Trading their reputation as a loan of last resort, reverse mortgages are gaining popularity among borrowers and investment advisors, according to an April 2012 article in Investment Advisor magazine. As the need for retirement income grows and product options have changed, advisors may be starting to take another look at reverse mortgages as a retirement tool. Investment Advisor writes:
…the product is often seen as an overpriced retirement income vehicle of last resort for distressed seniors. In fact, advisors typically avoid recommending them to their clients, and following Wells Fargo’s and Bank of America’s exit from the reverse mortgage market in 2011 due to worries about rising defaults, the product has come under an even greater cloud of suspicion.
…yet as the U.S. population ages in pricey properties they don’t want to give up, the market for reverse mortgages is growing. In particular, HECMs have gained popularity because the federal government backs the program. As baby boomers age and home prices remain stagnant, seniors are likely to rely on them even more—and ask their financial advisors about reverse mortgages.
Here’s the surprise for advisors who decide to give reverse mortgages a closer look: Under the right circumstances, there are times when the product may actually benefit a client.
…If anything threatens them now, it’s not a lack of demand. It’s the risk that the FHA will go broke and require a tax bailout for the first time in its 77-year history
“I’m hearing about a lot of changes going on in that marketplace that I think will make reverse mortgages dramatically more relevant for advisors,” says [Michael Kitces, publisher of “The Kitces Report” and director of research for Pinnacle Advisory Group in Columbia, Md.]. “I don’t think advisors ever were really using them in the first place, but with some of the changes coming forward now, we may start seeing reverse mortgages used for the first time with some increased regularity by advisors.”
“I don’t care how bad the market gets, this loan is virtually never going to be underwater,” Kitces said. “It’s a way to take a loan out against your house and not have cash-flow constraints in paying it back.”
Read the original article.
Written by Elizabeth Ecker