Life Examples: How Reverse Mortgage Defaults Can Be Avoided

Let’s look at a few simple, human examples to show how reverse mortgage default can happen, and how to prevent it.

Example 1: Fixed Income and Rising Property Charges

Maria, age 74, lives alone in her longtime home in Florida. She took out a reverse mortgage five years ago to help cover daily expenses. Her lender never made it clear that she still needed to pay property taxes, homeowners insurance, and homeowner association fees.

Recently, Maria’s property taxes increased, and her fixed Social Security income no longer covered everything. She missed two property tax bills and was surprised to receive a default notice.

Fortunately, Maria called a nonprofit counselor and learned about Credit.org’s reverse mortgage default counseling. With their help, she got on a repayment plan and applied for a local assistance program to help with taxes. She avoided foreclosure, but only because she acted quickly.

Example 2: Hospital Stay Leads to Miscommunication

George, age 82, had a fall and was hospitalized for over a month. His reverse mortgage servicer sent him an occupancy certification form during his absence, but no one in his family opened the mail. When the lender didn’t receive a response within thirty days, they flagged the loan for default due to presumed vacancy.

Luckily, George’s daughter found the paperwork in time and called the lender. She provided proof that her father still intended to return home. The situation was resolved, but it shows how fragile things can be.

Example 3: Heirs Caught Off Guard

After Evelyn passed away, her son Mark discovered she had a reverse mortgage. He had no idea what a HECM loan was, and by the time he understood the process, the lender had begun foreclosure.

If Evelyn had used tools like a retirement planner calculator or had involved Mark in her original housing counseling, he would have been ready to act.

These stories are common, and they show that education, planning, and communication are the most important protections a borrower can have.

Key Takeaways on Default Risk and HECM Loans

For anyone considering a home equity conversion mortgage, or already in one, here are some simple but essential takeaways:

  • You must continue paying taxes and insurance. Default often happens because of missed payments, not because of the loan itself.
  • The home must remain your primary residence. If you move out, even temporarily, you may risk foreclosure.
  • Counseling is not a formality. It’s your best opportunity to ask questions, involve family, and get clear answers.
  • Talk to your servicer. If you get a letter or call, respond. Avoiding communication can speed up default actions.
  • Plan for what happens next. Whether that’s aging in place, entering care, or passing on your home, your heirs need to know what to expect.

A Look Ahead: Can Reverse Mortgages Be Made Safer?

The vast majority of borrowers benefit from reverse mortgages when used wisely. But risks remain, especially for vulnerable populations.

The reverse mortgage industry continues to evolve. Lenders are improving communication. HUD and the FHA are updating rules to protect borrowers. And non-bank lenders are exploring new products that may reduce the need for lump sum payouts, which can drain equity too quickly.

But the best safeguards still come down to:

  • Careful financial planning
  • Ongoing education
  • Open family conversations
  • Choosing the right counselor and lender
  • Using data tools and support services

If you’re uncertain, Credit.org’s article on long-term planning with reverse mortgages can help you evaluate whether this loan type is the right fit.

Get Help Before You Fall Behind

If you or someone you love is struggling with reverse mortgage challenges, there is help available. At Credit.org, we provide free housing counseling to help borrowers avoid default, maintain their homes, and make smart financial choices.

Visit Credit.org’s Reverse Mortgage Default Counseling page to speak with a HUD-certified counselor today.

Don’t wait until you receive a default or foreclosure notice. Acting early gives you the best chance to stay in your home and protect your financial future.

Jeff Michael
Article written by
Jeff Michael is the author of More Than Money, a debtor education guide for pre-bankruptcy debtor education, and Repair Your Credit and Knock Out Your Debt from McGraw-Hill books. He was a contributor to Tips from The Top: Targeted Advice from America’s Top Money Minds. He lives in Overland Park, Kansas.
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