CNBC: As Social Security Flattens, Reverse Mortgages Enhance Retirees’ Buying Power

There has been a lot of discussion surrounding the future of Social Security and how that may affect older American’s retirement. With no bump in benefits likely for next year, some retirees could turn to reverse mortgages as an alternative source of cash flow, according to a recent CNBC article.

The Board of Trustees of the Social Security Trust Funds released information that estimated that the increase in cost-of-living adjustments  will be very small or flat, CNBC reports. Last year it was 0.7% and now is estimated to be zero.

In May the average monthly retirement benefit was about $1,300, the article writes, but for most retirees, that amount is not enough to live off of. The strategy of using a home equity conversion mortgage is brought up as a possible alternative to increasing cash flow in retirement.

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“This is a reverse mortgage that permits older homeowners to tap some of their home equity,” the article states. “As long as borrowers meet the terms of the mortgage and continue to use the home as their principal residence, they will not have to repay the loan.”

There are however around 34% of senior households who still owe money on a mortgage, home equity line of credit, or both, in 2013, which could be a problem for some people who may want to look into a reverse mortgage.

In addition to the flat Social Security payments, some retirees may have to face higher costs for Medicare Part B, the article points out. A reverse mortgage could also help with higher medical costs. There are certain Part B protections that may not apply to everyone, leaving many retirees with very high health care costs.

Read the full CNBC article 

Written by Alana Stramowski

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  • The post above states: “There are however around 34% of senior households who still owe money on a mortgage, home equity line of credit, or both, in 2013, which could be a problem for some people who may want to look into a reverse mortgage.” Last I read, this is still the reverse mortgage industry. Yes, mortgages with balances due in 2013 could still be large enough that borrowers will not qualify but for others the opposite is true. While CNBC may want to take the former more negative view, why is our leading source of information reporting that position without questioning it?

    We do not need to push seniors into HECMs but notifying them of their probable position next year is clearly something we should be doing. Most will not act until the decision is made but putting them on notice will generally reduce the period of inaction while they contemplate how to respond to this probable predicament.

  • The bigger question is: Just how many reverse mortgages is our government willing to insure? Congress has the ability to limit “Insuring Authority” and for many years the fate of the program rested on their willingness to increase it. What this means is that Congress, especially a more conservative one, could act to limit that authority.

      • Melinda,

        Where do you get your information? 12 USC 1715z-20(g) states: “The aggregate number of mortgages insured under this section may not exceed 275,000.” In fiscal 1989, the limit was 2,500 with a maximum termination date which were both changed in 1991 as indicated below:

        Subsec. (g). Pub. L. 101–508, §2106, substituted ‘‘September
        30, 1995’’ for ‘‘September 30, 1991’’ and ‘‘may not exceed 25,000’’ for ‘‘may not exceed 2,500’’.

        The caps kept being changed until the maximum number became 275,000 with no maximum date. When that was reached, it has been the custom of Congress to suspend the maximum number of endorsements annually in the budget process with the maximum termination being September 30 of each year. In this budget bill there is a proposal to remove all endorsement caps on HECMs. Hopefully we will see that proposal passed but we have been hoping for that for years.

    • hecmvet,

      That hardly seems the case. Per a February 2016 NRMLA news alert, the 2017 budget legislation has a provision to permanently remove the cap.

      So the question is what is the status of that legislation.

  • This article points out just how the thinking and the mindset of the people within our Federal Government thinks. It also questions the statistics they come out with and use for calculating social security increases.

    Our Federal Government blames things like gas price reductions as a reason to not increase social security benefits for our seniors. They say cost of living really has not gone up, you know what I say to that, right!

    First off, gas prices always go down after the summer months, do they think the American people are this stupid? Have the Federal employees coming out with these statistics ever gone out to a restaurant, or do they buy clothing, what about going to the grocery store to buy groceries, have they done any of these things lately?

    What about utility bills, property taxes, homeowners insurance and on and on I could go. In short, everything today is going up in price, we know it and so do our seniors!

    They are not giving the elderly increases in their social security checks because the Federal Government bankrupted the fund by borrowing from it! It started back in 1967, VIA congressional approval to borrow from the fund! Ever since then, the IOU’s have gotten to be so many, there is a 1,000 square foot room in the White House that is so packed with IOU’s, the door is ready to burst!

    This makes me so angry, also, every disabled veteran did not get an increase in 2016 as well! They most likely will not get one or so little of a one in 2017. Trust me on this one, I know!

    Getting back to the article, sorry I vented so much but it had to be said. Our product (The HECM) is needed more today than ever. The article is right, those seniors with a great deal of equity in their homes and those that can qualify for a reverse mortgage has a source at their finger tips to overcome what the Federal Government has done with the social security fund.

    Remember this, only about 11% of those applying for a reverse mortgage today, since FA went into effect, either require a LESA or will not qualify! This leaves an awful lot of seniors out there, with a great deal of equity in their homes, we can help toward meeting their living expenses and improving their quality of life!

    That is my two cents worth my friends!!!!

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

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