CNBC: Reverse Mortgages Are Getting a Whole Lot Tougher

Due to recent product changes implemented by the Federal Housing Administration, it’s becoming tougher for seniors to tap into home equity via reverse mortgages, writes a CNBC article published this week. 

Yet the halt of FHA’s most popular fixed-rate standard reverse mortgage still leaves viable options for some as a financial lifeline, the article states, for retirees who are equipped to proceed with caution. 

The article points to high fees among reverse mortgage downsides, as well as the “last resort” mentality associated with the loans, even despite the product offerings changing to address some of the shortfalls of reverse mortgages for cash-strapped older Americans. 

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“By taking so much cash up front, homeowners have less money in later years to keep up with property taxes and other housing expenses they have to pay even with a reverse mortgage,” Delores Conway, associate dean and professor of real estate at the Simon School in Rochester, New York, told CNBC. “That, and falling property values, have increased defaults.”

While some financial planners and estate planners recommend reverse mortgages as a means to assist retirees, one estate planning attorney told CNBC she does not recommend them. 

“Reverse mortgages are touted as a financial planning tool for seniors, however, I do not recommend them for my clients,” Tara Wilson, general counsel at Wilson LF, a law firm specializing in estate planning, told CNBC. “Not only are the transaction fees excessive, but they are usually a stopgap that leave seniors in a mush worse financial position when they are exhausted of their funds from the loan.”

Representing a lender perspective, One Reverse Mortgage President Gregg Smith told CNBC of the increasing appeal reverse mortgages will have in the near future in light of the products still available following the elimination of the fixed standard. 

“These loans are no more complicated than any other type of loan,” Smith told CNBC. “It’s a mainstream program and should be part of someone’s financial planning. They are a great cash flow tool even with the new restrictions. More people will take them out in the future.”

Read the CNBC article

Written by Elizabeth Ecker

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  • It was interesting to read that defaults were 2% ten years ago. A few years ago, industry leaders were claiming the rate was less than 1%.

    Whoever this Delores Conway is, she is talking about HECM defaults as if she had some idea what she is talking about. Despite her education, her ignorance stands out like a sore thumb. She gets some numbers right (but old information) but she really has no idea what those numbers represent.

    Tara Wilson, an attorney, pretends she is a financial planner. Her understanding of how the “not-quite-affluent” senior can benefit from HECMs is lost in the loan of last resort concept.

    Greg Smith at One Reverse pretends adjustable rate HECMs are no different than other mortgage products. Really? Has he ever explained to a senior why when the line of credit is used in a month, it just went down or why it is growing faster than the principal limit growth factor? Probably not.

  • . ”Not only are the transaction fees excessive, but they are usually a stopgap that leave seniors in a mush worse financial position when they are exhausted of their funds from the loan.”
    It sounds more like poor estate planning advice in general than an accurate assessment of the potential value of a reverse mortgage.
    I sometimes wonder where the line is between professional advice and professional malpractice.

    • Isn’t there something to be said about living as long as they want in the house without payments? Didn’t you forget that obvious benefit — Or, that “excesive fees” pays for that right?

      • wstrycker,

        Sure there is but at whose cost? If you and your organization want to pay for those costs, God bless you but if you are demanding that the federal government take that obligation off your hands, then maybe, just maybe, they should have a say in that.

  • Other people’s money

    Some have said the government can keep doing what it is
    doing until they run out of other people’s money.

    In the area of reverse mortgages — which is the art of
    withdrawing your own money from one’s equity in one’s own house — the idea is
    that the government will soon have the authority to stop you from withdrawing
    your own money because if you take it now, you may run out of money later.

    This assumes that the government will know when that is and
    give you money as they see fit opening and then closing the gate to your money as it rules.

    A story in my hometown paper this week describes how people
    of our town got into the fair through the back gate which was wide open, paying
    admission on the way out instead of at the admission gate on the way in. At the
    same time, the county is announcing in the paper that admissions were down at
    the fair this year.

    If you take the money out of your home equity when you need
    it, others who don’t own your house, can say you took it out too early and
    would run out later not that they would know better than you when that would be.

    To be sure, if the public at large was losing money with your
    act of retirement logic, then I guess we should rethink the process of the
    reverse mortgage and make sure the public does not have to pay for your
    decision to take the equity out of your house now rather than later when you
    might need it more.

    The freedom we have as Americans is that we can do what we
    want as long as it doesn’t hurt someone else, but it is not supposed to be dependent upon a
    government system to protect us from our own decisions if we should make a
    mistake in our financial judgment to use or misuse our own money and whether we used our own “savings” now or later.

