Most Financial Planners Lack Reverse Mortgage Education, Trend Could be Changing?

While financial planners are still largely hesitant to recognize a reverse mortgage as a viable option for cash-strapped seniors, some are coming around to recommending them as their clients are less and less prepared for retirement.

The American population is, generally speaking, living longer than ever before, and many haven’t properly planned for this, says Karen DeRose, of Chicago-based DeRose Financial Planning Group.

“What we’re seeing is, they have a lot of equity locked up into their homes,” she says. “People didn’t realize that they’re going to live this long, and because of that, they’re running out of money, or need to supplement their pensions or Social Security.”

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The rocky economic landscape has affected many older Americans, and AARP estimates that a quarter of seniors exhausted their savings during the recession, with another 67% forced to draw upon their retirement savings. This results in more than half of seniors, at 53%, not feeling confident for retirement.

Older people do not want to move out of their homes, DeRose says, but many times they feel they have to, if they can no longer afford their cost of living. However, being forced to leave home can have very negative emotional implications on seniors, and that’s where a reverse mortgage would come in.

“I can see using it where you really want to keep the person in their home, or if it’s going to cause problems for the children to try to figure out how to help supplement Mom and Dad’s income,” says DeRose. “I think that can be a good thing. Moving an elderly parent out can be very, very difficult.”

For some financial planners, an asset is an asset, and home equity just that: an asset, to be used accordingly when planning for the future.

Aric Walker, a senior advisor from Enumclaw, Wash.-based Senior Planning Solutions, says he approaches client meetings with this mindset and the question, “What is your house doing for you?” If it’s costing them monthly payments that cause a strain on their budgets, it’s no longer functioning as an asset, and something needs to change, he says. That’s where a reverse mortgage comes in, and he says he’s had several experiences with significantly improving a client’s monthly cash flow and easing their financial worries.

Multiple clients of Walker’s have ended up getting a reverse mortgage, giving him insight into which financial situations call for the product. He recommends that borrowers choose the lump sum option, and says he sometimes advises his clients to use the funds to invest in fixed-rate or indexed annuities, some of which offer 100% principal guarantees; these, he says, allow his clients a better outcome than what banks can offer.

Research on retirement asset decumulation strategies by the Boston College Center for Retirement Research supports Walker’s method.

“The strategy of combining a reverse mortgage with an immediate annuity yields a substantially higher income [compared to some studied alternatives],” says Wei Sun, the Center’s lead researcher. “So the dominant strategy is probably to spend down one’s financial wealth, take a reverse mortgage, and use the proceeds to buy an annuity.”

Several financial planners RMD spoke with admitted they did not know enough about the product to recommend it to their clients; the less they knew about it, the less likely they were to even consider it as an option. One said he was unfamiliar with reverse mortgages until a client approached him with the idea three years ago. And some still cite the high upfront costs as a deterrent.

If a client has reached a point where they’ve run out of assets, they should sell their home and use the proceeds toward rent, says Colin Chase, a financial planner and owner of Mindful Money, Financial Counsel LLC, based in Chicago. He adds that in his experience, cost analyses have favored using home sale proceeds toward rent rather than drawing upon a home’s equity though a reverse mortgage.

“It would have to be on a case-by-case position,” says Chase. “If a client has lived in a house for a long time, and there’s no way they want to move out of it, and that was their number one priority, I would imagine I could talk about a reverse mortgage and the potential pitfall and considerations.”

While remaining at home is a strong consideration, the costs still outweight the benefits, says Connie Stone, co-founder of Stepping Stone Financial, based in Chagrin Falls, Ohio. She has looked into reverse mortgages a couple times, but has never found it to be a viable option.

“The reason is the expense,” she says. “It comes from my philosophy that tries to eliminate all hidden costs, taxes, and fees.”

However, after looking into the Home Equity Conversion Mortgage Saver program, she gained a slightly more positive perspective toward the product.

“If I was considering a reverse mortgage, I would definitely look at a HECM Saver mortgage,” says Stone, adding that she thinks it is important to be aware of the options available to her clients. “The lower upfront insurance premium cost is a plus.”

At this point in time, some are seeing the home as an important retirement tool, regardless of how it is used.

“For folks in their mid-70s or older, because of inflation, or children who have experienced economic challenges, it’s now time to say, ‘Hey, I gotta use that equity somehow,'” said Walker. “Forward mortgages in most cases are out of the question; qualifying is difficult because of their debt picture.”

Written by Alyssa Gerace

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  • I cannot help but wonder why lenders, especially the larger ones, have not cultivated this market? Has any lender ever attended one of their conferences and given a presentation on reverse mortgages?

