Financial Planners: Consider Reverse Mortgages Now Before Industry Changes

Despite some industry headwinds, now may be just the right time for financial advisors to recommend reverse mortgages to clients to help fund retirement and lock in home values and claim amounts, says a recent article by the online industry website Financial Planning.

If a reverse mortgage makes sense for a financial planner’s clients, it’s a good idea to look into them soon, and for several reasons, Financial Planning advises.

These reasons include the possibility that the Department of Housing and Urban Development (HUD) could decrease loan limits at the end of 2011 from $625,500 to $417,000. Also, an FHA-insured reverse mortgage is a way to lock in a home’s current value and protect its equity, as housing prices in some parts of the country continue to decline.

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And, for pre-retirees who have lost their jobs and are struggling to find work in a weak economy, the loan could be a “financial lifeline,” says the article.

While reverse mortgages are most commonly taken out by low- to middle-income seniors, they’re growing in appeal among other demographics, too, said one certified financial planner, noting a trend of more affluent people using the product as a planning tool to fund long-term care and supplemental life insurance.

“Their investments have taken a big hit, and if they have needs that have to be addressed, they’re looking to their house to fund it,” said Dennis Loxton, regional vice president of the reverse mortgage division of First Century Bank in Gainesville, Ga., in the article.

The exits of big-name lenders such as Wells Fargo and Bank of America also makes the future of the program unclear, it continues, going on to mention several industry lawsuits including deceptive marketing charges and allegations of illegal foreclosure procedures against spouses of deceased borrowers.

“While these headwinds are unlikely to cause the reverse mortgage industry to disappear, in the short run they will probably have a negative impact,” says Financial Planner, going on to predict the possibility of consolidation among bigger players, tighter underwriting standards, and higher fees.

The article also explains how the program works and runs through the pros and cons of reverse mortgages.

Read the full Financial Planning article here.

Written by Alyssa Gerace

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  • The article by Ms. June Fletcher had many problems in it.
     
    The author did not present the basic concept of how the principal limit is computed and thus focused at one point on age as the single determinant in stating that prospects should consider waiting for higher principal limits without any caveat about increased interest rates or further erosion in home values. 

    Leveraged investing was presented with no caveat.  The lowering of the lending limit was stressed with no caveat about the current position of the acting FHA Commissioner.  Private (or family) reverse mortgages were promoted with little discussion of its inherent problems.

    Oversimplified tax concepts were presented with the result that the concepts were basically misleading.  For example, when discussing the step up in basis which may be true on some primary residences today, heirs may also be facing a step down in basis.  Ms. Fletcher did not have the technical knowledge required to adequately present many ideas on which she focused.

    Overall the article was dull, somewhat inaccurate, and generally lacked any real endorsement of the product.  On a scale of one to ten, this was a six but only because it was not negatively biased.

  • You guys are the experts, but as a retired financial planner, I thought this was overall a positive article for you guys and for planners.  If a planner thinks you will put his client’s interest first, and will explain alternatives as pointed out in the article, perhaps you may get recommendations.
     I, also, get the feeling that some of you look askance at FPs, well they also view you with suspiscion.  Only by educational and sharing of expertise can the clients benefit, which should be both of our goals.

    • dduck12,
       
      Ms. June Fletcher does NOT even claim to be a financial planner.  She is an author specializing in real estate.  Here is what Wikipedia says about her:
       
      “June Fletcher is a writer for The Wall Street Journal. She is a regular contributor to the Weekend Journal, and is the columnist for House Talk. Her beat focuses on international real estate.  Fletcher was named Miss Bikini USA before entering Princeton University in 1969, the first year of coeducation. She also holds a masters degree from Oxford University.”

      The Financal Planning magazine itself says: “June Fletcher is the author of House Poor and writes the weekly online House Talk column for The Wall Street Journal.”
       
      Mr. Dennis Loxton is both CFP and a reverse mortgage executive.  If Mr. Loxton had written the article, it would have been superior in quality.
       
      If you think the tone of my criticism is too strong you should have seen how I personally tore into an article written by three CPAs who wrote about reverse mortgages in the financial planning issue of the trend setting state publication of the NY State Society of CPAs.  It makes what I have written in criticism of this article look like Melba toast. For more than a year, two of the three authors (it turns out the third did not author any part of the article) and I correspond. Their source came the Fannie Mae and HUD websites; and they criticized HECMs for offering Shared Appreciation (not offered today) and not having fixed rate products among other things. They were grateful for the criticism because as University professors they wanted to get it right but unfortunately some of the most outdated information about HECMs can be found on the Fannie Mae and HUD websites.
       
      What financial planner did I attack?  While I appreciate you and what you write, sometimes you seem overly protective and sensitive.

