U.S. News and World: Reverse Mortgages Are No Silver Bullet

NewImageReverse mortgages “aren’t a silver bullet,” says a U.S. News and World Report article published this week, but they have become more affordable through the introduction of the HECM Saver product, it says.

“One way to boost your income in retirement is to let the bank send you a monthly check,” the article reads. “A new breed of reverse mortgage might be especially appealing for certain seniors.”

U.S. News and World notes critics of the reverse mortgages who cite the expense and complication associated with the products, and details the fees borrowers face under the standard HECM product as well as the new Saver option.

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“The newest model cuts the initial costs pretty dramatically,” the article states. The loans are best for customers who don’t need as much cash and won’t have the loan out for a long time, it says, citing input from National Reverse Mortgage Lenders Association President and CEO Peter Bell.

Unless a borrower needs all funds at once, a line of credit or monthly payment option at an adjustable rate will be the most economical choices, the article says. Finally, it’s not a silver bullet, U.S. and World quotes National Council on Aging’s Vice President, Home Equity Initiatives Barb Stucki as saying, and should be part of a carefully designed retirement plan.

“You can’t fool yourself into thinking that your mortgage has vanished,” Stucki said.

View the U.S. News and World Report article.

Written by Elizabeth Ecker

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  • What even Dr. Stucki misses is that current retirement planning is insufficient for many borrowers.  As Jonathan Neal points out what is needed by many HECM borrowers is post-retirement planning.
     
    As of yet, neither Dr. Stucki nor Ms. Montezemolo have spoken out on the strategies proposed by Dr. Salter, CFP or Mr. Evensky, CFP.  In part could that be due to their lack of formal education in personal financial matters?  It is hard for either of these consumer advocates to endorse any strategy even if there is minimal downside.

  • The article was not in the least negative but neither was it accurate or strongly positive.  It was good that the author warned about thinking of HECMs as silver bullets.   

    It is hard to believe that anyone in the financial community would ADVISE a senior that a way to boost income is through debt proceeds, especially twice in the same article.  Even Ken Lay of Enron fame did not OPENLY espouse this ridiculous, misleading, and fallacious concept even though several Enron companies fraudulently accounted for loan proceeds as income.  You would think people who write about financial matters would have learned from the Enron legend. 

    Here is another falsehood:  “…borrowers must pay 2 percent of their home’s value upfront as a mortgage insurance premium and 1.25 percent annually on the loan balance to protect lenders against losses and borrowers against a drop in home value….”  MIP has never protected a single borrower against a drop in home value.  It might be viewed that the Net Principal Limit (before payoff of liens) provides a floor in value but what does MIP have to do with that unless one falsely claims that the MIP makes a HECM nonrecourse?  MIP does NOT protect against any drop in home value, period.   

    The author only seems to understand Savers as a substitute for Standards.  She does not seem to have any view of its use as a tool for implementing a low risk, low cost, higher yield investment strategy for many affluent.  She only seems to see HECMs as an immediate source of cash and paying off existing liens.  It is this kind of simplistic view of HECMs which has generally relegated them to loans of last resort.

  • Good article.  I don’t understand the criticism posted by the writer in his first 2 posts above.  No article of this length can address everything or all circumstances, but what it covered it covered fairly well.

    • Mr. Jackson,

      Because you are an inactive California CPA, a California real estate licensee, a NMLS licensed officer at a California mortgage broker (as defined in California Civil Code Section 2923.1), and a former Wells Fargo reverse mortgage certified consultant, I will speak bluntly about my impression of describing loan proceeds as “boosting income.”  Such language reminds me of the fraud Mr. Jeffrey Skilling and greatly discredited members of Arthur Andersen & Co. have been convicted of.  Enron not only communicated their income by including loan proceeds, but they reported specific loan proceeds by “boosting income” by exactly those amounts.  That is fraud in that context.  How that language is nothing more than salesman’s puff in our own escapes me.  Income is not required to be repaid; nonrecourse loan proceeds to the extent of the value of the collateral [after payment (or prepayment) application rules] are.
       
      HELOCs and cash out forward mortgages have been around longer than HECMs; yet our “brethren” in the forward mortgage industry have never had the nerve to describe loan proceeds as income.  Yet that is exactly what this industry did for well over a decade.  In that regard our industry is truly unique.
       
      Those who are paid to write about financial matters should be held to a higher standard as should those who market to a protected class by the so called standard of “education.”  Perhaps my evaluation is too harsh for some but it is what it is.
       
      You state:  “No article of this length can address everything or all circumstances.”  You are exactly right!!  So why should the author make up a story about MIP protecting borrowers against drops in home values?  That is utter nonsense and something entirely made up by the author.  It should be condemned by all those who are held to a fiduciary standard in originating mortgages as you are in all mortgages transactions in California and in the opinion of some California attorneys, I also generally am.

    • Lance,

      James addressed things wrong with the article.  My comment is about the position of a program critic and a very influential counseling agency executive quoted in the article.
       
      Susanna Montezemolo is perhaps the most reasoned critic of the program there is.  She is bright, well prepared, articulate, precise, and at times flawless.  She is not wild or misdirected.  She is also an excellent debater.  She is the one person who can make even Peter Bell look off guard and stumble for the right words — which is NOT an easy feat.  She is a worthy opponent and someone I enjoy listening to even though there are times when I do not agree with the principles and assumptions she bases many of her criticisms on.
       
      Dr. Stucki is, well, Barb Stucki.  At times she is a huge proponent of the industry and at times she is a strong critic.  She is bright, well spoken, very directed, and at times can be become overbearing.  Even when it seems she might be caught off guard, she almost instantaneously recovers.  She can be a formidable opponent even when it is clear she knows she is on the wrong side of the issue.  At times it seems her statements are based more on agenda than principle but that is not to say she is in the least unprincipled.  No doubt she did an excellent job in her doctoral dissertation in Anthropology. 
       
      Both of these two women are well informed.  Their comments, however, seem overly rooted in the traditional “HECM senior.”  While Suzanna may have no interest in the larger senior community when it comes to HECMs or Savers, it would be odd if Barb does not.  It is important to all of us that these two individuals speak their views on the planning concepts now being promoted for wealthier seniors.  If they have concerns or see potential problems, they need to speak out now rather than waiting until some seniors have been permanently harmed.
       
      Most critics speak when the issues are well defined with the benefit of 20-20 hindsight.  Their comments may be helpful at that point but they are generally too late to be of real use in preventing and avoiding potential problems.

      There is much these two women can bring into the conversation on financial planning we are promoting these days.  I would hope they both will take the time to comment.    
       

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