NPR Weighs in on Reverse Mortgages

NewImageNational Public Radio ran another feature on reverse mortgages earlier this week.  In NPR’s Tell Me More’s “Money Coach” segment, the host discusses a range of reverse mortgage topics with personal finance contributor Alvin Hall.

During the interview, Bank of America’s decision to leave the industry comes up as a topic of discussion.  When asked why the bank decided to leave the business, Hall suggests the bank left because of the fees charged on the loans.

“In the new mortgage structure, which is called the home mortgage conversion, the home equity conversion mortgage, the upfront fees have been reduced to .01 percent and that’s pretty low,” said Hall.  “In the past they’ve been much, much higher. And I think it’s just not as profitable for Bank of America. They’re going to spin it a different way, of course. They’re going to say, you know, we’re going to concentrate on our core business. But in reality, they’re just not as attractive.”


Hall clearly needs to learn more about the HECM Saver vs. Standard comparison.

Listen to the segment below or check out the link here.

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  • Expect NPR to attack the ad done by a politically conservative spokesperson. What a biased way to make a warning to liberal listeners. It seems political leaning does not a HECM supporter make.

    The speculation about Bank of America was and is ridiculous. None of these people have worked with senior management at a Forbes 100 entity. Sometimes senior management makes a move which makes no sense at the division level but as an overall corporate strategy is what senior management believes is needed. Successful senior management is right at least 50% of the time on major decisions. In the context of a company with over a quarter million employees shutting down a division of 600 people by itself would not be classified as a major decision while the reorganization itself fits the major decision category.

    In the very first sentence Alvin spoke it was clear he had no idea what a reverse mortgage is. He stated that they are loans against the equity in the home. No, Alvin, HECMs are NOT home equity plans. A HECM cannot be in a second or greater number position of priority. It must be both a first and a second.

    As a CPA, the most confusing subject in listening to those explaining HECMs is equity. A HECM converts no equity into anything unless all mortgages can be said to do the same. It does no more to release equity than any other nonrecourse option ARM which permits negative amortization and cash out at closing. The three key ingredients to an otherwise qualifying property are 1) the appraised value of the home, 2) the total due on the debts which must be paid off in the HECM transaction, and 3) whether or not the senior has other assets to pay down those debts to the extent HECM proceeds cannot pay them off and is willing use those assets in that way.

    Equity is such a confusing topic in our industry that one book on reverse mortgages constantly interchanges the word “equity” for the term “appraised value.” It is so poorly written it causes one to wonder if the author or the consulting author know what equity or a HECM are.

    A HECM has absolutely nothing to do with equity. If someone can find equity as a criteria for a HECM, I would like to know about it. For example, a person who has $600K of equity does not necessarily qualify for a HECM nor does a person with only $50K. Equity measures absolutely nothing for qualification purposes unless it is currently negative or the LTV is excessively high and the senior has no other assets available to pay down their current mortgage and is willing to use those assets for that purpose. I have talked with seniors having $3,000,000 in equity who cannot qualify for a HECM because they owe $600,000 on their current mortgage and are otherwise asset poor. I have talked with seniors with 90% LTVs who qualified because they were able to pay down their mortgage in escrow.

    • The formal name of the FHA reverse mortgage program is “Home EQUITY Conversion Mortgage. The key factors in determining eligibilty are age and equity (meaning the difference in the appraised value and debts against the property). As a professional that deals with HECMs every day, I find that many accountants and attorneys do not fully understand this product and often ill advise clients about it.

      • reverselo,

        You might want to rethink what you wrote.

        Anything can be mislabeled. That does not make the thing any different. Or as William Shakespeare said: “A rose by any other name….”

        There are actually some accountants and lawyers who know as much, maybe more about HECMs than you. And, yes, I have been a reverse mortgage loan originator for over six years and a senior VP at the ninth largest reverse mortgage lender almost since its inception.

        I think you need to read up on the difference between a home equity plan and a mortgage which is not. A HECM is not a home equity anything other than its mislabeled name. Home equity loans are generally second mortgages not firsts. Available proceeds are limited by the size of the first mortgage and other claims in higher priority. This loan can only be a first mortgage with HUD taking the second.

  • It was amazing to hear on Fox News today at 1:25PM (EST) that defined benefit plans are to be deplored. But then they discussed 401(k) plans and how depending on that source of retirement income is insufficient. The anchor and guest discussed how seniors are not prepared because of planning their retirement around home values, etc.

    Finally the anchor declared that the situation leaves seniors open to shams, reverse mortgages…. It seems bias is not limited to political posturing.

    It is not enough that we have some facts stated correctly. We need a PR campaign which clarifies that reverse mortgages are appropriate for far more than the financially desperate and explaining how they are.

    • treverse,

      It seems it is neither left wing or right wing political perspectives that get it wrong. Maybe that might have something to do with it. I felt that was kind of obvious. Thanks for letting me know some people do not know that NPR is prone to the left and Fox to the right.

  • It’s just amazing how the media continues to supply false information. This really hurts the senior population, and the entire country for that matter. If we were to do that the media would accuse us of taking advantage of seniors, and they would have a right to!

  • Mr. Veale, I’m sure the NPR Omsbudsman would have the response about NPR’s coverage you are looking for. Don’t let your understandable frustration at the uninformed comments of the participants lure you into tossing out an unsubstantiated claim that contrasts sharply to the merits of your argument.

  • In my past life (when I worked as an Economist at now-defunct Arthur Andersen), I was interviewed by NPR in Seatle for a segment on consumer credit. I don’t remember the details but I do remember this: While, the sound bite they used of their interview with me supported the angle on the story they were running, they had other sound bites that said the contrary yet they somehow ignored them and acted as if they agreed with whatever point they were making. I laughed and thought it was terrible journalism at the time. Honestly, had I been the one they had misrepresented I would have probably been more than just amused. The point? NPR simply is not a trustworthy source of news or financial advice. (As if that were some sort of newsflash for the present company of informed readers….)

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