Could New Research Change Financial Planners’ Views of Reverse Mortgages?

While financial planners have not traditionally been major proponents of reverse mortgages in their planning advice, an effort rising among investment advisers in Texas could change all that. The HECM Saver, they say, is the bridge to the gap between reverse mortgages and long-term financial planning.

“Before the HECM Saver came out, financial advisors had a negative view of reverse mortgages,” says John Salter, Texas Tech professor and wealth manager for Evensky & Katz Wealth Management. “They treated them as a last resort.” Now, however, financial planners should consider the benefits of the HECM Saver and the reverse mortgage generally in retirement planning, Salter says.

“It’s money sitting on the table.”

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The Saver presents an opportunity for retirees to draw cash when their other investment sources are not performing as well, without the upfront costs that a HECM Standard includes. Because of the low fees associated with the Saver, the cost is now worth looking at as a mainstream recommendation, Salter says.

“it’s not rocket science,” he says. “It’s going to result in a better scenario. This shouldn’t be a surprise to anybody. If you can tap into the value of a home, you’re going to be better off.

While Salter is still mum on the research findings, he says the research—when published in the coming weeks—should have widespread implications for the use of reverse mortgages.

“The takeaway is that for advisors, anybody should think seriously about utilizing the value of the reverse mortgage.” The research coming from Texas Tech’s division of personal financial planning will be put into the advisors community, he says, and should get a lot of press for it. Until then, the anticipation grows.

“It’s like hearing about a drug that hasn’t made it through FHA testing yet,” Salter says.

Harold Evensky, co-founder and president of Evensky & Katz, has also been active in the education and research process.

“It looks like this is going to be an immensely powerful tool,” Evensky said of reverse mortgages in a July edition of Advisor Perspectives Newsletter. The article noted that Evensky is advocating the use of standby reverse mortgages as a way for clients to create additional “standby” liquidity, analogous to a home equity loan.

The impact of a change in financial planners’ attitudes could be significant for reverse mortgage providers.

As a fee-only investment advisor, those like Evensky & Katz must refer clients to others for reverse mortgages, since they don’t take part in the sale of any products. That means referrals for lenders. And with the support of Evensky, a well-known fiduciary financial planner, Salter says, others are bound to listen.

“For him to say this is something we should look at, it’s going to make an impact,” Salter said.

Written by Elizabeth Ecker

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  • Dr. John Salter is the director of the highly recognized Personal Financial Planning division within the School of Business at Texas Tech University (“TTU”).  While Mr. Ray Lucia, Sr. is a successful and seasoned broadcast “celebrity” CFP with allegedly minimal formal education in financial matters and an associate degree in teaching from Palomar College, Dr. Salter is a much younger CFP who focused his graduate studies including his doctorate at Texas Tech University in personal financial matters.  Holding a graduate degree from Cornell University, Mr. Evensky is an adjunct professor at TTU and has been very active in the CFP certification process since its formation in the mid 80s.
     
    While I fully object to the use of a reverse mortgage as promoted by the owner of the now defunct Golden Gate Financial (“GGF”), Dr. Salter has described a very appropriate use of Savers.  The owner of GGF, as well as others, has promoted the recovery of losses in portfolios and retirement funds through utilizing the proceeds of reverse mortgages rather than using income or selling assets to provide the cash needed for daily living.  This is nothing more than another form of leveraged investing without any warning about the need to review the underlying investments for appropriateness.  This type of investing is generally discredited as being overly risky especially for seniors.
     
    What Dr. Salter is promoting is to obtain a reverse mortgage as a “standby” source of cash so that cash otherwise not invested in higher yielding investment due to the need of liquidity can be freed up for that purpose.  This is an excellent idea.  I refer to it as a contingent source of cash.  While not appropriate for all affluent seniors, it is appropriate for most more affluent seniors.  The upfront cost is relatively small especially when spread out over several years.
     
    There are other very appropriate uses of Savers such as where sporadic income is involved or to level out the cash requirements from seasonally high costs.  It can be used to allow for more reasonably mortgage payments especially at the end of a mortgage.  It can also be used to restructure recourse debt into nonrecourse.
     
    While this yet to be released study will be useful in helping financial planners and others such as CPAs to look more favorably on HECMs and Savers in particular, it is very important it changes our view of this product from that of a product we explain, to a product we understand its appropriate use with the more affluent.  It is not merely a product to use in taking more vacations, buying better cars, etc.  It can be a very effective cash planning, financial planning, and even tax planning tool.  We need to understand, support, and promote these prudent uses. 

  • I know of many high net worth seniors that have struggled with liquidity as most of their holdings are in real estate and complicated financial structures (some insurance based).  The reverse mortgage is simply the tool to turn that illiquid asset into liquidity.  Hopefully pricing will improve on the Saver to allow lenders to also waive the origination fee.  It truly is a uniquely suited product for more than can imagine.

    • wealthone,

      You state:  “I know of many high net worth seniors that have struggled with liquidity as most of their holdings are in real estate and complicated financial structures (some insurance based).”  Few in this industry are cash management experts for the truly cash strapped high net worth senior.  The only thing a reverse mortgage can provide is liquidity for a small percentage of the value of the primary residence of most truly “high net worth” seniors, especially when the home is worth millions.  In most such situations, the home is already leveraged to the hilt.

      A reverse mortgage may not be the right answer at all.  The cash from a reverse mortgage may only be putting off the inevitable for a very, very short period of time without providing any meaningful liquidity whatsoever.  In some cases, one can be doing nothing more than throwing currency on a raging forest fire.  This is one place where a reverse mortgage could be a very, very bad idea.

      I have seen a very wealthy individual who invested a very significant portion of his assets in a venture which ate through his cash and other liquid assets like a red hot knife through soft butter.  He kept liquidating assets at huge losses to feed this monster.  What he needed to do was dump the problem but for whatever reason he would not do it.  As one of his many advisors, he kept moving around our advice to find anyone who would see it his way.  He achieved that goal and lost everything in the process.

      Dealing with the wealthy but cash desperate is a tricky issue.  Our industry and products are poorly equipped to do that.  While we may be able to help provide a partial solution to the cash situation, we could also be exasperating the situation when handled as a separate transaction outside of an overall plan to clear up the situation. 

      Be careful what you promote.  With the truly HIGH net worth senior, if you really care about the outcome and the senior, it is generally best to work through the advisors to the senior.  Remember they are much more and far more deeply involved in the overall situation of the senior than we can ever be.

  • The use of the reverse mortgage, as a financial planning tool and the prudent use of them, is exactly how the reverse should be promoted….Mortgage companies need to treat the reverse as a specialty  program…it does not have the same thought process as a forward loan….WHat is the suitability of the reverse for the senior?..What is their current situation?.. How will a Reveres improve their situation? These are the questions a LO needs to ask … These questions  mirror what a Financial Planner ask when doing a financial plan for a person.
    The reverse needs to be elavated in one’s thinking when doing a financial plan..It is not a loan of last resort!

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

  • Hopefully, my local chapter of Society of Financial Service Professionals, which is mainly comprised of CLUs and ChFC (read insurance guys) members will be hosting a RM presentation this coming year in our “Oldies But Goodies” program.
    John Y was kind enough to put me in touch with the presenters who impressed the president and education chairman of our chapter with your industry’s product.
    You guys  might want to approach  groups in your own areas, especially with the Evensky endorsement (he is a prominent member in the financial planning world).

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