Financial Industry Regulatory Authority Issues Three Warnings For Hard Times

wall_street_journal_logo Over the weekend the Wall Street Journal published Three Warnings for Hard Times which discusses a recent notice from the Financial Industry Regulatory Authority about using reverse mortgages, 401(k)’s, and cashing in life insurance policies to weather tough financial times.

“Each of these should be considered strategies of last resort,” Mary Schapiro, chief executive of Finra, said in a speech. Finra was created by the merger of the National Association of Securities Dealers and the enforcement arm of the New York Stock Exchange and is a nongovernmental organization that oversees securities firms.

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“The bottom line is that reverse mortgages are an expensive option that may prematurely deplete your home equity,” Finra said.

So what does Finra think are better alternatives? Finra recommends you could sell your house and then downsize or rent, or take out a home-equity loan.  To read a copy of the article click the link below.

Three Warning For Hard Times (Wall Street Journal)

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  • Dear Finra,

    Have you calculated the cost of selling a home? Let’s start with 6% to 7% of the sales price($150k home sales price would cost at least 9k) to real estate agents, 3k to 6K for moving costs depending on where you are moving to. To buy a home you need at least 3% down so on a 100k home that would be 3k for down payment. Let’s add closing costs for the purchase of another home and be conservative add another 3k. So we are at least at 15k for selling and buying a home. That is more than th eclosing costs on a reverse mortgage. Add the costs of the stress of moving and finding th eright home. However, seniors must be able to find an affordable location unless FINRA wants them to downsize in a lesser neighborhood that they moved from. Or Finra wants them to put down a subsatntial amount on a home and tie up the equity into a home that they cannot have liquid. Which brings up a point of getting a home equity loan. Has FINRA been in touch with what is going on in the mortgage world? Home equity guidelines are changing and many seniors will not qualify for home equity loans due to lack of income and credit. Get out from under the rug and really get a pulse on the mortgage market. That is great that FINRA is looking out fro the seniors but please try to understand reverse mortgages. On average reverse mortgages are in force for 7 years. That i snot enough to take a bit out of anyone’s equity. If you did not know, the LTV’s for the loans start as low as 40% o fth ehome value. Ands more likely the most 80% but the person would have to be closer to 90 years of age. Reverse mortgages are based on 100 years old on the acturaial table. One last note why would a senior want to rent an apartment, You fail to point out that rents do rise a minimum of 5% per year. And many apartmetns that are decent goes for at least $1200 plus per month. The reverse mortgage is a tool for seniors to retain their lifestyle and their home in the twighlight of their years. Give them dignity. I do not kow what duty or instance gave FINRA the authority on reverse mortgage and gatekeeper. Reverse mortgages are not a security. What you should be doing is regulate the insurance companies and other financial products that are trying to sell annuities to seniors. That is who you should be regulating. You should advice anyone turning in an application for insurance products and annuities to state that the funds are form a reverse mortgage. Then have your undwerwriters decide if this is a viable solution for the potential senior client for insurance or annuities. Please study the facts and the technical aspects of a reverse mortgage before you say it is a doom and gloom product.

  • Dear Victor,
    Thanks for speaking up. Like you, I am tired of all these self-styled experts trashing the reverse mortgage industry. More industry professionals need to set the record straight when these people persist in publishing bad advice.

  • Victor- I agree 100% and upon reading the article came up w/ the same conclusion. If you are going to write an article and publish the article in the WSJ, maybe you should actually know what it is you are talking about from all the angles.

    How about actually speaking w/ some folks that have used the Reverse mortgage and get their opinion on the program?

    The program may not be for everyone, but w/ proper planning and insight into the clients overall economic situation… it is an amazing tool to assist in allowing seniors to actually live there lives.

  • On web pages “explaining” the pros and cons of REVERSE MORTGAGES, u always read this in the pros column: reverse mortgages are great if u want to do a lot of improvements. LOL.

    This is a mirror image of what should be in the cons column.

    Reverse mortgages are a tool for shameful mortgage brokers to fleece senile citizens.

    The carrot is the broker’s initial estimate of the senior’s home. He exaggerates the estimate so the widow sees a gold mine in the bricks of her home. He gives her this over inflated figure. She believes this “value” will be her loan. She signs the deal and voila, there comes the first one of a long line of the broker’s buddies: the appraiser. He is supposed to be impartial. LOL again. His income depends on the broker’s call.

    His appraisal is the basis for the loan. Not the home’s value but only 33%.

