Reverse Mortgage Volume Grows As Retirees Investment Income Declines

image The reverse mortgage industry continues to be one of the only bright spots in the housing market, but advocates for aging Americans say they should only be used in specific instances.  While still small in number compared to traditional mortgages, a weak economy and declining investment income has spurred many elderly people to use reverse mortgages in recent years.

"We’ve increased our volume by over 50 percent since October," said Bank of America  spokesman Terry Francisco, whose aunt took out a reverse mortgage after her husband died and her income dropped.

Retirees that have seen their portfolios hammered by the markets are looking for ways to increase their cash flow, and a reverse mortgage is one way that to accomplish that.  "In some cases, we have seniors trying to subsidize their monthly cash flow because they’ve lost dividend income. Some financial planners are encouraging taking a reverse mortgage rather than selling off a distressed stock portfolio," said Jeff Taylor, vice president of Wells Fargo’s senior products group.

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The article also includes commentary from HUD’s Meg Burns who has been a big supporter of reverse mortgages.     

Reverse mortgages rising but some view warily

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  • Quotations from the article by Hillebrand — “It’s a very safe product for a bank. They get a house and they see up front how much it’s worth,” — AND — “They can be a good choice if they’re the only choice.” — AND — “If what you need it for is to fix your roof, then you’re better off with a home equity loan,” — AND — “If you’re already 85, you may not live long enough to amortize those costs.”

    In these four quotes, Ms. Hillebrand shows her ignorance of and prejudice against reverse mortgages. As a “senior attorney” for the Consumers Union, one would think she would be more knowledgeable regarding the products on which she comments. It is disappointing to see a person with so much education and so much standing in the consumer protection industry so unaware of reverse mortgages.

    First, Ms. Hillegard once again promotes the myth that a bank gets the house. Further she advances the thought that reverse mortgages are only loans of last resort. Rather than suggesting that a home equity mortgage would normally be the best solution in such cases, she dogmatically states that the senior IS better off with a home equity loan. Ridiculously she advises that reverse mortgage costs may be not amortized. What in the world is that supposed to mean? The author previously noted: “Hillebrand warned against taking out a reverse mortgage if seniors do not plan to stay in the home more than three years….” By referring to amortization, she seems to be alluding to the reduction in TALC rates over time. But amortization is an accounting, a finance, and a tax concept related to the allocation of loan payments to interest and principal over time and the allocation of certain intangible costs over time. How is she proposing that “amortization” be used in determining if a reverse mortgage is the right choice for an eighty-five year old?

    If we believe we have made any significant headway in educating advisors about reverse mortgages, please reread what Ms. Hillebrand states. I’m sorry but despite all the praise we give ourselves and our industry for educating seniors and their advisors, this is but another sad example of how little has actually been achieved. Just remember self praise has much to do with the self than with the achievement.

  • It’s amazing to me that they quote “Banks get a house and they see up front how much it’s worth”. What about all the homes that have been turned back to HUD beacuse the value has droped below what seniors have taking out in cash and can not sell nearly enough to pay back the loan. They keep the money and dosen’t effect their credit. How about trying to get a credit line of 100,000 with only income is social security income. And where is AARP claiming the cost will be over the life f the loan 15,000. Where do they show what the closing cost on tradational loans or the intrest for the life of the loan. I bet it will be more than 15,000. What about credit lines growing more than a home is worth and can be drwn out. Why dosen’t NARMLA sue for false statemnets by the press? And if a senior takes a monthly payment how willit run out?
    I tired of all the missquoted going on.!!!!!

  • Reverse mortgage volume is up only because of HECM to HECM refinances (mostly because of the modest increase in the loan limit), without which the industry would be originating fewer loans as a result of declining home values. More senior homeowners desire a reverse mortgage, but they cannot be helped because their home value has fallen, or because the HECM limit remains too low in high-cost areas.

  • Yes, the spike in volume is mostly due to refinances and it will soon work its way through the system and we’ll be back to normal volumes (but higher than they were). And yes, the industry continues to suffer from unfair media attention from many parties, and NRMLA needs to do more in regard to that.

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