  • Alyssa,
     
    Great article! The bottom line is most of the financial planning community still views the reverse mortgage as a product of last resort or at best a very needs based product.
     
    Until we educate the mainstream financial community to the benefits of this great product we will remain on the bottom rung of the financial ladder…
     
    Mike

    • Mike, as I’ve said several times, just reach out to FP groups and offer RM education, preferably with CE credits, but not absolutely necessary.
      This Nov. 29th, my chapter of the Society of Financial Services Professionals (SFSP) is having a presentation on RMs for our “Oldies But Goodies” annual program. This group will have FPs, lawyers and accountants in the audience. (This was initiated by  an RM contact provided by John Y.)

      BTW: One of the most respected FPs, Howard Evensky, is now including RMs in his educational training.  A big plus as he is very well known in the FP field.

      • dduck12,

        Dr. John Salter, CFP had an entire breakout session at the NRMLA national convention in Boston last month.  As you know Dr. Salter is a consultant at the Evensky and Katz firm in Lubbock, TX.  Mr. Evensky is a professor in the Texas Tech University Personal Financial Planning program, Dr. Salter heads up.

        By the way, the Evensky I am referring to is Harold Evensky not Howard Evensky.  Are the two related?

    • Michael,

      Here we disagree.  I do not believe your last sentence is as applicable as it once was.  Dr. Salter, CFP and Mr. Evensky, CFP are doing a great job at providing a new dialogue into the CFP community.  Your personal efforts are also paying off as are others. 

      While there may only be 60,000 CFPs, they are at or near the apex of the financial planning community.  Other than CPAs, the percentage of their numbers with relevant college degrees beyond Associate degrees is impressive; a significant number have relevant graduate degrees. 

      If the CFP community as a whole begins to appreciate what HECMs can do for their clients, other financial related industries such as CPAs will not be far behind.  This is but a start but nonetheless, a significant start it is.

      You are doing good work.  We need a new vision of what is actually going on today which is so substantially different than when I first began looking into reverse mortgages in 2004. 

      We need to support you, Mr. Evensky, CFP, and Dr. Salter, CFP.  I am glad there are people like Dennis Loxton, CFP and other financial planners in our industry.  This is a different age and while we may be greatful for a kind word here or there, the lasting thing is to provide the actual facts and provide correct information when possible.  The product is sound and has many very legal, ethical, and moral uses which need development and exposure in the way we are seeing by Mr. Evensky, CFP and Dr. Salter, CFP.

  • dduck12,

    If you go to Google and Google both names, more than one website refers to a Howard Evensky, CFP but it is Harold who is declared by Wikipedia to be the Dean of Financial Planning and the principal listed on the Evensky & Katz website.  I do not claim to be a CFP so I have no idea who is who without doing my homework.  I am not being snippy just trying to keep my p’s and q’s straight.

    Say what you want to about me.  I have fairly thick skin. 

    I just find it interesting that 2 hours after my first comment (and at that point only comment in the thread) appears you write:   “I, also, get the feeling that some of you look askance at FPs, well they also view you with suspiscion.”  That is about as close to declaring that I attacked a FP as you can come without saying it.  And they you say that you did not accuse of attacking any FP.  While that is literally true, it is not reasonably so.

    I know you feel you have no current ax to grind.  Yet as a CPA and an advisor to many both in financial planning and specific purchases, I find your opinion biased.  There is nothing wrong with that; it is just an oberservation as one who has never had any ax to grind when it has come to insurance.  If you were not biased to insurance I would strongly question why you ever sold it; so in your case, I look at bias as the right position for you to take.

    • This is getting silly already.  Of course I am biased towards insurance, I am a CLU and moving over into broader based financial products and strategies, became a ChFC.  To me insurance is a broader concept.  Carrying an umbrella is insurance against getting wet, etc. RMs are just another planning tool.  I have been a proponent of RMs and argued with other FPs that viewed them with suspicion.  Now slowly, the FPs are awakening and perhaps their erroneous impression of your product and the sales personnel attached to it will change.  I hope as some of your people get to work with FPs, that they will have a favorable opinion of the work we attempt to do with clients.
      My reference to “some of you look askance at FPs” was based on some of remarks from  prior threads that i participated in.  If I am in error , I apologize.

      • dduck12,

        You are right we have a wide range of views in this industry just like so many other industries.  Even though we may not agree I am glad you participate.  You provide a view which needs expression.

  • I have been involved in Financial Planning Since the 1960’s, and for the past 15 years a poneer in the development of reverse mortgages. While there are some exceptions the vast majority of financial planners are way behind the curve. The vast majority ignore the value of a home as part of the financial net worth of a client. While AARP states that 70% of middle class americans have 70% of their net worth invested in thier homes. How can anyone honestly call themselves a financial planner while being that far out of balance with reality???  John Kennedy, grandfather and developer of the financial planning profession.

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