What Borrowers Say About Reverse Mortgages

While we spend a lot of time at RMD talking to industry professionals and covering topics relating to the business of reverse mortgages, we don’t often get to relay the perceptions of the people who matter most in the reverse mortgage world: borrowers.

But this week, during the National Reverse Mortgage Lenders Association western regional meeting in Huntington Beach, we had the rare opportunity of hearing from borrowers firsthand.

NRMLA compiled a panel of four recent borrowers to share their experiences relating to the reverse mortgage process and outcomes. By and large they were very happy with their loans, although several had initial reservations before becoming borrowers.

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From diversifying cash flow options to paying for health care costs after a job loss, borrowers also had several different reasons for considering reverse mortgages in the first place.

Initial hesitation

While the four borrowers interviewed all said the loan ultimately gave them peace of mind, they were not immediately sold on the option. One borrower, Donna, a former wealth management professional, had sold her book of clients in order to attend to health care needs. With a false start upon reentering the workforce, she did not want to take a reverse mortgage, but knew it was an option.

“I didn’t want to do one, and hoped I wouldn’t have to do one, but was in a major life transition and it was one of those things where it was the right thing to do,” she said.

Another borrower, Leo, said he had been curious about reverse mortgages prior to applying, but did not see a need for one. Later, he was laid off from his longtime job, and needed resources to help pay for COBRA until the time when he could qualify for Medicare.

“I needed the financial strength of a reverse mortgage,” he said.

The process

While borrowers reported the process could be overwhelming at times, they praised the experience of their loan originators whom they worked with along the way.

“It was overwhelming,” Leo said. “There is a level of trust that you just have to press forward.

The government endorsement of reverse mortgages was one point of reassurance for a third borrower, Randy.

“It’s approved by the government, and to have something pay you back on a monthly basis is a good feeling. I love it,” he said.

Peace of mind

Ultimately, all of the borrowers reported feeling peace of mind once having obtained their reverse mortgages.

For Donna, she did not want to tap further into her nest egg and did not want to move from her home. For Randy, he was able to allow investments to continue to grow while still having the cash flow to meet ongoing needs. Leo was able to extract even more home equity via a refinancing of his loan after his home appreciated during the economic recovery.

A fourth borrower, Dennis, was able to gain peace of mind for himself and for his family, because he was able to give up working around the clock and on a rigorous travel schedule following recovery from health complications.

“It has worked wonderfully,” Dennis, a former real estate professional, said. “It’s a fantastic financial tool if people know the value of it. There are some injustices being done by not telling people this is available.”

Following the loan closing, Donna said, despite her initial hesitation, she experienced less stress and felt she was able to achieve a fresh start.

After I went through it, there was so much stress off me to not have the monthly mortgage payment so I could square away my career direction,” she said. “I am very glad I have it.”

Written by Elizabeth Ecker

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  • Our inability to expand to the broader senior market is only highlighted by these four borrowers. With all of them, if the reverse mortgage was not the loan of last resort, it certainly was very close. None of them got a HECM through a careful analysis of their financial plan and then looking at the options, the conclusion was reached that although the HECM is NOT needed now, now is the time for the borrower to obtain it due to reasons such as it provides the best backup position in case something goes wrong with the plan and it is a great source for future cash emergency needs,

    We have heard the peace of mind justification marketing campaign for decades from the financial services industry. Peace of mind is not the same as an actual fix. Yes, peace of mind is important but it does not mean that the product is working as alleged; that is a totally different issue. This is a feel good reason which again is a reason but speaks nothing about pragmatic product use; here that is further compounded because the borrowers are relatively new to the product.

    So where are the testimonies of those who obtained their HECMs based on careful analysis of their financial plan with their financial advisors? Where are those who had their HECM for a decade and found it gave them the same peace of mind they found during the “honeymoon” period throughout their HECM experience? Where are those who found that from beginning to end the HECM was as represented to them at closing? Why is it that when it comes to testimonials, the best we get in an open forum are those who are new borrowers who got their HECMs as a last resort?

    Yes, NRMLA has brought to us through their magazine those who obtained their HECM because it was better than what they had, not a last resort but rarely has it been a first option. Further only the OSU researchers currently seem comfortable dealing with those who have seen their HECMs terminate for reasons other than property charge payment default.

    It is troubling to read that a HECM is “approved by the government, and to have something pay back on a monthly basis is a good feeling.” The borrower is not being paid back anything, not even home equity as some say. The proceeds come from a mortgage not from a dwindling or growing asset called home equity. Home equity is not an asset that can be bought or sold unless the mortgage can be assumed without approval from the lender. Home equity is an estimate of the proceeds before selling costs that would come from selling the home and is the answer to a subtraction problem.

    It was telling that NOT one was a H4P borrower.

    • Hi Cynic,

      Your points are well taken. One of the interesting parts about counseling is that I do get to follow up with a large number of people who have taken out a HECM and, at least in the initial honeymoon period (the first 3 to 6 months) almost everyone is very satisfied. The issues, as you say, often don’t show up until a decade or more out. As I have been counseling for a decade, I am starting to see people in this range. The ones who worked within their budgets, did not over spend, and worked the HECM proceeds into their daily life, so to speak, are the ones that are the most satisfied. Next are often the ones who used it to pay off their mortgage, but still made sure that they were going to be pay for things in the future. The ones who took trips, gave the money to their children, bought new cars, or otherwise used the money without properly working it into their budgets are the ones who generally do not like it.

      HECMs, like all loans, need to be properly integrated with a borrower’s budget. If not, then that borrower is far more likely to have issues in the future. The more issues they have, the more they dislike the HECM. Ultimately, they end up blaming the HECM for causing all of their problems, when in fact, they either didn’t understand what they were getting into (which I believe is the counselor’s fault), or they pushed their willing suspension of disbelief far past the point that most rational people are willing to go to be sure that they were going to have a rosy future.

      People getting a HECM often need to be shown that they need think past the immediate to a decade or more in the future (depending upon their age — 90 year olds don’t have that many “decades” left usually). Where will they be 20 years from now? And, more importantly, are the planning for it.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      FrankKautz@csninc.org

  • Always good to hear from actual past recipient’s of a reverse mortgage and the article brought up some good ones.

    However, some things have changed since FA, take Leo for an example, he said he looked into a reverse mortgages prior to applying, but did not see a need for one. Then later, he was laid off from his longtime job, and needed resources to help pay for COBRA until he could qualify for Medicare!

    Could Leo qualify today for the same reverse mortgage under the same circumstances? Maybe yes but also maybe not! Obviously it would depend on other income and asset sources Leo had. Never the less, we must be aware of changes and things not remaining the same as they may have been!

    All and all the article points out that if the senior has an LO that instills trust and is knowledgeable about the product, it can make all the difference in the world if one would take out a reverse mortgage or not!

    John A. Smaldone
    http://www.hanover-financial.com

      • I did not catch that, I appreciate you bringing it to my attention RMMyths, you make it a great day my friend.

        John

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