Wall Street Journal: Reverse Mortgages Can Help A Wide Array of Retirees

Reverse mortgage benefits can span a wide population of older Americans spanning both those trying to keep their homes, as well as “well-heeled retirees” seeking an investment buffer, the Wall Street Journal writes in an article this week.

With the print headline “Reverse Mortgage Rethink,” the WSJ delves into academic research on the Home Equity Conversion Mortgage Saver led by John Salter and Harold Evensky at Texas Tech that has effectively positioned the Saver loan as a safeguard against losses across other investments in a retiree’s portfolio. 

“Retirement is really about cash flow,” Martin James, a certified public accountant in Mooresville, Ind., told the WSJ. “Even for a person who’s got their mortgage paid off, it’s nice to have a line of credit sitting there.”

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No longer a loan of last resort, the article writes, financial planners today are taking a different approach to reverse mortgages, though there are changes in store expected later this year, following congressional approval of the Department of Housing and Urban Development toward altering the HECM program. 

Citing the use of a reverse mortgage as a way to eliminate mortgage payments, save on withdrawing from retirement investments that are subject to tax and serving as a “bridge” to withdrawing on Social Security, the article includes two pieces of advice for those who are considering taking out a reverse mortgage: consult an expert and keep kids in the loop—especially because children of reverse mortgage borrowers are often at first uncertain of the idea. 

“My first answer, when people ask how to approach the kids, is to ask them if they have an extra room in their house for their parents,” Salter told the WSJ.

Read the Wall Street Journal article

Written by Elizabeth Ecker

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  • I like this Salter guy. After a client and I talked a couple years ago in his kitchen he decided the RM wasn’t the right product for him and that he would sell the home (one of the options I discussed with him). He showed me around his house after we spoke and I asked him “where are you going to put all this stuff, will it all fit in the new place”? as he had quite a collection of antiques and collectibles. He said he’d figure it out. 2 days later he called me and said to bring the application with me and come back out to his house, he couldn’t part with his memories. Sometimes a simple question can make all the difference.

    • wealthone,

      Maybe you can explain how your example relates to what Dr. Salter is saying. It seems you are still focused on aging in place, not the cash flow needs of seniors in retirement.

      This senior might have been wiser to downsize and selectively keeping some antiques, selling others, and passing along yet others to heirs. Downsizing does not necessarily mean paying less for a new home but rather finding the right size home with the right amenities for both now and further into retirement.

      HECMs are for cash flow, not for keeping seniors in homes that might be eating up their retirement futures. While aging in place is good for many seniors, it is not the best answer for all.

      • Sorry, but sometimes living on their terms outweighs speculative cost comparisons. Know why? After writing that a couple days ago I called him to see how he was doing. He said “I don’t regret it at all” as it took pressure off everything, including his family and his retirement account. I’m satisfied with that.

  • Ms. Ecker got it exactly right in quoting the CPA when he said: “’Retirement is really about cash flow,’ Martin James, a certified public accountant in Mooresville, Ind., told the WSJ. ‘Even for a person who’s got their mortgage paid off, it’s nice to have a line of credit sitting there.’”

    Here is what Congress had to say about the subject in the purpose clause of the HECM law in Title 12 of the United States Code:

    “§1715z–20. Insurance of home equity conversion mortgages for elderly homeowners

    (a) Purpose

    The purpose of this section is to authorize the Secretary to carry out a program of mortgage insurance designed—

    (1) to meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets….” For those who are interested (a)(2) addresses mortgagees and secondary markets.

    As an industry we do not need to be distracted by other messages. Instead we should be emphasizing the value of a HECM as a ready source of cash flow. After their initial reactions to the idea of bringing debt into retirement, both Mr. Evensky and Dr. Salter have recognized the value of HECMs (particularly Saver ARMs) in making cash readily available to Seniors to meet short-term cash short falls throughout retirement at a reasonable cost. These pioneers have begun to show us the real appeal of HECMs and we need to bring that appeal to the broader senior home owning segments.

  • It’s great to read that the Wall Street Journal is providing an objective article on the reverse mortgage program. Far too many times, mainstream media has inaccurate or misleading information on reverse mortgages. In addition, it’s about time that financial planners and CPA’s start realizing the benefit of this program and begin to include it as part of their consultations.

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