Misconceptions about reverse mortgages and their ability to improve retirement security are common among financial advisors.
Ask most financial professionals what they think about reverse mortgages, and most likely you’ll be told they don’t like them. Or, they are loans for the desperate and should be avoided. What a shame. If they only knew that a reverse mortgage might provide a practical and valuable solution to client cash flow and liquidity needs. Moreover, reverse mortgages may address the growing fear among aging Americans today – fear of running out of money in retirement.
The Problem – Outdated Thinking
The problem emanates from old-school financial planning practices that focus principally on investment and insurance products to solve clients near and longer term financial needs. In short, they concentrate on managing financial wealth excluding consideration of home equity (housing wealth) in the planning process. However, when housing wealth is included in the planning process, the results can be radically different.
The Solution – Comprehensive Planning Including Housing Wealth
The movement toward utilizing housing wealth gained momentum after the Great Recession (2008-2013) when retirement think-tank experts and academic researchers documented the retirement income crisis in America today. This national emergency affects large and growing numbers of not only low, but middle and upper income Americans as well.
Simply stated, people have not saved enough to fund retirement. Clearly, there are no quick-fixes, but the experts agree that housing wealth has been an overlooked resource that may provide a solution to improving and extending financial security.
More specifically, their directive is that housing wealth considerations, including reverse mortgages and other equity release options, be included in financial planning protocols. Properly implemented, including the monetized value of housing wealth along with financial and insurance resources may well improve and enable the plan to achieve greater success.
Financial Planners – Limited Awareness and New Opportunity
Respected author, educator and one of the nation’s leading experts on housing wealth and reverse mortgages, Don Graves, RICP®, president and founder of the Housing Wealth Institute, summarized his experience interviewing financial advisors across the country, with these questions:
- What percent of your clients at or near retirement could use a newly constructed reverse mortgage?
Answer – 5% to 10%
- What percent of your clients are 100 percent confident they will have a great retirement – not what you feel, but what they feel?
Answer – very few
- If there was a resource that would: (1) Increase their cash flow; (2) Reduce the risk of running out of money; (3) Improve their liquidity, or provide access to additional funds; and (4) Reduce sequence of return risks – What percent of your clients would want you to tell them about it?
Answer – 100%
- You said five to ten percent might need a reverse mortgage, but one hundred percent would want you to tell them about the newly constructed reverse mortgage.
To be fair, the ranks of financial advisors incorporating housing wealth and reverse mortgage considerations in their planning practices are growing. However, there is a long way to go to achieve mainstream acceptance. Without question, the great majority of certified financial planners and advisors are knowledgeable ethical professionals committed to serving the best interests of their clients. The issue at hand is lack of knowledge and adherence to outdated ways.
Well intended as old-school advisors may be, they just don’t realize how their lack of knowledge and limited perspective may be short-changing their clients’ best interests.
The HUD/FHA Insured HECM Reverse Mortgage
Accounting for over 95 percent of all reverse mortgages, the dominant program is the HUD/FHA insured Home Equity Conversion Mortgage (HECM) reverse mortgage. In a nutshell, the HECM reverse mortgage is an innovative solution enabling senior homeowners (62 and older) the ability to convert a portion of their home equity to cash without giving up title ownership, selling the home, or taking on the burden of monthly payments. As long as the loan is in good standing, the FHA federal insurance guarantees they can live in the home as long as they want with no maturity date, can sell at any time, and never have to repay more than the property value, even if the loan balance is greater than the value at that time.
To keep the loan in good-standing, borrower obligations are limited to: (1) keeping real estate taxes and homeowner insurance current, (2) performing basic maintenance, and (3) continue living in the home as their primary residence.
BREAKING NEWS – Jumbo Reverse Mortgages Now Available in Massachusetts
At the time of this writing, February, 2020, the Division of Banks (DOB) in Massachusetts and the Executive Office of Elder Affairs announced approval of new proprietary or jumbo reverse mortgage programs in addition to the HUD/FHA insured HECM reverse mortgage. The introduction of these programs provides Massachusetts home and condominium owners access to greater funding amounts, more choices, and fewer eligibility limitations.
George Downey (NMLS 10239) is the founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846), Rhode Island (20041821LB), NMLS #2846. Questions and comments are welcome. Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com