WaPo Extols Benefits of Reverse Mortgage for Purchase

Syndicated financial advice columnist Benny L. Kass presented a favorable view of the Home Equity Conversion Mortgage for Purchase program in the pages of the Washington Post late last week, positioning the product as a smart option for older folks looking to leave the empty nest.

“As we grow older, we often feel the need to downsize; our kids have their own homes, and our present home is either too large, no longer to adaptable to our physical needs, or both,” Kass writes. “Or we want to be closer to our grown children and our grandchildren.”

That’s where the HECM for Purchase comes in, Kass says, laying out a quick summary of the program qualifications before listing the potential upsides: In addition to netting cash from the sale of the original home, he notes, the H4P borrower doesn’t have to worry about making mortgage payments for as long as they remain in the home.

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“You can use the money you save for whatever you want,” he says.

Of course, Kass — whose skeptical take on the HECM has appeared in RMD before — cautions that the loan isn’t for everyone, warning that the principal balance grows every month and that the product might be less than ideal for those concerned about leaving the family homestead to heirs.

“But the good news is that under no circumstance will you — or your estate — have to pay the lender a deficiency between the market value of the house and the outstanding loan balance,” Kass points out. “It is insured by the FHA.”

He wisely counsels readers to consult with children and other trusted advisors before making a decision, and recommends working with certified reverse mortgage professionals after deciding on the HECM for Purchase option.

Since his piece is aimed at seniors looking to ditch their family homesteads for smaller digs, Kass devotes a good chunk of the column to the limitations on condos, explaining that the Federal Housing Administration requires condo associations to have cash reserves that equal 20% of their annual budgets to qualify for the program — with no more than 10% of delinquent units.

“Unfortunately, a large number of associations throughout the country cannot meet these requirements,” he writes. “Time will tell how this will play out under the new administration.”

Read the full column at the Washington Post.

Written by Alex Spanko

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  • HECMs for Purchase (H4P) are generally the domain of those still caught up in the fixed rate era of HECMs. Unlike the tactics used in the prior era, the current tactic is to convince seniors that they would somehow be in a worse cash position if they do not take maximum H4P proceeds and use as few of the proceeds as possible from the sale of their prior home (if that transaction took place) and invest all of the cash in savings or other investments. These same originators swear that the financial advisors of these borrowers agree with this strategy.

    So what the H4P borrower has is a loan on their new home and some other assets which are leveraged and others that are not. What is not made clear is if the so called financial advisors have a fiduciary responsible These H4P originators do not tell us if the financial advisors are the asset managers of the borrowers’ assets so that they make more money on a larger pool of invested assets, a clear conflict of interest.

    As some advising companies have suggested who have a fiduciary responsibility to their clients: “Those financial advisors who do not have a fiduciary responsibility should have to use a label on all of their advertising and communication that is in larger type than the body of the communication which states that the company always puts the interests of the client first, UNLESS that would somehow reduce any benefit to the company.

    As to utilization strategies, A H4P is no different than a Traditional HECM or in most cases a HECM to HECM refi. The strategies that apply to the latter two type of HECMs also apply to H4Ps.

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