Houston Chronicle: Reverse Mortgages Good fit for Some

Reverse mortgages can be useful—and they’re overcoming a bad reputation, according to a recent article published by Chron.com, the online outlet for the Houston Chronicle.

Between paying off an existing mortgage, paying for unforeseen medical costs or in-home care, or simply helping to offset shortfall associated with retirement planning, reverse mortgages are offering an option to qualifying seniors, the article notes.

Financial planners, too, are coming around to the concept.

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“Years past, financial planners didn’t view reverse mortgages as a planning tool,” David Johnson, associate professor of finance at the University of Wisconsin-Superior, tells the news outlet. “It was viewed as a last resort and they assumed that the only people that do reverse mortgages are people that are desperate. Clearly that’s not the case, and I think they are starting to view it differently now.”

The article cites one example of an older homeowner who took out a reverse mortgage but didn’t access the proceeds until she faced a fall and subsequent in-home recovery. Her children were in support of the decision.

The costs are worth noting, but are not unlike any other mortgage costs, National Reverse Mortgage Lenders Association President and CEO Peter Bell tells the publication.

“It’s still going to be accruing interest on the house the same way as a conventional mortgage,” he said. “The question is whether you are going to be making those monthly payments now or let that be paid off later.”

Read the article at Chron.com.

Written by Elizabeth Ecker

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  • What weak uses of HECM proceeds and HECMs!! Pathetic at best. What this article proves is that we have abandoned any advocation of employing the HECM in any kind of new retirement strategy and once again prove in a practical way that our idea of a new reverse mortgage is nothing more than HECM Saver v.2 (now Saver v.3) used in the same manner as every HECM before it.

    The strategies are reactionary if not passive. They certainly are not robust and lack any sense of vigor or financial discipline. My mailman and plumber thought of most of those uses years ago.

    HECMs are a dynamic cash flow product which have the potential of being a robust catalyst to a proactive and strong retirement strategy to extend and improve cash flow throughout retirement while managing debt and its related costs (not just accruing interest).

    Not one of the uses above have anything to do with managing total debt including the HECM. This is what makes them not just reactionary but ridiculously passive when it comes to the mass affluent. It seems we as an industry are returning in mass to what we knew was best in the past, gathering the low lying fruit (originations).

    Harold Evensky gave us all a good kick in the seat of our pants showing us how to improve returns on the two bucket retirement strategy by adding the third, a standby reverse mortgage. Some have gone backwards calling it a standby line of credit and other such jibberish which were popular financial planning strategies of the past but are far less dynamic than the three bucket (or standby reverse mortgage) strategy Harold developed a few years ago.

    I believe that the HECM is a valuable cash flow product whose inclusion in a well designed retirement plan can protect the plan (not some silly notion about protecting portfolios which it marginally may do) through a proper and disciplined use of a line of credit AND resulting debt.

    Recently a respected member of our industry wrote a book in which he has a chapter on something he calls “Advanced Strategies.” What a waste of paper. They are nothing more than ways to spend proceeds. The chapter completely ignores any disciplined use of debt and the line of credit in strengthening an ongoing or revised retirement plan.

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