    From here on it’s only sticks and no more carrots.

    More buddies arrive at her home to do inspections. Lots of inspections, inside and out: roof, a/c, chimney, doors, windows, porches, paint, interior and exterior.

    This is the mirror image of “great if u want to do a lot of improvements”.

    These inspectors are the broker’s buddies and/or relatives. These inspectors are contractors. And contractors are greedy.

    Fees are demanded up front (and may be charged again hidden in the closing statement) ; repairs are done shoddy, if done at all. Roofs are as a rule judged in disrepair. And which house can’t use a fresh coat of paint? Do you see where the word “improvements” leads to?

    Soon the 33% of the value of her appraised home is down to 15% due to all the sums being held up by the broker for his buddy contractors. There and then, the debt’s compounding starts.

    She wanted the Reverse Mortgage for the sake of paying for health care but instead she is left with a pittance that will not help pay neither for medical expenses nor her granddaughter’s college tuition, maybe not even for the real estate taxes due over the coming years.

    The government looks at senior citizens as senile citizens. Why else would our widow have to go (and pay) for Reverse Mortgage counseling? This points out to the brokers that seniors are easy game.

    How is an elderly widow going to stand up to an army of construction inspectors running in and out of her family home year after year? She is at the mercy of the broker who sends them to rip her off.

    With every inspection fee she pays, she is deeper and deeper under his thumb. While the equity of the projected loan slowly shrinks, the debt grows.

    Finally, there is this smoky myth that with a Reverse Mortgage she can’t loose her home. Wrong! If the widow fails to pay her real estate taxes or home insurance or neglects to do repairs after each storm, or accumulates liens with a compounded debt larger than the value of her residence, she will be forced to pay up or move out.

  • rnrnOn web pages u201cexplainingu201d the pros and cons of REVERSE MORTGAGES, u always read this in the pros column: reverse mortgages are great if u want to do a lot of improvements. LOL.rnrnThis is a mirror image of what should be in the cons column.rnrn rnrnReverse mortgages are a tool for shameful mortgage brokers to fleece senile citizens.rnrnThe carrot is the brokeru2019s initial estimate of the senioru2019s home. He exaggerates the estimate so the widow sees a gold mine in the bricks of her home. He gives her this over inflated figure. She believes this u201cvalueu201d will be her loan. She signs the deal and voila, there comes the first one of a long line of the brokeru2019s buddies: the appraiser. He is supposed to be impartial. LOL again. His income depends on the brokeru2019s call.rnrnHis appraisal is the basis for the loan. Not the homeu2019s value but only 33%.rnrnFrom here on itu2019s only sticks and no more carrots.rnrnMore buddies arrive at her home to do inspections. Lots of inspections, inside and out: roof, a/c, chimney, doors, windows, porches, paint, interior and exterior.rnrnThis is the mirror image of u201cgreat if u want to do a lot of improvementsu201d.rnrnThese inspectors are the brokeru2019s buddies and/or relatives. These inspectors are contractors. And contractors are greedy. rnrnFees are demanded up front (and may be charged again hidden in the closing statement) ; repairs are done shoddy, if done at all. Roofs are as a rule judged in disrepair. And which house canu2019t use a fresh coat of paint? Do you see where the word u201cimprovementsu201d leads to?rnrnSoon the 33% of the value of her appraised home is down to 15% due to all the sums being held up by the broker for his buddy contractors. There and then, the debtu2019s compounding starts.rnrnShe wanted the Reverse Mortgage for the sake of paying for health care but instead she is left with a pittance that will not help pay neither for medical expenses nor her granddaughteru2019s college tuition, maybe not even for the real estate taxes due over the coming years.rnrn rnrnThe government looks at senior citizens as senile citizens. Why else would our widow have to go (and pay) for Reverse Mortgage counseling? This points out to the brokers that seniors are easy game.rnrnHow is an elderly widow going to stand up to an army of construction inspectors running in and out of her family home year after year? She is at the mercy of the broker who sends them to rip her off.rnrnWith every inspection fee she pays, she is deeper and deeper under his thumb. While the equity of the projected loan slowly shrinks, the debt grows.rnrn rnrnFinally, there is this smoky myth that with a Reverse Mortgage she canu2019t loose her home. Wrong! If the widow fails to pay her real estate taxes or home insurance or neglects to do repairs after each storm, or accumulates liens with a compounded debt larger than the value of her residence, she will be forced to pay up or move out.rnrn rn

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