Reverse Mortgage Players to Showcase HECM Potential at Upcoming Event

Two reverse mortgage industry members will join forces at a financial services conference next week to demonstrate the effectiveness of the Home Equity Conversion Mortgage (HECM) product in retirement planning.

ReverseVision and Texas-based lender Open Mortgage will be exhibitors at the EMERGE: Consumer Financial Health Forum being held June 15-17 at the Roosevelt Hotel in New Orleans, La.

EMERGE serves as an opportunity for banks, credit unions and other financial services providers to explore responsible and competitive strategies for improving both consumer financial health and their bottom lines.

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The ReverseVision and Open Mortgage exhibit will invite conference attendees to test their awareness and understanding of the HECM reverse mortgage product.

“Financial institutions that offer mortgage products need to be able to meet borrowers where they are in life,” said Wendy Peel, vice president of sales and marketing for ReverseVision. “The HECM product is designed specifically for the needs of senior borrowers who are retired or nearing retirement.”

“Wealth management groups within financial institutions who serve senior homeowners should also consider HECM as part of the overall retirement strategy,” Peel added. “Whether as a bridge to delaying Social Security benefits or simply as a line of credit for emergencies, the HECM loan product has a wide range of uses in potentially extending a portfolio’s life and the senior’s quality of life.”

For reverse mortgage professionals, networking at non-reverse industry events is one effective strategy to raise awareness of how recent HECM program changes have made the product a more viable retirement income planning tool.

“HECM can be a critical element of the financial mix available to homeowners at age 62 or older,” said Sharon Falvey, director of sales operations for Open Mortgage. “When used strategically, HECM can add lifespan to the resources of retirees and their households.”

Written by Jason Oliva

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  • Currently the life expectancy of a 62 year old in this country is about 82 for men and about 85 for women. This makes the use of HECM proceeds in a benefit delay strategy very, very questionable, especially with the loss of the file and voluntarily suspend Social Security benefit strategy for couples.

    If the amount of the HECM payouts must (or nearly) replace the total benefits that the borrower would otherwise receive as Social Security benefits during the period of the delay for the start of Social Security benefits, the risk of the delay could be enormous for single individuals. Married individuals could find that the risk is muted by the benefits adjustment that normally occurs for the first spouse to pass away; however, in that risk scenario one must factor in divorce no matter how remote it appears at 62.

    Some claim that the analysis must emphasize the risk of poverty over the risk of death. The question is why? If the HECM funds are held in the line of credit, won’t they increase? Unless one believes that he/she will not die or will return as the same person through some medical breakthrough (which no one has as of yet), there is just a 50% chance that a current 62 year old who is a man will live to be 82 or a woman, 85. The payback period including all accrued costs in most cases exceeds 11 years. (The payback period begins when Social Security benefits start).

    But the question of poverty should be very limited. For a mass affluent couple the issue should be de minimis. The question should clearly arise with most of our traditional client base who might not have the luxury of using HECM proceeds to delay Social Security benefits since traditionally almost all of their HECM proceeds were used to wipe out mortgages and other debts. Any excess was usually consumed in deferred needs as well as living costs.

    While attending the conference is an excellent idea, the evidence for some of the ideas being promoted is missing. Even financial academicians who promised a few years ago to provide models demonstrating how HECMs could benefit in replacing Social Security benefits during the deferral period have so far failed to do so. The reason is the payback period which includes all costs is only marginally less than 12 years in most cases.

    The Social Security benefit file and suspended loophole for spouses ended 180 days (4/29/2016) following passage of the Bipartisan Budget Act of 2015 on 11/2/2015. This means that a significant segment of seniors wealthy enough to benefit from this strategy will no longer be able to file and suspend. Without those benefits, the value of using HECM proceeds in the Social Security benefit strategy is now even less for couples.

    How we sell HECMs now without any evidence showing that some of our great strategies work, may end up harming the image of those who originate for years when those strategies fail and do harm.

  • I feel the financial services conference is a good thing! I realize the statistics that my friend Jim Veale brings up may be accurate in one sense, I do not believe they are in another sense, especially pertaining to where this article is concerned.

    The alliance between Open Mortgage and ReverseVision at this conference by reaching out and interfacing with the bank and credit union arena, as well as other financial players in the financial world is a very good thing!

    This is one sector of our industry that has a tremendous amount of potential. That potential we have is working hand and hand with the small community banks and credit unions around the nation. The problem, in my opinion, has been is that most of us do not understand the mind sets as well as what motivates these small community banks and credit unions. We have not shown them of the value our product will bring to them in a way they can relate to it!

    Once we learn how to master this major challenge, we will be able to penetrate this shield and become of great value to them but especially more so to their customer and member base!! When we do learn how to do this, we will find a wealth of business out their and the opportunity to help a lot of seniors!

    I hope Jason Oliva, John Button of ReverseVision along with Sharon Falvey and Joe Morris of Open Mortgage give us all a good report as to how well the conference goes.

    Good luck all, make the conference a productive one, I know I will be anxiously waiting for those reports!

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

    • John,

      You are correct that the article addressed a broader subject that needs to be encouraged. BUT if, on the other hand, portions of the message are based on “good ideas” that are fundamentally flawed, we can expect long-term rejection to other ideas we put forth after this discovery so that needs to be discouraged. That is why early in any relationship, it is important to put forward those ideas that have substance, have been adequately tested as to their likelihood, and that can be somewhat easily explained and will encourage follow up.

      Among the ideas that need more exposure are the Standby HECM Strategy, the increased rate for decumulation of retirement assets that can be supported with a HECM, the benefit of starting HECM payouts early in retirement, the notion of the HECM as financial retirement tool to pay off debt, increase cash inflow, and have a growing line of credit to meet future cash needs and, finally, the availability of the HECM as a purchase vehicle.

      Some of the fringe ideas that have no written support with mathematical evidence of its probable outcome from personal financial planning academicians should be avoided. While it is easy to discuss delaying the start of Social Security benefits by using HECM proceeds to help with cash inflow needs, it lacks sufficient and adequate support of an outcome that will ultimately benefit the borrower.

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