LA Times: Avoid Reverse Mortgage Pitfalls

Despite recent reverse mortgage changes that serve to better protect borrowers, the loans still come with some pitfalls, writes the L.A. Times in a recent article

Outlining the case of one Southern California reverse mortgage borrower, the L.A. Times column notes several potential “pitfalls” of home equity conversion mortgages including the insurance premiums, uncertainty of adjustable rate loans, and potential lack of inheritance for heirs who are expecting to inherit their parents’ homes. 

“If somebody wants to leave their home to their heirs, they probably don’t want a reverse mortgage,” Philip Goss, a certified reverse mortgage professional in Glendora, Calif. tells the Times columnist. “They’ll be using up equity in the home.”

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However, the column continues, if next of kin can take care of themselves and the homeowner plans to remain in the home for some time, “a reverse mortgage can be an effective way of turning the roof over your head into cash in your pocket.” 

The article does not detail recent product changes designed to ensure the borrower will be able to meet his or her loan obligations, but it does detail some concerns including high upfront costs, variable interest rates, and insurance premiums. [The column does not differentiate between the different insurance premium options that are available to borrowers, depending on the type of loan they take.]

“A reverse mortgage can be a helpful financial tool for some people,” Lori Trawinski, director of banking and finance for the AARP Public Policy Institute, tells the L.A. Times. “But for others, there may be better ways to go.”

Read the L.A. Times column.

Written by Elizabeth Ecker

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  • Another article once again focusing on our traditional base rather than seniors who are numbered among the mass affluent.

    Philip, a CRMP, seems lost in how reverse mortgages work when there is no debt management plan in saying: “‘If somebody wants to leave their home to their heirs, they probably don’t want a reverse mortgage…. They’ll be using up equity in the home.'” There is no doubt he understands how a reverse mortgage works since he is a CRMP but he certainly shows no signs of knowing how it can work for seniors who do not need a long-term debt solution but do need occasional infusions of cash although he does pay lip service to reverse mortgages as something he calls a “cash-flow tool.” No doubt Philip considers himself an optimist but as to debt management he is a pessimist which may in large be part due to the segment of the senior home owning market he focuses on; this article is not a negative article about reverse mortgages but as to seniors managing debt it certainly is pessimistic.

    Why do so many industry people like Philip only present reverse mortgages as long-term equity eroding debts? It is in large part due to their focus. They rarely present or think about reverse mortgages in any other terms.

    Overall the tone of this article and Philip only reinforces the view of reverse mortgages as long-term debt which drains the equity in the home due to compounding interest (and MIP charges on HECMs). Reverse mortgages, particularly HECMs, are far more versatile and much better cash flow and short-term (even mid-term) debt management tools than most of those in the industry who are regularly quoted by the press acknowledge. Even as contingent long-term debt, at termination due to death of the last surviving borrower, heirs may very well inherit a substantially paid for home.

    Let us all stop shooting ourselves in the foot and playing into the hands of our detractors. It is tiring to read so much about reverse mortgages only in terms of an equity eroding long-term loan in quotes from industry members when that is only ONE aspect of its use and unfortunately is the most dominant use of this cash flow management tool today. Perhaps one of the greatest reasons we see such dominant use of reverse mortgages in this way is due in great part to the way we promote them and is also the most significant reason why so few seniors other than our traditional base show much interest in them.

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