Fears of Reverse Mortgages Unfounded says Borrower

Fears about reverse mortgages have proven unfounded so far according to Robin Mile, a borrower who initially resisted taking out the loan.

“It was salvation for me,” the 70-year-old Pikesville, Md., resident said to the NY Daily News. “I just wish that more seniors weren’t so afraid of it.”

Reporting that reverse mortgages are now cheaper, the Daily News writes that the release of the HECM Saver could mean it makes sense to address shorter-term considerations — either for adding retirement income or for getting cash out of a home if it’s hard to find a buyer.

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“This is a loan where you really need to be careful to understand what your options might be,” says Barbara Stucki, vice president for home equity initiatives at the National Council on Aging, a nonprofit advocacy group. But in the right circumstances, she says, “it can provide more flexibility.”

The changes are beneficial for seniors overall, according to Ted Sarenski, a personal financial specialist who chairs the ElderCare/PrimePlus committee for the American Institute of Certified Public Accountants. But they don’t change his advice, and that of numerous other experts, that reverse mortgages should be pursued mostly as a last resort.

“It’s a way to stay in your home without having to liquidate it and move,” he says. “But the home is usually the last asset that you own. If you still have IRA money, or pension money coming in, you probably shouldn’t look to a reverse mortgage.”

Government-insured reverse mortgages new option for cash-strapped seniors

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  • Some may be shocked but I place the opinions of Dr. Stucki and Mr. Sarenski in the same category. Their statements come on the back of a satisfied customer who matches their description of the individual who should be getting a HECM. However, the point of this comment is not directed at these two alleged “experts;” it is directed at AARP.

    If the author is quoting correctly, AARP has little understanding of the costs of a reverse mortgage based on the statement the author attributes to it. AARP is absolutely wrong if it claims: “costs can commonly total 10 percent of the home’s value.” If AARP is referring to total upfront costs on Standards, their upfront costs normally run less than 5%-6% of the value of the home. So where is AARP getting 10%? AARP cannot be referring to total costs of a reverse mortgage. On average total costs over the life of a reverse mortgage far exceed 10% of the value of the home at the time of funding or any time thereafter.

    Clearly the ratio of upfront costs to the principal limit after deducting the upfront costs and a servicing fee set aside can run up to 10% depending on the age of the borrower, the value of the home, and the expected interest rate. Typical of AARP, they make statements but are above being accountable for the claims they make. Is this the organization which saw the oversight of qualifying counseling agencies? No wonder GAO so heavily criticized counseling practices last year.

  • Mr. Sarenski’s “Last Resort” stance is a reflection of many (but fortunately, not all) in the Accountancy profession, and I think it is is properly defined as an “attitude” rather than the result of research and analysis on particular cases. It’s probably also the generalized political response one expects from a national committee to avoid antagonizing the all-debt-is-bad “Net Worthers” in their own constituency. IMHO, I think the “last resort” concept comes from at least two sources.

    First, from a bit of ignorance in two areas: the flexibility that a HECM ARM itself provides, but also what a conscientious retirement advisor can do for the other assets while the reverse mortgage funds (ARM or Fixed) relieve or even entirely remove current or long-term pressure on those other assets.

    Second, IMHO, from a philosophical preference for Net Worth over Cash Flow.

    My experience and the good news has been that, when approached individually about a particular client’s circumstances, and on a consultative basis, CPAs who needed some education about the HECM program and who might have had some negative predispositions, were caring and professional enough to understand and agree that when the client’s circumstances warrant, a reverse mortgage could make perfect sense as not the measure of last resort, but as a pre-emptive measure to save lives or other assets that would be more difficult and costly and time-consuming to convert into cash for immediate needs, liquid funds for the future, an ongoing supplemental source of monthly cash, or another asset that could help offset the future reverse mortgage balance payoff.

    And Dr. Stucki should agree on this point too, since she authored a famous article some years ago about the under-utized poetential for reverse mortgage proceeds to improve the affordability and diminish the need for more expensive long-term health care.

  • A person occupying Mr. Sarenski’s ‘bully pulpit’ to the accounting profession should be a specific target for education by NRMLA for the good of our industry as a whole.

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