The Mortgage Market Is Misreading Its Retiree Borrowers

The mortgage market is producing inconsistent credit decisions on borrower profiles that it will encounter with increasing frequency. Borrowers aged 60 to 69 are currently 1.5% more likely to be rejected for a mortgage than younger applicants. Those over 70 face a 2.7% higher denial rate. These numbers don’t reflect elevated credit risk. They reflect a measurement framework designed for a different borrower population and haven’t been updated to account for how wealth is held in retirement.

The numbers behind that population aren’t small. U.S. retirement assets reached $49.1 trillion at the end of 2025. A record 4.2 million Americans turned 65 that same year. The tools being used to evaluate this segment of the purchase and refinance market are producing results that don’t hold up under scrutiny. 

When sound financial planning looks like a liability

Conventional underwriting was built on a correlation that held for most of the 20th century: income flow and financial strength moved together. Document the salary, run the DTI, and the framework will tell you something meaningful about repayment capacity. For retirees, that correlation breaks down.

Strategic drawdown is the entire point of retirement portfolio management. Retirees take only what they need in a given period to manage tax exposure, preserve capital and maintain flexibility. The result is that their documented income often bears little relationship to their full financial position. A borrower with $1.2 million in liquid assets drawing $2,500 a month looks considerably worse on paper than a salaried employee earning $80,000 a year, despite carrying a fraction of the repayment risk.

Rate and price dynamics have deepened that distortion. DTI ratio was the primary reason cited for mortgage denials in 35% of cases in 2024, up from 29% in 2018. For most borrowers, that reflects actual debt load. For retirees drawing down strategically, it reflects documented income that understates their financial position, a different problem producing the same outcome.

The rate environment has made this worse. Social Security income that cleared DTI on a $400,000 loan in 2020 supports considerably less borrowing at 6% or 7%. Median home equity for Americans 65 and older has risen roughly 47% since 2019, which means the loans retirees need have grown while the income the framework recognizes has contracted. The measurement hasn’t drifted slightly off. For a significant share of this population, it’s producing the opposite of an accurate credit read.

One assumption, two markets

Asset depletion lending addresses this directly, and its basic mechanics are worth understanding clearly because the details are where the market diverges. 

Rather than requiring traditional income documentation, lenders calculate a synthetic monthly income figure from verified liquid assets. Eligible assets, including brokerage accounts, retirement accounts and liquid savings, form the qualifying base. Illiquid holdings are excluded. Retirement accounts are haircut by roughly 30% to account for taxes and withdrawal costs, and the adjusted total is amortized across a set time horizon to produce a synthetic monthly income figure. That figure then runs through standard DTI analysis the same way employment income would.

The methodology is well established. Both Fannie Mae and Freddie Mac have provisions for asset-based qualification, which means it carries agency-level acknowledgment. What creates the market divergence is a single variable: the time horizon used to amortize the asset base.

GSE guidelines divide assets over 360 months. On a $1.2 million asset base, after the standard retirement account discount, that produces roughly $2,300 per month in qualifying income. At current prices and rates, that number closes very few loans. 

Non-QM lenders typically use a 60-month horizon. The same asset base generates approximately six times that monthly figure. The underwriting rationale is identical in both cases. So is the borrower. Yet one assumption leads to denial, while the other leads to approval.

This is the mechanism behind a pattern that, from the outside, looks like inconsistent standards. Two lenders evaluating the same retiree applicant can reach opposite conclusions without either making a technical error. Both are operating under frameworks that define the qualifying borrower population differently.  Non-QM rates do run slightly higher than conventional, but for a borrower who qualifies comfortably under one formula and doesn’t qualify at all under the other, the rate differential is rarely what determines the outcome. 

What closing the gap requires

Originator awareness is part of the picture, but the structural work sits elsewhere. Lenders without non-QM asset depletion in their product set are leaving this population unserved, regardless of how well their loan officers understand the mechanics. That’s a product and investor infrastructure issue, and training alone won’t close it.

The secondary market component is worth naming directly: asset depletion loans need consistent investor appetite to scale, and non-QM execution still carries pricing and disposition variability that conventional channels don’t. That’s a reasonable operational consideration, not a reason to avoid the product, but it shapes how lenders need to think about building capacity here.

The agency side of the equation is also in motion. The 360-month horizon is a policy choice, and as the retiree borrower population grows, the case for revisiting it strengthens. The defined contribution shift accelerates that pressure considerably. As defined-benefit pensions continue their decline and 401(k)-based retirement becomes the dominant model, the accumulator profile becomes the default borrower, and qualification frameworks will need to reflect this.

The denial rates for older borrowers do not reflect actual differences in credit performance. They’re tracking a documentation standard built for earned income and applied without adjustment to accumulated wealth. The tools to evaluate these borrowers accurately already exist, and the market pressure to use them consistently is building. The borrower population driving that pressure is moving in only one direction.

By Eric Bernstein, President and Co-founder of LendFriend Mortgage
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.