How to Identify Reverse Mortgage Borrowers’ Top Retirement Risks

Retirement planning generally involves the balancing of potential risks to achieve the best outcome for a client. Over at The Retirement Cafe, blogger Dirk Cotton sees nearly 30 of them to consider, including both forward and reverse mortgage issues.

Cotton identifies “housing problem risk” — including rises in mortgage payments, refinancing problems, property taxes, and foreclosure threats — as one of five major contributors to senior bankruptcy, with a caveat that it applies to both forward and reverse loans.

The other four “major causes of elder bankruptcy” consist of retirement problems that should ring a bell with Home Equity Conversion Mortgage professionals: health expenses, loss of income, high debt service on credit cards resulting from poor budgeting, and what Cotton calls “interconnected loss risk,” or the idea that one retirement issue can compound another.


“It is less likely that a household’s ruin will result from a single risk on this list than to multiple risks,” Cotton writes. “These losses might occur simultaneously and be unrelated, but it is more likely that one will cause another, which may cause even more.”

Cotton adapted the top five reasons from a 2010 study by Deborah Thorne from, which found older people filing for bankruptcy because of credit card interest, medical expenses, disruptions in income, debt collection, and housing issues. But Cotton notes that respondents frequently named more than just one reason they were forced into bankruptcy, while a handful named all five of the top reasons.

“For some households, foreclosure and market losses might have also led to unemployment and income loss for workers in these fields,” Cotton writes, using the 2007-2009 housing crisis and recession as an example of cascading problems. “The struggling household, in turn, might have increased credit card debt as the last remaining financial option, creating a row of dominoes that tumbled into ruin.”

Check out Cotton’s full post, along with a printable worksheet of retirement risks, at The Retirement Cafe.

Written by Alex Spanko

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  • This article is significant not because these factors are not considered in other articles but rather because it brings risks together in a manner that demonstrates just some of the complexities of responsible and competent financial planning. This is not to say that the list is sufficiently complete or fully described as to any one client but that it is important to see risks separately at least somewhat in depth and then in totality when advising a client as to a retirement plan.

    Identifying areas of risk likely to impact the client, the potential severity of each risk, and the tolerance and preparation of the client for each risk is a critical component of responsible financial planning. Understanding that one risk occurring can also have a domino effect on others is important for the client to understand so that overemphasis on anyone risk can be mitigated.

    We need to understand that HECMs were designed solely to meet risk 16. Yes, they can be used in other areas such as longevity through tenure payouts but there is no option to get adequate tenure payouts if existing liens must be paid off and that forces the senior to bring cash to closing is there? Tenure payouts are a luxury item historically for most HECM borrowers.

    Our lists of uses of proceeds addresses some type of wish list. They are not focused on imperative risks and some are outright imprudent and incompetent advice including encouraging overspending by making an artificial defense of the senior’s right to spend proceeds on whatever they choose. The list Mr. Cotton provides is not a “feel good” list. Some may be considered optional by clients such as funding a legacy. The items are pragmatic, real, and need exploration by seniors even before retirement. But perhaps the best time to first consider these items are early in adulthood when one’s life can be altered to address them when lifestyles and goals are being formulated. By later middle life, too many of these items are barely addressable even with the view of adding a HECM to the retirement plan.

    The future of the industry is more tied to addressing risks than changing lifestyles. Yes, that lacks pizzazz and glamour. While optimists love to tell their lifestyle change anecdotes, it is much more difficult to see the value of pointing out how that change in lifestyle can lead to overspending when other risks are not quite in play and only looming larger everyday.

    Competent risk and risk tolerance and preparation analysis requires a genuine care for the client. Simply meeting an immediate problem and encouraging the “waste” of the remaining cash from a HECM on things that improve lifestyles is not competent retirement planning.

  • The article Alex wrote is significant as “The Positive Realist” points out. I also want to commend “The Positive Realist” on the elequent approach and verbaige used in his or her comment, very well done!

    Yes, ther are many reasons why many seniors are in the position they are in today. A lot of it stems back to 1999 when our then President, signed into effect, the “Graham, Leach, Blighly act”, which did away with many provisions of the “Glass Stiegal Act”! This opened up the flood gates to a incomprehensable underwiting method for borrowing money, which the American people and seniors took advantage of in a major way.

    In fact, what went on during the period of 1999 and 2007, led to one of the largest housing and economic crashes ever to hit our great nation.

    Many seniors lost a great deal and went into debt severeley and were not able to get out. Many resorted to the HECM after 2008 right up to 2015, which took them out of debt, paid off thier existing mortgages and led them on the path of a quality of life many enjoyed prior to 1999.

    Unfortunatly, MANY seniors who took out HECM’s during this period were those that only took advantage of the HECM as a Bandaid for the enevatable, “Foreclosure”!

    In short, many of these unfortunate seniors probibly should not have been put into a HECM in the first place! Many only to found themselves in worse shape than they were before taken out the HECM!

    This chrises and foreclosure of HECM’s eventualy led to “Financial Assessement” (FA), as we all are aware of. As far as the top retirement risks pointed out in this article and mentioned by “The Positive Realist”, many of these were caused by the what took place between 1999 and 2008. The country, its people, the economy and many seniors still have not recovered from this chrises!

    When you look at the HECM today and our industry as a whole, it is much different than it was even 3 years ago. Our product can’t be used as loosley it once was but it can be used to help improve the quality of the retirement life for many seniors that can qualify under the new found FA requirements.

    The HECM may not be a planning tool for retirement during ones younger years but it sure can fit in to a seniors present day retirement and re-structuring of ones assetts to improve our seniors retirememnt tremendously!

    John A. Smaldone

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