Stabilizing Reverse Mortgages: Can Property Tax Relief Programs Help Seniors Age in Place?

Reverse mortgages have become an increasingly popular tool for older homeowners to age in place. This unique type of loan allows homeowners to withdraw equity from their home with no required payment until they vacate the home and is particularly well suited for older homeowners who might not have access to more traditional financial products, like home equity lines of credit. The home equity conversion mortgage (HECM), the most prevalent reverse mortgage product for homeowners 62 years or older (and insured by the Federal Housing Administration), does not require HECM borrowers to make mortgage payments, instead requiring them to maintain the property and pay property taxes at the risk of foreclosure. Research finds that rates of property tax delinquency are significantly higher among HECM borrowers (17.5 percent) than national rates among homeowners (2.6 percent). Could increasing the participation rates in property tax relief programs help combat this imbalance? This study explores this question by examining HECM borrowers’ participation in senior property tax relief programs in Cook County, Illinois, and estimates the probability of tax default based on participation in the program.

To conduct their analysis, researchers matched property tax records from the Cook County Treasurer’s Office with mortgage data for HECM borrowers between 2011 and 2017. The property tax records included information on whether households participated in the four property tax relief programs in Cook County: the homestead exemption, the senior citizen homestead exemption, the senior citizen assessment freeze exemption, and the senior citizen tax deferral program. For this study, researchers focus on the first three programs, examining participation rates among a sample of eligible HECM borrowers who meet the minimum age and occupancy requirements. The researchers examined the predictors of participation based on the borrower’s age, race and ethnicity, annual income at loan origination, household tax burden, the type of HECM counseling received at origination, and whether the mortgages are signed by single-male or single-female borrowers. Researchers then conducted a regression analysis to understand the relationship between participation in property tax relief programs and rates of property tax default.

The study found that more than 40 percent of active and eligible HECM borrowers do not participate in the senior homestead exemption, forgoing significant savings on their tax bills. Researchers also found that participation in the senior homestead exemption is associated with a 60 percent reduction in the likelihood of property tax default.

Key findings

• Overall, 24 percent of active and eligible HECM borrowers do not participate in any property tax relief programs, 39 percent do not participate in the senior homestead exemption, 26 percent do not participate in the homestead exemption, and 54 percent do participate in the senior citizen assessment freeze. Collectively, these households overpaid a total of $1.1 million in property taxes between 2011 and 2017.

• Across all programs, older HECM borrowers are more likely to participate in the property tax relief program, but the participation rate diminishes with age. Additionally, borrowers with higher incomes and higher tax burdens are more likely to participate in the program.
• Single-male borrowers are less likely to participate in both the homestead and senior citizen homestead exemptions compared with coborrowers in the sample, and those who received HECM counseling after age 65 are associated with lower participation rates for the homestead and senior citizen assessment freeze exemptions.
• Participation in the senior homestead exemption program is associated with a 60 percent decrease in the risk of property tax default. 
• Participation in the general homestead exemption and the senior citizen assessment freeze is associated with a reduction in the probability of property tax default by 25 and 43 percent, respectively.

• Single-headed households were associated with an increased probability of tax default. If their participation rates matched those of their coborrower counterparts, tax defaults among HECM borrowers could be reduced by 26 percent.

Policy implications

• Increasing HECM borrowers’ participation rates in property tax relief programs could reduce the likelihood of tax default, increase savings for tax burdened households, and reduce delinquency-related expenditures for the federal government.
• The authors note that participation rates among older adults could be improved by better administration of tax relief programs at the local level. For example, local administrators could automatically grandfather in households as they become eligible, automatically renew eligible households that have applied in previous years, and automatically enroll households who may only apply to one exemption but qualify for multiple. These strategies are working in places like Dallas County, Texas, where in 2015, more than 75 percent of HECM borrowers were enrolled in the county’s senior property tax exemption.

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