Finance Professor Urges Retirees Not to Ignore Reverse Mortgages

Early in his new book on retirement strategies, financial planner and professor Jamie Hopkins introduces the idea of reverse mortgages as a potential part of long-term retirement planning — and he quickly anticipates the potential backlash.

“Let me preface this by pleading with you to continue to read and not give in to your urge to skip the discussion of reverse mortgages because you have heard negative things about them,” Hopkins writes in “Rewirement: Rewiring the Way You Think About Retirement.”

“While there are risks with utilizing a reverse mortgage, if properly used, it can be one of the best features of your retirement income plan,” he continues.

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Hopkins, an associate professor of taxation at the American College of Financial Services in Bryn Mawr, Pa., is no stranger to advocating for use of the reverse mortgages, writing at length in publications such as Forbes and conducting research about usage of the products. He’s also emerged as a frequent presence on the conference circuit, including at the recent Housing Wealth in Retirement Symposium co-hosted by the American College and the Bipartisan Policy Center.

The breadth of the speakers at that event, held in Washington, D.C. last month, shows just how far the Home Equity Conversion Mortgage has come in the public imagination, Hopkins told RMD.

“Almost unilaterally, across the board, everyone said it was being underutilized,” Hopkins said, pointing to the attendance of representatives from AARP, the Urban Institute, the Brookings Institution.

Three to four years ago, the idea of those groups being completely open to reverse mortgages and attending a conference on the subject would have been close to unthinkable, in Hopkins’s estimation.

“You probably wouldn’t have believed it,” he said. “They’re all taking it very seriously, the role that reverse mortgages are going to play.”

His new book expands on some of those themes, recommending reverse mortgages in certain scenarios to help boost retirees’ overall cash flow. Calling the HECM perhaps the most important home equity option for retirement planning, Hopkins provides a detailed explanation of the upsides and potential downsides, and strikes back at the notion that the product is reserved for down-and-out seniors.

“Research has shown that using a reverse mortgage as a true last resort once all other assets are gone is the worst way to use your home equity,” Hopkins writes in the book. “In many cases, this use of reverse mortgages just makes a bad situation worse — people run out of money, poorly spend the reverse mortgage payments, cannot meet their property and insurance taxes, and lose their homes.”

Instead, he lays out three key times when a senior would be wise to consider a reverse mortgage: When purchasing a new home after age 62, when looking for a way to pay off traditional mortgage debt, and when interested in tapping into home equity as a retirement cash-flow supplement.

“I think looking at the HECM for Purchase program in comparison to other options is prudent,” he writes. “This may not be the right solution, but it could be.”

With the cash-flow option, Hopkins describes opening a line as soon as one turns 62, then letting the line grow over time to use in case of market downturns. While new principal limit factors rolled out last year have slowed that growth, Hopkins has said in the past that the strategy remains a valid option for retirees — and several speakers at the symposium pointed out the added advantage of setting up a line in an era of rising interest rates, he said.

“This is really an underutilized asset and tool for Americans,” Hopkins said. “I thought that was a really big takeaway.”

Written by Alex Spanko

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  • It is great to see Dr. Hopkins speaking about HECM proceeds in terms of cash flow rather than income.

    Just because a HECM throws off cash that does not make it an asset. That cash does not belong to the borrower. Like any line of credit, if they get an adjustable rate HECM, the HECM line of credit generates cash to the borrower as requested up to the amount available in the line of credit.

    Of course one has to deal with the first year disbursements limitation but other than that limit, at this time there appears to be no other limitation except for a maximum mortgage amount (MMA) of 150% of the maximum claim amount (MCA).

    Some claim there is a work around for the MMA that is simple to obtain. Since I have never dealt with that work around as alluded in the new regulations, I will leave it to others to reach their own conclusions as to the applicability of the rule and relying on the claimed ease of the mechanics to increase the limits when the time comes. As I have been reminded, the time to work on the increase is when the principal limit is nearing 150% of the MCA which means that the loan is normally in assignment and thus HUD owns the note; however, assignment is not mandated so working it out may have more players to deal with than a note that is in assignment.

