In the complex world of home equity conversion mortgages (HECMs), a certification process would make it easier for seniors to navigate these financial products, writes Jack Guttentag, of The Mortgage Professor.
And the best way to do so? Label them “kosher.”
The kosher stamp on food means that it has been certified as fit for human consumption, satisfying the requirements of Jewish law. Similarly, a kosher HECM — which does not yet exist, but will soon, Guttentag suggests — would indicate the financial instrument is safe for consumers.
Reverse mortgages have long been associated with “horror stories” reported by the media. But since significant reverse mortgage program changes, the product has received nods from many in the financial planning community, along with the media.
Still, a kosher HECM, in addition to kosher HECM loan advisers and systems, would provide a clear picture of what the product is — with no surprises.
A kosher HECM, Guttentag writes, would be a transparent loan that doesn’t have unanticipated surprises down the road that could make the borrower regret taking out a HECM.
Among other features, the set of options for drawing funds would be the best of those available to the senior; the combination of interest rate and upfront settlement costs also would be the best available; and the final price set on the lock date would be immune to manipulation.
The product would be offered by kosher HECM loan advisers, much like a kosher butcher would sell kosher meat. These advisers would stress the importance of long-range planning, counter to the common senior bias toward excessive cash withdrawals, the article states.
Kosher loan advisers would also develop and demonstrate a unique plan for each applicant, providing price transparency and lock-price integrity.
It follows, then, that a kosher HECM system would provide full disclosure of the product’s features, giving seniors upfront comparisons of prices and available options.
Read the full Mortgage Professor article here.
Written by Emily Study