Key Takeaways
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Boomers face a retirement gap but hold $17.3T in home equity, making reverse mortgages an essential option for financial security as more choose to age in place.
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Effective tax management is critical. Reverse mortgage borrowers remain responsible for taxes and insurance, and missteps can quickly lead to foreclosure and servicing risk.
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Specialized tax servicing is a competitive advantage, helping lenders reduce defaults, protect borrowers and scale sustainable reverse mortgage programs.
America is getting older—and quickly. Today, nearly 17% of the population is 65 or older, and by 2050 that number will climb to 22%. At the same time, 66% of baby boomers—the generation holding the majority of U.S. real estate wealth—say they plan to age in place. This powerful demographic shift is fueling demand for reverse mortgages, which allow seniors to unlock the value of their homes without giving them up.
Baby Boomers Haven’t Saved Enough Money for Retirement
While there could be several reasons for boomers’ financial condition, the statistics aren’t painting a pretty picture:
- The median retirement savingsof baby boomers is $202,000.
- Forty-three percent of 55-to 64-year-olds had no retirement savings at all in 2022, according to the Federal Reserve Board.
- The National Council on Aging estimated 17 million people over 65 are considered economically insecure.
The 4% rule is a general guideline recommending an annual withdrawal rate for retirees so that retirement savings can last at least 30 years. If American households between the ages of 55 and 64 are spending $78,000 each year, retirement savings would need at least an aggregate value of about $2 million to keep with this level of annual spending in retirement — a far stretch from the average $200,000 in savings for this aging demographic.
Baby boomer homeowners are sitting on a ton of equity right now. According to the Federal Reserve, they hold $17.3 trillion in home equity, roughly 50% of the country’s total equity, and the average home equity held by Americans 65+ is roughly $250,000. This is in large part due to so many of them — 83% of homeowners with a fixed-rate mortgage—having let their property build equity over time.
Reverse Mortgages Remain a Steady Retirement Option
For more than 30 years, Home Equity Conversion Mortgages (HECMs) have been the backbone of the reverse mortgage market. Since 1990, more than 1.3 million older homeowners have taken advantage of HECMs to tap into their home equity. In 2024 alone, 26,501 HECMs originated and insured by the FHA – showing that while volumes aren’t surging, the product continues to be a meaningful solution for many seniors.
Reverse mortgages remain a critical retirement tool—but their success hinges on one key factor: effective tax management. Unlike forward mortgages, reverse mortgage borrowers are no longer required to make monthly principal and interest payments. However, they remain responsible for paying property taxes and insurance, and this obligation can become a critical point of vulnerability. If taxes or insurance go unpaid, the result can be foreclosure—an outcome that not only undermines the borrower’s financial security but also increases risk for the servicer.
What makes reverse mortgages especially challenging is that errors or oversights in tax management are more difficult to correct than with traditional loans. A misstep in how payments are applied, or even a small error at loan setup, can grow into a serious problem over time. This is why timely, accurate and carefully structured tax management is so essential. It safeguards borrowers, ensures compliance and gives servicers the ability to protect their portfolios from unnecessary losses.
The LESA Challenge
Reverse loans are generally set up in one of two ways:
- Non-Escrow Accounts – Borrowers are responsible for paying taxes directly as they come due.
- LESA (Life Expectancy Set-Aside) Accounts – Funds set aside at origination to cover anticipated taxes and insurance over the borrower’s life expectancy.
LESA accounts are designed with the best of intentions: to protect borrowers from tax defaults. But their accuracy depends on life expectancy estimates made at closing. If a borrower outlives the projection—say their LESA was calculated to age 87 but they remain in their home until 96—the account may run dry. At that point, responsibility for tax payments shifts back to the borrower, often creating financial strain and heightened foreclosure risk.
Why Specialized Tax Services Matter
Managing taxes in a reverse portfolio requires more than manual tracking—it demands precision, expertise and technology. LERETA’s Reverse Mortgage Tax Group provides:
- Real-time tax data and delinquency alerts
- Expert professionals who understand reverse loan nuances
- Advanced systems designed to manage both LESA and non-escrow structures
- Proactive monitoring to reduce risk and protect borrowers
The result? Fewer tax defaults, lower servicing costs and better borrower outcomes.
As millions of seniors enter retirement with limited savings but substantial home equity, reverse mortgages will play an increasingly vital role in financial security for many. For lenders, that means scaling reverse mortgage programs is less about origination and more about sustainable servicing.
Partnering with a tax service provider that specializes in reverse mortgages isn’t just a compliance safeguard—it’s a competitive advantage. With LERETA, lenders can confidently expand their reverse offerings while ensuring the most important outcome: borrowers protected for the long run.
