Thanks Admin,

I have been reluctant to mention other uses for RM proceeds for fear of sounding like I am recommending “inappropriate products” to “unsuspecting seniors (US).
I happen to be a US and, if I ever get an RM on our co-op, I would like to use part of the proceeds for a partial Roth conversion in 2010 (a highly recommended strategy, since there are no conversion limits in 2010).
If there is one thing I have learned in over 30 years in the financial services industry, its that people really hate to reach into their pockets, even if its for a good cause (like, for Long Term Care Insurance). But, offer a “deal/susidy/tax break, etc., and they are more inclined to do something (think, clunker rebate).
That's why the RM is not just “a last resort” but a true financial planning tool.

Yes, the use of RM's for longterm financial planning is taking place, but oh too slowly. If you were to compute over a 10-15 period of time the tax savings if taxable income was replaced by tenure payment, it can be huge. Deferring social security for the purpose of receiving a higher ss payment in the future, is another way that it can be used.

I am a firm believer that we will progress here, but it may not be for several years for planners to feel comfortable with it. In the meantime, they really can do a disservice to their client base by not providing “out of box” options.

It is hard to say what the originator was thinking when he gave his statement but what horrible timing. With states pushing suitability rules, our subsidy in jeopardy, regulators looking into our marketing practices, and Senator McCaskill on the attack, the association of anyone in the industry with an article advocating the use of reverse mortgages (“RM”) proceeds to acquire insurance products is hardly a high mark. While in all likelihood not intended, this article was like waving a red flag in front of a bunch of bulls.

When one realizes who the author, John P. Napolitano, is then the article is much less of a surprise. Mr. Napolitano is a very sophisticated financial planner. He holds a CPA, CFP, PFS, and MST. The PFS is an earned designation awarded only to holders of both a CPA and CFP. His MST is no doubt a masters of science in taxation. His company is not a CPA firm instead it is FINRA registered and provides investment advice along with selling insurance and financial products to assist the truly wealthy with increasing their wealth and more importantly holding on to it.

What is a surprise is that the originator allowed the name of his employer to be associated with the article. The article makes the originator and employer look like little more than pawns in this marketing ploy to get seniors with available RM proceeds to consider investing in real estate, life insurance, and long-term insurance. The timing for the release of the article is incredibly bad.

In the way of estate planning, there is absolutely nothing new in the article, not even the use of RM proceeds in acquiring life insurance through an ILIT (an irrevocable life insurance trust) or in taking advantage of tax provisions. The estate tax planning techniques promoted by Mr. Napolitano were much more viable to many more seniors when the estate tax unified credit was much lower; now with lower real estate values, lower portfolio values, and lower pension values plus a much higher estate tax unified credit those estates which will potentially be subject to the estate tax have dropped dramatically since 2006. Until legislation stops it, the estate tax will not even be applicable on those estates whose decedents pass away during 2010. After 2010 when the estate tax laws revert to the way they were in effect before the Bush (yes George W.) Administration, the estate tax ideas promoted in the article should be much more viable for many more seniors than now.

The admonition about the interplay of gifts and the estate tax are of limited value for most seniors and even many of the affluent unless the affluent are not taking advantage of the annual gift exclusion or are paying gift taxes that will ultimately be applied against an estate tax. That strategy could change with a new tax bill or perhaps more importantly in 2011 anyway.

The problem with most of the techniques is they are truly for the affluent and work best with proprietary RMs, not HECMs. So why would an originator who only offers HECMs be associated with the article? Mr. Napolitano writes: “Paul Savery, a RM consultant with …, says some people have used RMs to buy or improve a second home. With the substantial slide in real estate prices throughout the Sun Belt, some wealthy homeowners are going bargain-hunting with their RM line available to quickly close on beautiful second homes being sold by distressed sellers.” The name of the employer prominently follows the name of the originator and then this paragraph is placed at the first of the article before presenting other ideas on how to use RM proceeds. What an excellent marketing technique of making the RM employer look as if it is not against the use of its name being associated with the ideas being promoted. You have to hand it to Mr. Napolitano; he is brilliant and knows marketing.

To me and others like Senator McCaskill this appears like a “back door” recommendation by the lender for seniors to use available RM proceeds to buy insurance products. It is the last sentence in the quotation in the paragraph immediately above that is so interesting; Mr. Napolitano does not say the sentence is the conclusion of the originator but Mr. Napolitano sure makes it look that way. Notice the originator did not caveat what he said by adding something like, “I don’t recommend borrowers do this but we are observing…” or words to that effect. Further many hold the idea that if you want to make money you follow what the wealthy do – which here is using available RM proceeds to buy real estate, life insurance, and long-term care insurance.

At a time when our industry is taking so many hits, having originators/consultants involved with indirect marketing that includes USING RM PROCEEDS to purchase of life and long-term care insurance is less than prudent. It is hard to say why the originator chose to be involved in providing what could amount to more fodder for the detractors of the HECM program.

