Professor: No resemblance between subprime and reverse mortgages

He calls himself “The Mortgage Professor,” stemming from varying roles as a teacher at the University of Pennsylvania (finance) and as a professional in the home loan market for many years. So, when Jack Guttentag’s essay appeared recently in the Washington Post – disputing the often-made connection between reverse and subprime mortgages – readers took notice.

“For reasons not clear to me,” he writes in the essay, “reverse mortgages are being bad-mouthed by an unlikely source: consumer groups that are supposed to represent the interest of consumers in general, and seniors in particular.” The author continues: “What is not useful is needlessly and gratuitously fanning the flames of senior anxiety about losing their homes.” In sum, he adds: “The current state of the HECM market has no resemblance whatsoever to the conditions in the subprime market that led to disaster.”

Guttentag certainly has the bona fides. He served as chief of the Domestic Research Division of the Federal Reserve Bank of New York and was on the senior staff of the National Bureau of Economic Research – as well as being managing editor of both the Journal of Finance (1974-77) and the Housing Finance Review (1983-89). He also founded GHR Systems, a mortgage technology firm now part of FIS Financial Solutions Group.

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In a follow-up conversation with RMD, Guttentag said he has always been interested in the reverse mortgage topic. “I was a pioneer – testifying before congress [on it].” One of his earliest written works was called “Unlocking Home Equity’, published by NYU Press in 1975. In his Post piece, the professor expresses particular irritation with Consumer Reportsmagazine, which carried an ominous headline in a September issue: "The Next Financial Fiasco? It Could Be Reverse Mortgages."

The story “pushed me over the fence,” Guttentag tells RMD. “I like what [the magazine does], but sometimes they go off the rails,” he declares, adding dismissively: “They’ve never been strong on anything to do with home mortgages. They don’t have anybody who knows anything about it.”

Written by Neil Morse

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