You paint a picture many of us know by experience. Like you, I really wish seniors had other practical solutions but we play the hand we are dealt without becoming what we aren't — financial advisors.

Yes, I am familiar with the closed ended Fixed rate HECM. I only offered that info in regards to this statement

“Seniors are much more at risk of making bad decisions when they must take all of the proceeds and invest them to offset the accruing interest on their HECMs and to mitigate shrinking their overall estate.”

just giving another option, and yes, I explain to the senior that if they do deposit unwanted funds back in to the equity of their home and then need that money later on, that they will need to refinance. Ultimetly it is up to them. I don't try to be a financial advisor when I am counseling them. I believe that it is my job to make sure that they understand exactly how this loan works, both fixed and adjustable, all of the benefits, so that they can make a decision on what is best for them.

I should also clarify, all of the loans that I am doing now and in the last 6 month have been the fixed rate due to the senior choosing that plan, in all of 2008 every loan I did was the adjustable rate. Each one provided the greatest principal limit for the customer and due to their choices I would say that maximizing their loan amount was their greatest priority. Of course over 70% I would say would have had to bring money to close had they chosen any loan but the one with the greatest pricipal limit.

If the senior attempts to save costs by paying back proceeds, what does the senior do (if and) when more more funds are needed? That is why fixed rate HECMs are classified as closed end. They will need to get a new HECM with additional upfront costs. Not a great situation.

In 2008, we did many adjustable rate HECMs. After a year and one-half, many are still accruing interest at less than 2%. Several of them have annual rate HECMs and are accruing interest at less than 3% (and some slightly more). The latter group will never see their rates exceed 8.5% and in some cases less.

Too many overlook the annual rate HECM as a reasonable compromise. Most borrowers who take this option do not need even 50% of the proceeds over the next five years and by then, they will have more proceeds available in their line of credit. I think more originators need to spend more time with the seniors looking into their options rather than taking the easiest route to a HECM.

There may be some salespeople that steer borrowers towards fixed rates when an ARM may be better, but if that is occuring it certainly isn't limited to brokers. What does the struture of the business have to do with that?

As some of the readers have stated below, there are several reasons why a homeowner might select a fixed rate over an ARM. Defining “correct option” is impossible.

The amortization schedule for a fixed rate HECM (that all applicants must sign)clearly shows the rate at which equity is consumed by interest. The amortization schedule for an ARM applicant isn't as accurate, since it is often unknown when advances will be made and the interest rate may increase. For this reason, disclosure on a fixed HECM is already much better than on an ARM without any added forms. Applicants know exactly what their loan balance will do over time.

Also, at this point, every loan I do is a fixed rate BUT I tell the client about fixed AND variable and THEY choose fixed because it allows for a larger loan AND they want a FIXED rate instead of a variable rate.

Sorry to make a blanket statement about all mortgage brokers. The only thing I can go on are the seniors I have come across who were comparison shopping.

Since Met life initiated the fixed rate I have pesonally met with several seniors who were being steered towards a fixed rate when they were the inappopriate product.

In each case it was by a mortgage broker. If I personally came across that many I can only wonder about how many are being done. In conclusion the only reason would be the money earned on the back end. You would be naive in thinking this is not going on.

If not discontinuig the YSP another review or safeguard has to be put in place on the fixed rate product to insure it is the correct option. Possibly a disclosure signed by the borrower during counseling as to why they are taking the entire amount.