Now some may argue that I do not know if this was the intent of either the originator or Mr. Napolitano. Further, the originator may not have even known Mr. Napolitano was going to make the other remarks. But is that really the issue? The result is just the same. Certainly the article is no halo for the industry or the employer in particular — I tend to see it as a black eye, i.e., it looks pathetically bad but we will easily survive. In all likelihood neither Mr. Napolitano nor the originator are the bad guys here but this article clearly shows that all of us need to be on the guard regarding what we say and how it will be used by others.

gulli5

Hadn't thought about that one. Just goes to show you that money can be a Swiss knife.

Mr. Veale,

Let me set the record straight, I don,t like the clunker program.
I do love LTCI, own it, sell it and agree with the Federal, and NY State tax people that subsidize purchases with deductions and for NY an actual credit. It would take more than one beer (or a Margarita) for us to get off the front porch on this one.
As far as Roth conversions go, you can argue with the folks that feel taxes will be going up and placing some portion of ones nest egg in (if they don't change the law) into a Roth. A Roth may make sense if it is not too big tax burden at the year of conversion. Combined with Tenure, a Roth, I feel, makes a better plan to manage retirement monies (again, for some folks). It's all debatable and I understand your viewpoint.
I also, hope that articles like this will not open a flood gate of inappropriate sales.
I found an interesting quote in the Connpost article, above:
“Richard Fisher, an attorney who works in the elder law and estate planning field for Cacace, Tusch & Santagata in Stamford, said seniors should explore their alternatives, such as getting a home equity loan, which doesn't have the high fees of a reverse mortgage and generally has lower interest rates, or selling the house and moving to a smaller accommodation.

One concern is that some financial professionals have been aggressively marketing investments to seniors for their reverse mortgage proceeds, such as deferred annuities, that are inappropriate for many older people because they tie up retirement savings, but Fisher said none of his clients have run into that.”

Is it possible there is not so much abuse as generally thought?

I suppose that if I love annuities I could justify cross selling with RM proceeds, but we all know that we are not supposed to do that and it only hurts the industry. Maybe I've been naive and should go get my insurance license and let the good times roll?

I suppose that if I love annuities I could justify cross selling with RM proceeds, but we all know that we are not supposed to do that and it only hurts the industry. Maybe I’ve been naive and should go get my insurance license and let the good times roll?

No, but you could start on a professional designation, such as CFP, CLU, ChFC or equivalent, for the bigger picture view, and not just to push products. Not that some with designations don’t just push product, it just lessens the abuses. rnAs an industry- the Financial Services Industry- it feels like we are fragmented. Some posters here feel that “planners” view RMs as “toxic”. To the extent that that is true, planners are the losers and so are the seniors we are all trying to help.rnTo my view proper financial/estate planning should be comprised of many elements: accountants, bankers, lawyers, insurance and securities persons, reverse mortgage people and social workers (not a complete list, just alphabetical). We can’t all be experts in all areas, but I think it is foolish to ignore certain products/tools/documentation. Mainly due to abusers and over zealous regulators, we are all over sensitive and guarded. I don’t know, its a conundrum.

Mr. Veale,
As I have posted elsewhere, it might be useful if Continuing Education (CE) course(s) were available on RMs. We insurance licensees also need CE credits, and most financial planners are insurance licensed. This could at least peak the interest of the more open minded FPs. All you need is a foot in the door, we are a little like lemmings with new products. Also, a little information I have found out about FP's thinking. I think, they are not calling RMs toxic, but rather the industry. They are afraid that the association with the RM industry, which they perceive to be under attack, could be catching. We FPs are a little skittish since we have been under attack many times. And, unfortunately, they hear the McCaskill untruths, and don't have the time or the inclination to ferret out the truth.

dduck12,rnrnWe need to separate this type of abuse from insurance licensees and securities licensees into two sources . Cross selling seems to be very limited because there are so few such licensees who also originate reverse mortgages. As to the other licensees, the amount of abuse is simply unknown. rnrnI have yet to hear anyone suggest a number of abusive transactions that can be substantiated. Maybe that info exists but if it did, I am sure Senator McCaskill would have been promoting it if it supported her side and NRMLA if it supported our side.rnrnAs a CPA I am required to attend a minimum of 80 hours of continuing education every two years. Not once at a single event I have ever attended (most have an audience of over 150 people) even one person who has spoken positively about reverse mortgages. The best I have heard (and many instructors opine) is that if your client cannot do anything else well then maybe a reverse mortgage — but have them exhaust all of their other alternatives before looking at a reverse mortgage.rnrnThere a wide array of financial professionals at the tax events, CFPs, CPAs, Securities Licensees, tax preparers, bankers, lawyers, company accountants and auditors, bookkeepers, paralegals, etc. In evaluating whether ot not to use the word “toxic” I could not find a better word for expressing how speakers and attendees react to the subject; it is as if they were subprime mortgages. Not all feel this way but the overwhelming sentiment is found in that word, “toxic”.rnrnThe interesting thing if we have time to talk, the comments usually run: “I didn’t know that,” “that’s not how I heard it,” I don’t personally know about them, I am just going by how my buddies say about them,” “Are you sure about that,” “well why would the instructor say that if it wasn’t true,” etc.