Forbes: 5 Times to Beware a Reverse Mortgage

For those who are interested in opening a reverse mortgage, there are five specific scenarios when another solution might be a better idea, a recent Forbes column states.

In her latest piece “5 Times Reverse Mortgages are a Bad Idea,” Forbes contributor Tara Mastroeni offers some caveats borrowers need to be aware of before opening a Home Equity Conversion Mortgage. She begins by writing why she thinks those with worsening health should probably look for an alternative, explaining that leaving the home for more than 12 months can render their loan due and payable.

“If you or your spouse encounter a medical problem, especially one that requires extended rehab or nursing home care, you could risk not having a home to go back to at the end of your treatment,” she writes. “That, or you’ll have to pony up repayment on the loan at a time when you’ll likely need your disposable income the most.”

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Mastroeni also covers the issues of non-borrowing spouses. For borrowers who choose not to include a younger spouse on the loan — in order to receive a bigger payout — but do intend for them to live there after the borrower passes, a reverse mortgage needs to be handled with care.

“In this case, if you want your surviving spouse to be able to keep the home, you need to make sure to put both of your names on the loan, even if it means receiving a smaller payout initially,” she says.

For borrowers who want their home to go to their heirs, Mastroeni suggests looking at other sources of income. When the borrower dies, and the loan needs to be repaid, heirs can become stuck with the bill if there aren’t enough funds elsewhere in the borrower’s estate.

“Plus, due to the extra complications in dealing with a reverse mortgage, they may not be able to qualify for a regular mortgage to absorb the cost,” she writes. “At that point, they’d have to choose between pulling the funds together to pay off the entire loan or letting the house be foreclosed upon.”

She goes on to explain all of the costs associated with the loan, confirming that although it does provide funds, it does have upfront costs and ongoing insurance fees. For those who might not be financially prepared for this, she suggests looking beyond the reverse mortgage.

Finally, she writes that anyone who receives certain supplemental government benefits should be aware that they will have to spend their reverse mortgage proceeds immediately, or incoming reverse mortgage funds could affect the income requirements for these benefits.

“However, if you receive supplementary benefits like Medicaid or Supplemental Security Income, know that you’ll have to spend the entirety of your reverse mortgage proceeds immediately,” she writes. “Any income that you retain at the end of the month will be counted as an asset, which could impact your eligibility.”

Read the full story on Forbes.

RMD wishes to clarify that the author referred to supplemental government benefits only. RMD regrets any error or confusion.

Written by Maggie Callahan

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  • This is an appalling article and is filled with inaccuracies. The writer had not done her research and to imply that the reverse loan is a poor choice for additional funds for aging and caregiving is deplorable. And it seems that she feels that it is all about the benefit that the heirs should be receiving and not at all how having funds that would otherwise not be available to a senior. It’s particularly shocking and irresponsible to assert that a senior’s Medicare and Social Security could be effected by the presence of a reverse loan. I’m angry and disappointed by this troubling article. I thought that in the last 10 years, we as an industry had finally gotten past this type of destructive and malformed commentary. I’m sure that NRMLA will have a rebuttal, but it’s difficult to stuff the “loose feathers back into the pillow”, once they have been released into the wind.

    • Lorraine,

      I am not saying you do not have the right to be disappointed BUT what about the following? “Believe it or not, even though a reverse mortgage would ultimately be a source of income for you, it does cost money.” But does that income have to be repaid? Not if it’s income.

      This does not provide accurate information about the HECM or any reverse mortgage since ALL reverse mortgages are first and foremost, nonrecourse mortgages. Some of the problems with the misunderstandings about the products do not come from those who never originated a HECM but from HECM originators themselves. As long as originators present what they want to about reverse mortgages in the way they want to present them, we will continue to have anarchy about the information presented.

      There is a need for a disciplined approach. The problem is we are desperate and in desperate times per the statements and actions of so many in our own industry, the ONLY goal is sales.

      I hear all of the time about how many seniors are calling all of the time about HECMs but the originators getting the calls just can’t help them. These originators claim that the volume of calls shows that demand is still there. The problem with those anecdotes is that they are presenting their view of consumer interest, not consumer demand.

      As an example of consumer interest versus consumer demand, millions have interest in owning a new Rolls Royce. They will read up on them on the Internet and rag publications. There are far more people worldwide that are interested in getting a new Rolls Royce than US consumers in getting HECMs. So how many of those showing their interest can buy a Rolls Royce? Rolls Royce celebrated its second highest year for sales in 2017 at 4,011 cars. Only 2015 was higher at 4,063 cars sold.

      Demand is composed of those who can and are willing to get a product, not how many interested consumers there are. The highest demand figure we know of in any year (fiscal or calendar) are case number assignments but even then almost 36% of those who get a case number assignment do NOT follow through and get a HECM. Unlike Rolls Royces, HECM supply is all but unlimited; on the other hand, based on consumer qualifications like Rolls Royces, HECM demand is limited (but not as limited as Rolls Royces).

  • This article is beyond inaccurate and falls incredibly short of what the current reverse mortgage product can offer, not only to the borrower(s) but to the heirs themselves. I hope the writer of this as well as Forbes will take a deeper look and make much needed corrections. Please do your research before writing about topic where you are clearly under informed.

  • Tara Mastroeni of Forbes needs an educational course on reverse mortgages. I will also include the editor of Forbes in my statement as well!!

    This article is definitely beyond inaccurate as Larry Melton put it. In fact, anyone who has read the Forbes report and does not have the knowledge of how the product really works to the benefit of the senior would NOT want to explore the product to find out!

    Forbes should be held responsible for the misleading information put out, if nothing else, by the damaging remarks and how each portion of the article came across!

    It is an appalling article, filled with inaccuracies and fears for any senior home owner along with their heirs reading it.

    This one takes the Cake, I just hope there will be enough flack given to Forbes on these so called scenarios published, that a retraction will be made!

    I for one will be writing the editor of Forbes Magazine!

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

  • The article has flaws; yet so have many of the Forbes articles written by some of the financial advisers who are commonly and currently asked to speak on our behalf to the financial advising community. If we are jumping on errors that is one thing but if we are jumping on those who simply dislike HECMs and are not afraid to say so, now that is a completely different matter.

    It is perfectly OK if some people want to waste their time writing to the editor after all the article is poor in many ways; however, very seldom is anything accomplished by writing to the editor of most major publications. Further, less than 1,100 people have read this article on line. No doubt, a large portion of the readers are people in the reverse mortgage industry. So why give this author a “soap box” at Forbes? This is not an important writer, not an important article, and not an important attack against the industry.

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