Reuters: HECM Saver Brings Renewed Interest in Reverse Mortgages

NewImageReuters is reporting that many financial advisers continue to view reverse mortgages as a last resort of retirement income.

Describing the loans as “controversial tax-free loans”, some feel the loans upfront fees remain high. David Hultstrom, president of Financial Architects LLC, told Reuters “some things are just oversold, and I think this is sort of like that.”  Adding, “they’re a good last option.”

According to the article, the loans have seen renewed interest after the Department of Housing and Urban Development introduced the HECM Saver in October.

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In the last three months of 2010, approximately 25,000 new reverse mortgages were written under the FHA’s program compared with 19,300 in the same period of 2009. One large lender, MetLife Bank, told an industry newsletter (ahem, RMD thank you) that almost 20 percent of its new reverse mortgages carry the low-rate FHA insurance.

The article points out how some advisors could use the money from reverse mortgages for financial planning.  “Some of my clients will accept more of the risks…to place themselves in line for higher investment returns,” said John Smartt, owner of Financial Counseling & Administration, a Knoxville, Tennessee adviser that manages $21 million in client assets.

Investment News also reported earlier this year that advisers need to stop looking at reverse mortgages as last resort products.

Reverse mortgage a last resort, advisers say

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  • Here is where we create our own problems. The industry created the “tax-free” myth, no one else. How are reverse mortgage proceeds any more tax-free than any other nonrecourse mortgage? They are NOT.

    Instead of referring to reverse mortgage as controversial loans even a Reuters correspondent has swallowed the “kool-aid” and calls reverse mortgages “controversial tax-free loans.” We have set up ourselves to look like the latest version of snake oil salespeople.

    Imagine how stupid we will appear to the public when the tax-free issue gains clarity. Reverse mortgage (HECMs or not) proceeds are no more tax-free than any other nonrecourse mortgage. It seems many in the industry cannot sell the product without promoting this myth. It is almost like an addiction that some just cannot give up.

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