Investment News: Reverse Mortgages Recast for Financial Planners

Reverse mortgages could get recast from their commonly-perceived “loan of last resort” role to that of a financial tool for retirement if industry lenders get their way, says a recent Investment News article.

Despite more than two decades of being seen as a financial lifeline for seniors who are house-rich, cash-poor, reverse mortgage lenders are hoping research from leading financial advisers paired with new rules from the Department of Housing and Urban Development will change the product’s role, says the article. 

“We in the reverse-mortgage lending industry find financial advisers are subject to the same myths and misconceptions as the general populace,” Shelley Giordano, director of business development for Security 1 Lending, told Investment News. “We thought if we could bring together some thought leaders from various disciplines, we could focus on what’s new in terms of housing wealth in the retirement distribution phase and help Americans have a more secure retirement.”

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Giordano is chairman of the reverse mortgage industry’s Funding Longevity Task Force, which includes members like John Salter, a tax attorney specializing in pension matters; Harold Evensky, president of Evensky & Katz Wealth Management; and Shaun Pfeiffer, a professor of personal finance at Edinboro University.

The three have done extensive research on how the government-insured Home Equity Conversion Mortgage (HECM) product can be used as a retirement planning tool

“Our study considers using a HECM Saver reverse mortgage as a risk management tool in conjunction with a two-bucket investment strategy, coined the standby reverse-mortgage strategy, in order to increase the probability a client will be able to meet predetermined retirement goals,” they wrote in a 2012 article published in the Journal of Financial Planning.

Since then, HUD has issued new rules for HECMs that limit homeowners from borrowing more than 60% of the maximum reverse mortgage loan amount when it closes for a one-year period, Investment News writes. The program changes are meant to ensure loans will cover borrowers’ ongoing expenses, in addition to other common uses such as improving cash-flow. 

“A HECM is just another way we can help clients address their retirement income needs,” task force member Marguerita Cheng, a financial planner and chief executive of Blue Ocean Global Wealth, told Investment News

Read the full article

Written by Alyssa Gerace

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  • There are many of us that have been and continue to pursue this on an individual basis. The vast majority of RM Companies find the R.E. market an easier opportunity.

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