    The government system is now discussing how much of your
    equity you can take out based on your need now and the possibility that you will
    need it more later, and the assumption is that senior people are less wise than
    younger lawyers who live and work in Washington DC these days to regulate the use of our own money.

    As a loan officer, my position is that as long as we own our
    own houses, we have the right to take the equity out of them when we want/need
    them, and that it is not a decision the government makes as long as we don’t
    cost the government (taxpayer) money to do it.
    (And now you know why it is getting harder and harder to be a loan officer as the government squeezes the life out of people who believe that a person should still be able to spend his own money).

    The act of taking the equity out of our house is our
    business, isn’t it?

    If not, why not?

    And the answer is: Because the act of your freedom could infringe in some way upon others.

    I got an idea: Let’s build an RM system which pays for itself
    and let people spend their own money.

    If admissions are down, we need to see if the back gate is
    locked first.

    First, is now.

    • wstrycker,

      If you don’t like the HECM rules, then create your own reverse mortgage with its own Strycker rules. You have that right.

      As to changing the HECM rules, not even HUD can change the rules on existing HECMs; they are what they are under contract law.

      If there were no HECMs I am afraid senior liquidity choices would be about the same as they were in 1987.

    • Hello wstrycker,

      All of this is great, but when the government is backing the loans, they get the right to call the tune. If there really is a market for a fixed rate reverse mortgage, or a completely unfettered by the government reverse mortgage of any type, then the private market will open up and provide it. In the meantime, if people want a HECM then they have to dance to the government’s tune, which can include how and when they spend their money.

      By the way, I am right with you when it comes to the fact that the government should not be able to tell people how and when to spend their money, but that changes when you start getting the money from the government. I don’t care whether it is a HECM or if it is an EBT (electronic balance transfer) card for Food Stamps and other government benefits. Once you are relying on someone else’s money, then they have some right to tell you what you can and cannot do.

      If an older citizen wants to access their house’s value and keep the government out, then they can get either a standard home equity loan (assuming a lender will give it to them on their income) or they can sell their home. Up until the advent of HECMs, this is the way it has always been. Get a non-HECM reverse mortgage product up and running and you can do what you want with the funds. However, until then, this is the only game in town.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      FrankKautz@csninc.org –work
      Frank@Kautzlaw.com –private

      • Frank,

        Here is where we disagree.

        A lender can offer any reverse mortgage it wants as long as it meets very broad federal and state law requirements. Those which meet current HECM requirements are eligible for insurance and those which do not, are not eligible. For wstrycker that seems to be NO BIG DEAL.

        So wstycker is free to offer any reverse mortgages he wants. But if he wants to offer the only kind which is available to most seniors, he must learn that the insurance company, FHA, dictates what terms must be in the mortgage for it to qualify for their coverage, not wstrycker. I would love wstrycker to replace FHA and provide the insurance he is talking about. Unfortunately, neither wstrycker nor his employer is able to offer such coverage.

        Of course FHA could always just lower PLFs rather than provide a graduated payout level over time. If they drop them low enough say to 20%, other insurers could rush into the marketplace and we could offer many new products that much fewer seniors would find desirable. I do not believe wstrycker understands the options FHA has available to it.

        I find what wstrycker writes with a rather naive view and too many times he needlessly and recklessly attacks FHA. He has yet to offer one idea on how FHA can stop the bleeding (annual losses in the MMI Fund due to HECM activies in the fiscal year being considered). NOW that just might be very instructive and constructive (we all have those ultra optimistic moments in life).

      • Hi Cynic,

        I am not so sure we disagree, I was just trying to be a bit more humorous about it.

        Frank

  • “These loans are no more complicated than any other type of loan,” Smith told CNBC. This is what I have been saying for years! Thank You Gregg!

  • Why doesn’t Ms Wilson contact, say, the good Commonwealth of Virginia and ask them why they charge $3.33 per thousand on the 1 and 1/2 times property value on state and county tax stamps? or to Frederick County, MD that charges $12 per thousand on recordation charges? How about appraisals at $500 or the almost $2000 in title insurance charges for a nice home in Washington, DC? I bet Ms Wilson makes a pretty penny putting a trust together for that family that she’s telling the reverse mortgage is too “excessive”.

    Compared to WHAT?

  • Hard to believe Tara Wilson is more of a lawyer than an estate planner. To discount something based on your lack of knowledge about how it works and how it can be utilized says everything about how poorly equipped you are to advise anyone.
    Everyone’s situation is different and to apply a ‘one size fits all’ philosophy to any financial tool, is lazy and sloppy. The transaction fees are not insignificant but comparable to a real estate transaction. There are no HELOCs that require no monthly payments. Given what she probably charges, her clients deserve a better level of expertise.

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