    Yet the biggest problem with the article above is calling a HECM, an asset in the financial sense. A HECM is like any other nonrecourse mortgage with special features for its borrowers; trying to make it appear otherwise is smoke and mirrors which is hardly the domain of a professor of finance.

  • I am sorry but the first thing out of the gate, why would Jamie Hopkins anticipate potential backlash? Also why would Jamie have to plead with us to continue to read and not give in to our urge to skip a discussion about reverse mortgages? Because he thinks we have have heard negative things about them!

    What an absurd statement, sure there is negativity on the streets about reverse mortgages, there is also negativity on the streets on just about everything!

    Now I give Jamie Hopkins credit in that he does come back with some positives in why one should utilize a reverse mortgage, that was a good thing!

    Well my friends, right out of the gate, I can think of many reasons why one should use our product the HECM’

    Jim Veale is right, the HECM proceeds do need to be looked at as increased cash flow rather than income. But when you get right down to it, no matter what you call it to our senior clients, cash flow or income, all they know is that they have more money every month in their pocket to be able to live a more comfortable life!

    Again Jim is right, cash flow is not an asset but to that deserving senior client, in their eyes, they have assets they never had before!

    In short, I am not meaning to knock terminology but when you look at how Jamie Hopkins started out with a negative approach to the subject of reverse mortgages.

    Jim Veal, a dear friend is one of the more brilliant people in the industry and he is right on with his facts.

    However, when we get right down to it, we are sometime our own worst enemy!

    I am not saying not to tell the truth, on the contrary, but for God sake’s, don’t knock a good thing, build it up for what it really is, a great product! A product that can do a lot of good for many seniors out there, especially in this ever changing world!

    We need to take negative thinking and negative language out of our conversations, our seniors are picking up on this. Negativity breads negativity, positive thoughts and actions, lead to positive things!

    We need to learn this, fast, time is not on our side, we have had to many negatives hit our industry, at least we can be the positive part of it!

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

    • But the vast, vast majority of would-be borrowers understand what the term “compound interest” means to them financially, but “playing around” with the obscure, empty sounding term “growth” makes their eyes glaze over.

      If the line of Credit was properly explained instead of this punctilious nonsense in terminology, signed endorsements would be relatively flying out the door.

      • John,

        It maybe good or bad but it is false advertising to call the growth in the line of credit, compound interest, or for that matter interest of any kind.

        It is an extension of additional credit to the borrower determined by a formula similar to compounding interest. Since the compounding is based on the sum of the annual rate of interest that month plus an insurance rate (MIP) divided by 12, how is that an interest computation?

        Using the term income or a derivative, interest, to describe loan proceeds or available loan proceeds is using false and misleading terminology. Interest is the name for a specific type of income that does not have to be repaid.

        HECM loan proceeds taken from the HECM must be repaid in compliance with the terms found in the loan documents. Income increases an estate, but loan proceeds drawn from the HECM line of credit does not increase the estate of the borrower. The assets related to income can be inherited but the available line of credit cannot.

        Let us not confuse borrowers. The increase in the line of credit that we properly refer to as growth is growth in the amount of credit available to the borrower, NOT income of any kind.

  • Quoting from the article:

    Start Quote- “… Hopkins said, pointing to the attendance of representatives from AARP, the Urban Institute, the Brookings Institution.

    Three to four years ago, the idea of those groups being completely open to reverse mortgages and attending a conference on the subject would have been close to unthinkable, in Hopkins’s estimation.”

    “You probably wouldn’t have believed it,” he said. “They’re all taking it very seriously, the role that reverse mortgages are going to play.” End Quote-

    Ya, they got real interested when they realized what a great deal the line of credit was for seniors; especially taking-out an HECM, leaving it there, and letting it grow.

    Further quote from the article (speaking about the deliberate slowing of the growth of the Line Of Credit by way of the “October Change” ):

    “While new principal limit factors rolled out last year have slowed that growth,”

    Bingo! Guess who pushed that through.

    Final quote from the article:

    “This is really an underutilized asset and tool for Americans,” Hopkins said. “I thought that was a really big takeaway.”

    Ya, representatives from AARP, the Urban Institute, the Brookings Institution luv! it, now that they’ve driven a stake through it.

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