On December 9, 2019, Black Knight released its 3rd-quarter Mortgage Monitor Report and reported among other things that "cash-outs made up 52% of all Q3 2019 refinances, with homeowners withdrawing more than $36 billion in equity, the highest amount withdrawn via cash-outs in nearly 12 years. Given that tappable equity continues to grow $6.2 trillion as of Q3 2019 and the continued headwinds facing the HELOC market, this is a segment lenders and servicers may likely focus on in coming months [emphasis added]."[1]
Forbes reported that 41% of homes owned by Baby Boomers were mortgage-free in 2017. There were 25,661,552 Baby Boomer homeowners who comprise about 33% of total homeowners.[2] Baby Boomers who are ages 55-69 are a vulnerable population but the Forbes article highlights other "tappable" targets including the 68% of adults 70 and older that are mortgage-free; states with lower home prices have a greater number of homes that are free of a mortgage. States like West Virginia with 54% of mortgage-free homes, followed by Mississippi at 51% and Louisiana at 48%. [3]. You have investors targeting these homeowners using AI and gentrification is pushing the taxes so high that the elderly homeowners can't pay the taxes, many cities contribute to the equity theft by giving the elderly tax deferments rather than tax abatements, leaving the heirs to pay the accumulated taxes and interests or lose the property.
Are you starting to see my concern? No, not yet. Well, what if I told you that your house wasn't your only "tappable" asset. The number of 401(k) and IRA millionaires hit a record high as of Q3 2019.[4] According to reports, there are 200,000 401(k) millionaires and 184,000 IRA millionaires.[5] According to these same reports, the average 401(k) balance is $105,200, and the average IRA balance is $110,200.[6] Why does this matter you say? There is a new loan product called an (and I kid you not) "asset-depletion loan" that has its eye on up to 70% of your assets. While both Fannie and Freddie have asset-depletion loan programs, it is the Non-QM version I am most worried about. Many are marketing this as a reverse-mortgage product for folks regardless of their age. Some are allowing the depletion of retirement assets for investor properties or other uses. As a nation, we are woefully underprepared for retirement. The average person needs to save about $750,000 to be comfortable in retirement; we are way short of that number.
My greatest fear is a nation that is old, broke and homeless because of all the deregulation of rules we put in place after the last culling of our communities, our failure to address the pending Social Security crisis, and the dismantling of the social-safety net. It is important to transfer that wealth to the next generation and to keep those assets in our communities and not in the hands of Wall Street investors. As I always say, you want to be "tappable" but don't let just anybody "tap that asset".
[1] https://www.blackknightinc.com/black-knights-october-2019-mortgage-monitor/
[2] https://www.forbes.com/sites/brendarichardson/2019/07/26/nearly-40-of-homes-in-the-us-are-free-and-clear-of-a-mortgage/#10c5a40547c2
[3] IBID
[4] https://www.marketwatch.com/story/what-retirement-crisis-number-of-401k-and-ira-millionaires-hits-record-high-2019-08-21
[5] IBID
[6] IBID
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1
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