    I admittedly do not quite understand the financial planner “world” but it sure seems to me this could be a huge untapped market segment.

  • I cannot help but wonder why lenders, especially the larger ones, have not cultivated this market? Has any lender ever attended one of their conferences and given a presentation on reverse mortgages?

    I admittedly do not quite understand the financial planner “world” but it sure seems to me this could be a huge untapped market segment.

  • I just went to a seminar with my dad and was told Greenlight in Irvine has a financial planner pitching reverses.  My dad applied last week because they have no lender fees.  They seem to be ahead of the curve.   I’d rather hear advice from a retirement expert instead of a former Senator or washed up actor.   

    • >>My dad applied last week because they have no lender fees.

      Would you please expand upon that?  Does Greenlight pay 100% of the fees, including FHA’s insurance premium, title insurance, and the appraisal?  And do they pay the fees, regardless of if the homeowner chooses the fixed or variable interest rate program?  And does the property have to have a minimum value in order for Greenlight to pay 100% of the fees?

  • I have worked with various financial planners and personal bankers on reverse mortgages. (Conicidentally, my next signing on Tuesday came to me because of her Ameriprise advisor.) It is amazing to me that any FP that works with seniors would not understand even the basics of a RM. Many of these folks have fancy titles and letters behind their names yet are not aware of all the options available to their clients. What a shame.

    This articles best quote: “an asset is an asset, and home equity just that: an asset, to be used accordingly when planning for the future.”

    If more planners bought into this philosophy they would help their clients far better than they currently are.

    Now having your clients get a RM with the sole purpose of annuities…well that open a whole other can of worms….

  • Why is selling the home always one of the first options a FP uses instead of
    a RM? And why is it they always cite the “Expense” as the reason? I hear that
    and it seems very narrow minded. “The reason is the expense,” she says. “It
    comes from my philosophy that tries to eliminate all hidden costs, taxes, and
    fees.” What is she talking about? RM’s are the most up front loan on the planet.
    There are no hidden costs or taxes. Again this seems, excuse me, STUPID. The
    only item that can add up is the MIP and that is insurance plain and simple.
    They pay car insurance, homeowners insurance, Life insurance, what’s
    different?

    And what is the cost of selling a home? Realtor fees, inspections, closing
    costs. Same old responses from people who proclaim they are experts and think
    they are smarter that their clients and loan officers. I work with many FP’s and
    all of them understand and endorse RM’s when they are the right option, and that
    does not mean the LAST option. I did one this spring on a 9.25 million dollar
    home and everyone was VERY happy, the borrower and the FP who brought me in on
    the deal. My advise is keep working with FP’s if they don’t want to listen, find
    another one, they are a dime a dozen

  • The most important part of the article was its title.  The broad financial advisory community is lacking in knowledge about the existence of HECMs, their overall and unique features, their benefits and detriments, the variety and costs of the products, and, as Mr. Michael Banner is so fond of saying, “its moral and ethical uses.”  This article demonstrates all of that.
     
    The remark of the reversemaniac is interesting in that it reflects the view that somehow major lenders had major operations.  Major lenders had small operations.  Wells, the largest retailer our industry has known left with a 1,000 employees in their reverse mortgage division.  Bank of America had far less at 600.  The number of CFPs alone nationally is about 60,000.  The broader financial advisor community is much, much larger.  For example, the number of CPAs in California exceeds 80,000.  The number of bookkeepers, pension advisors, pension administrators, insurance producers, securities licensees, and other related industries is enormous.  Knowing that some of those 1,600 were not originators, just imagining how they could reach the millions in the financial advising community and cultivate those contacts is staggering. 
     
    The reason why these sources have only been marginally cultivated is most of their clients do not need our product and it takes real effort just to meet with the financial advisors.  Yet like all financial professionals the questions and problems to which they are exposed are not limited to clients.  Providing this additional arrow to their quiver could mean business from all kinds of sources besides their business clients.
     
    As Mr. James Lyles had a difficult time with the advice to use proceeds to buy annuities, it is also odd to read someone in the financial community advising seniors to spend down their other assets before getting a HECM.  That is as bad as saying that seniors should spend HECM proceeds to resuscitate portfolios and retirement assets.  Real financial planners look at the client from many different directions and try to understand the risk tolerance of the client.  There are few strategies which fit all, even reverse mortgages.   
     
    The concept expressed in the heading is excellent.  The content in quotations is less so.  The challenge, difficulties, and opportunities are enormous in this segment of the business.  This aspect of the business is not for everyone but it is an aspect of the industry which has yet to be fully explored and developed.

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