The Reverse Mortgage ‘Loan of Last Resort’ is Dead, Good Riddance

The reverse mortgage “loan of last resort” is dead, but as far as funerals go, no need for tears.

The perception that reverse mortgages are best suited for senior homeowners desperate for a lifeline to protect themselves from foreclosure coughed up its final death rattle on April 27, 2015, following the implementation of the Financial Assessment.

Now more than four months into some of the most groundbreaking changes the Home Equity Conversion Mortgage (HECM) program has ever seen, the reverse mortgage industry strives to dispel those long-held misconceptions that have hindered greater utilization of the product.

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And the regulations put forth via the Financial Assessment is giving the HECM program the mileage the industry craves to distance reverse mortgages away from the preconceived notions of the general public, and more toward a viable retirement planning tool to help seniors fund their longevity.

One of the earliest votes of confidence arrived more than a year before FA even took effect, when back in January 2014, the Financial Industry Regulatory Authority (FINRA) renounced a statement from its published investor alert that previously stated reverse mortgages should be used as a product of last resort.

But even with a number of studies repeatedly touting the effectiveness of reverse mortgages in modern day retirement planning over the years, the industry just can’t seem to shake its bad reputation in the gaze of the national press. But that is not for want of trying.

Yes, there have been noble efforts to set the record straight on reverse mortgages via national media outlets like Fox News, as well as local ABC News coverage, but these initiatives have been little more than raindrops in a bucket.

Meanwhile, the industry continues to roll with the punches as it faces not only new regulations (and hopefully the last for the foreseeable future), but also a widely misinformed consumer base that still clings to its misconceptions of the product.

Negative press leaves little room for improving the reputation of reverse mortgages, especially when mainstream publications regurgitate unflattering studies spotlighting consumers’ complaints.

A recent example occurred just last week. Forbes published an article about “frustrated consumers” and their complaints regarding reverse mortgages. The article stems from a February report from the Consumer Financial Protection Bureau detailing a snapshot of reverse mortgage complaints from December 2011-2014.

While Forbes emphasizes the fact that the CFPB report compiled a total of 1,200 complaints, there is a significant lack of context that does an injustice to reverse mortgages. For example, the article doesn’t mention the time period during which complaints were compiled.

Nor does the article mention a more recent report that digs deeper into the CFPB’s findings, which found reverse mortgages represent less than 1% of all mortgage-related complaints submitted to the federal agency over the past four years.

But the most unsettling part of the article wasn’t simply the display of airing out the industry’s dirty laundry, but rather that the piece was written by an elder law attorney contributor.

This is not good, especially since reverse mortgage lenders need to coexist with other senior-focused stakeholders like financial advisors and elder law professionals—to name just a few—if the industry seriously wants to have a place in the retirement planning conversation.

With the “loan of last resort” reputation laid to rest, reverse mortgages at least have a more solid foot in the door as a viable retirement tool that helps senior homeowners supplement their funds for longevity.

Revolutionizing the reverse mortgage still has a long way to go. The old cliche “it’s a marathon, not a sprint,” comes to mind, but it epitomizes just what the industry is up against in the weeks, months and years as the crusade for educational outreach continues.

Rest in piece, reverse mortgage of last resort. You will not be missed.

Written by Jason Oliva

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  • There is a strange assumption underlying this article which is represented in the following: “With the ‘loan of last resort’ reputation laid to rest….” Where is the resting place for the “loan of last resort?”

    A mentor used to say that in originating a HECM, fact means little if the consumer’s perception differs.” Anyone who has even tried to originate a HECM to a senior who is not receptive because of a myth her plumber/cleric/stylist/accountant told her knows exactly what this means.

    Yes, things are better than before but that does not mean the label is dead. In fact, do we really want it dead? Reverse mortgages are still a loan of last resort for a number of seniors and that is not all bad. Yes, the number of those falling into the category substantially shrank on September 30, 2014 and shrank even more on April 27. 2015 but there is still some who can benefit from the HECM as a loan of last resort.

    Yet if all we lose is that one label, then we may have won a battle but we have lost the war. The war is to have HECMs accepted as a first tier option among retirement cash flow financial products and the most selected mortgage by seniors in buying a home.

    We need a positive result not just the elimination of what too many believe is purely a negative one. In the days of the “loan of last resort” we had three straight fiscal years of endorsements in excess of 100,000. Will losing that label alone return us to those days?

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