FINRA Survey Finds Only 1% of Retirees Using Reverse Mortgages

imageThe amount of retirees utilizing a reverse mortgage continues to be small according to a survey released by the FINRA Investor Education Foundation

Results from the National Financial Capability Survey found that of the people who are currently retired, only 1% of the respondents are using a reverse mortgage for living expenses.

Conducted by the FINRA Investor Education Foundation and developed in consultation with the U.S. Department of the Treasury and the President’s Advisory Council on Financial Literacy, the survey is meant to measure the financial capabilities of American adults and reveal in detail how Americans save, borrow and plan for their financial future.

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By exploring how people manage their resources and how they make financial decisions, this national survey allows the FINRA Foundation to extend the reach of financial education programs in communities across the country said a statement.

"These survey results highlight just how important it is to give people the information and resources they need to make sound financial decisions. The FINRA Foundation will use this important information to help focus its efforts to address the financial education needs of underserved Americans," said FINRA Foundation Chairman Rick Ketchum.

The survey found that:

  • only 41 percent of parents have set aside money for their children’s college education;
  • the majority of Americans do not have a "rainy day" fund for unanticipated financial emergencies and are not adequately preparing for their children’s college education and their own retirement;
  • more than one in five survey respondents use high-cost, alternative borrowing methods, such as payday loans or pawn shops; and
  • fewer than half (46 percent) of those surveyed correctly answered two basic questions about how interest rates and inflation work.

The survey also found that only 42 percent of working Americans have ever tried to figure out how much they need to save for retirement.  Even among those closest to retirement, just 51 percent of Americans between the ages of 45 and 59 have attempted to calculate how much they must accumulate.

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  • There are a few interesting points in this “study”. One is the high percentage of Americans who think they are good at math. This flies in the face of much of the reliably objective data on this subject. Being good on a calculator is not the same as being good at the reasoning skills required in relatively easy math problems; this unscientific sample seems to bear this out.

    “This study” fails to tackle the root cause of the lack of knowledge in financial matters, the failure to require basic personal financial course work in high school. Until the core of the problem is addressed, we will continue seeing studies reporting similar results in the future.

    Another point of interest was the rate of younger seniors’ participation in reverse mortgages. It is hardly surprising that only 1% of current retirees have a reverse mortgage. This group has had a propensity to have higher LTV ratios on their principal residences than preceding generations and generally lack the other assets needed to pay down their mortgages to be able to qualify for HECMs, especially now after principal limit reductions. As home values return and LTV ratios go down, this group of retires will no doubt reach and exceed the 2% level we see among seniors as a whole today.

    Instead of wasting scarce resources creating propaganda to justify its own existence, FINRA should be reviewing and reporting on the financial information they receive from their own membership. If anything showed that losses did not come strictly from a lack of investor education, it was the Madoff mess. FINRA did absolutely nothing to stop Madoff, one of its former leaders. They did not bother to review or question obvious problems.

    Most financial observers believe that Madoff and Stanford are just the tip of the iceberg, if that. Yet other than the occasional crack down on some investment groups, there is no indication that FINRA is proactively cleaning up their own industry. Based on their response, it is highly unlikely they learned much from this lesson. Instead it seems they are satisfied to be involved with this kind of questionable propaganda, thus hopefully deflecting attention from their own systemic failures.

  • Cynic,

    I couldn't agree more that financial education needs to start AT LEAST in high school. These kids know nothing when they leave school with regard to “making it” in the real world. I knew very little, and it's been a hard education to get on my own.

    As far as the percentages are concerned, I think the reason more seniors do not use the Reverse yet as a financial tool is because we are dealing with a generation that doesn't like lending. They grew up in a time when saving and paying in cash was the way to go. The new “baby boomers”, their children, were spoiled and don't save like they did. Add that to higher costs in general, the depletion of Social Security, rising taxes, the depletion of investment portfolios due to the economy and job losses, and you have the “perfect storm”. These folks will need money. They won't have other means to get it but their homes. ReversesARE the future.

    Thanks for all you do. I have learned a lot from your entrys. 🙂

  • We have two categories of senior homeowners: 1) Those who saved adequately for their retirement years, own their homes free and clear of all debt and live comfortably on their retirement income, and 2) Those who did not save adequately for their retirement years, still have mortgage debt on their homes and are having a difficult time making ends meet on their retirement income. A few seniors from the first category will seek a reverse mortgage, mainly for discretionary purposes. Many from the second category will seek a reverse mortgage, but most of them will be ineligible because the reverse mortgage programs that are currently available do not provide sufficient funds to retire the outstanding balances on their homes.

    Two things will help to cure this problem: 1) Appreciation of homes back to pre-downturn levels, and 2) The introduction of new, innovative products such as “hybrid” reverse mortgages that are designed to help people who have larger mortgage balances but are able to make partial interest payments.

    Finally, reverse mortgages recently have been getting an unprecedented amount of negative press from many sources. Something must be done to reduce the high up-front costs (mainly MIP), and the industry must police itself better or be better-policed by regulatory authorities in order to remove all bad actors from our industry. (Right now, regulatory changes are removing good as well as bad actors from the industry.)

  • Cynic,rnrnI couldn’t agree more that financial education needs to start AT LEAST in high school. These kids know nothing when they leave school with regard to “making it” in the real world. I knew very little, and it’s been a hard education to get on my own. rnrnAs far as the percentages are concerned, I think the reason more seniors do not use the Reverse yet as a financial tool is because we are dealing with a generation that doesn’t like lending. They grew up in a time when saving and paying in cash was the way to go. The new “baby boomers”, their children, were spoiled and don’t save like they did. Add that to higher costs in general, the depletion of Social Security, rising taxes, the depletion of investment portfolios due to the economy and job losses, and you have the “perfect storm”. These folks will need money. They won’t have other means to get it but their homes. ReversesARE the future.rnrnThanks for all you do. I have learned a lot from your entrys. 🙂

  • We have two categories of senior homeowners: 1) Those who saved adequately for their retirement years, own their homes free and clear of all debt and live comfortably on their retirement income, and 2) Those who did not save adequately for their retirement years, still have mortgage debt on their homes and are having a difficult time making ends meet on their retirement income. A few seniors from the first category will seek a reverse mortgage, mainly for discretionary purposes. Many from the second category will seek a reverse mortgage, but most of them will be ineligible because the reverse mortgage programs that are currently available do not provide sufficient funds to retire the outstanding balances on their homes. rnrnTwo things will help to cure this problem: 1) Appreciation of homes back to pre-downturn levels, and 2) The introduction of new, innovative products such as “hybrid” reverse mortgages that are designed to help people who have larger mortgage balances but are able to make partial interest payments.rnrnFinally, reverse mortgages recently have been getting an unprecedented amount of negative press from many sources. Something must be done to reduce the high up-front costs (mainly MIP), and the industry must police itself better or be better-policed by regulatory authorities in order to remove all bad actors from our industry. (Right now, regulatory changes are removing good as well as bad actors from the industry.)

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