What a Rough Stock Market Could Mean for Reverse Mortgages

After years of steady growth, the stock market took a significant tumble last week, and the choppy seas could have many older homeowners re-evaluating their retirement plans. But it would likely take a major market collapse before Wall Street uncertainty led to boosts in overall reverse mortgage originations.

“I don’t think seniors rush to apply when the markets correct,” Brett Kirkpatrick, partner ar Harbor Mortgage Solutions, Inc. in Braintree, Mass., told RMD.

If anything, using stock market woes to promote the reverse mortgage as an alternative retirement solution could have a negative effect on the product in the long term.


“It’s tempting to use something like this as a ‘make hay’ moment, but opportunistic pitches erode trust placed in us by professionals of other sectors — at least in my market,” Laurie MacNaughton of Atlantic Coast Mortgage in Virginia said.

The first call MacNaughton fielded last Tuesday was from someone asking about using a Home Equity Conversion Mortgage as a response to the Wall Street turmoil. In response, she cautioned that loan officers aren’t financial planners, and that they shouldn’t offer knee-jerk advice in the wake of a rough week for the Dow Jones Industrial Average.

In addition, MacNaughton said that even the 1,175-point drop in the Dow last week represents a small decline on a percentage-basis, and not a major crash.

“If a reverse mortgage was a good fit before a market plunge, it’s a good fit following a market plunge,” she said. “If it was a poor fit before a drop, it may well continue to be a poor fit.”

Dan Hultquist, director of learning and development for the San Diego-based software provider ReverseVision, agreed that it isn’t yet time to sound the alarm.

“Short-term volatility should have little impact on retirees, and therefore should not impact originations,” Hultquist told RMD. “A few days of this level of selling can be called a correction, but it would need to occur over a prolonged period before the term ‘bear’ is used to describe this market.”

Still, Kirkpatrick noted that a stock market decline could present an opportunity to discuss the potential advantages of the long-term line of credit strategy.

“Setting up a standby line of credit is precisely the buffer needed for market declines, and the psychological security of available emergency funds might give clients the grit to wait out market volatility,” he said, adding that potential borrowers who may have forgotten about the last recession could find a new sense of urgency in this correction.

“After all, look at all the fence-sitters who suddenly applied prior to October 2,” he said.

Written by Alex Spanko

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  • Ms. MacNaughton is exactly right; we are not financial planners. Mr. Kirkpatrick is right as well, when he discusses alienating those in other professions.

    When first investigating HECMs for a widow, I was comparing them to several different loans. One of the measures was the percentage of initial costs to available proceeds (for HECMs, the principal limit). When I mentioned that it sounded like the terms being offered were approximately 9.5% in upfront costs, HECM originators would tell me that was impossible since initial MIP was 2%, the origination fee another 2%, and other costs about 1%. When I learned they were using something as the denominator that they called the maximum claim amount, my immediate question was to what is that comparable on a line of credit or other forward mortgage. Since the home was worth over $800,000, the lending limit was $362,790,and the principal limit was about $200,000, the suggestion that I use $362,790 when total available proceeds were only $200,000 seemed ridiculous; yet several originators tried fighting with me about what percentage should be reported back to my client.

    Then after joining the industry several originators were telling us that the best answer to the then problem facing non-borrowing spouses was sufficient life insurance on the borrower to pay off the loan at the life expectancy of the borrower. Thus for these originators the non-borrowing spouse problem was solved. Upon hearing this my immediate response was to ask how that solved the problem of divorce. After all the non-borrowing spouse was required to give up all interests in the home to close the loan. That meant the property was by gift the sole property of the borrowing spouse in property settlement. That is not a great outcome for the non-borrowing spouse. The responses received from these originators was most interesting.

    While we need to acquaint financial advisors with various HECM strategies, we need to be careful of how we present it. Pushing those concepts on financial advisors will in all likelihood backfire.

  • I have to disagree with Laurie MacNaughton as far as using stock market woes to promote a reverse mortgage, especially as an alternative retirement solution.

    I have to agree with my friend Jim Veal, we are not financial planners!

    We should also not be in a panic mode at all yet. Lets face it, the market was due for a correction, we have uncertainties over interest rate increases and we have another Federal government shut down fear! This all spells out, volatility and an unstable market until things settle down and there is a definite direction we can fairly count on!

    Today the Dow ended up slightly so we can’t count on the stock market right now to determine anything about what to do with a reverse mortgage!

    If a senior is heavy into the stock market as an investor, taking out a line of credit as a cushion bank to invest in the market really crashes was suggested in the article.

    Little risky as far as I am concerned, especially when dealing with the lives and capital reserves of our seniors. However, some may consider it?

    John A. Smaldone

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