The reverse mortgage industry is one where the rules and realities that govern it can change on a very quick basis, and because of that, the literature that’s dedicated to telling people about it needs to change, too.
This was one of the basic realities understood by Shelley Giordano, founder and chair of the Funding Longevity Task Force, and what prompted her to update and expand her book “What’s the Deal with Reverse Mortgages?” into a new, second edition after its initial release in August 2015.
“A whole lot of ink has been used to describe the need for a broader approach to all of the assets in retirement to provide that cash-flow stability that people will need if they live a long time,” Giordano told RMD in a phone interview. “So, basically, it wasn’t too long after I wrote that book that it became outdated.”
Even given her own position as a reverse mortgage educator, Giordano was effusive in her praise of one researcher whose work she says has proved to be the most pivotal in characterizing the modern realities of the reverse mortgage product.
How the work of Wade Pfau impacted the book
“The biggest change from this edition compared to the last one is Wade Pfau, and the work he’s done,” Giordano says, in discussing the importance of the research that the American College of Financial Services professor conducted on the ways in which a reverse mortgage can help seniors fund their retirements.
“There’s even an entire chapter in the book called, ‘What Professor Wade Pfau Discovered About Reverse Mortgages,’ so it’s his approach and confirmation of the work done by [researcher and lawyer] Barry Sacks and the folks at Texas Tech University, and a slight twist on it where he recognizes and makes the case for the advantage to moving into retirement while having fewer fixed expenses,” she says.
While the work of Dr. Pfau and others inspired her to make necessary changes to the content of the book, there are still two major components Giordano kept in the second edition that she received a lot of positive feedback on when the book was initially released in 2015: ‘the greatest reverse mortgage of all time,’ and what she describes as ‘the four nevers.’
The ‘greatest reverse mortgage of all time’ deals with the story of Jeanne Marie Calment, a senior in France who got into an arrangement similar to a reverse mortgage which ended up serving her very well to the end of her life at the purported age of 122.
The ‘greatest reverse mortgage of all time’
“Jeanne Marie Calment had an apartment in France. Her neighbor, who was a lawyer, wanted her apartment eventually. So, he said to her that he’d give her 2500 francs a month until she dies, but the apartment would be his,” Giordano explains.
While there are certain differences in this instance compared to the way a reverse mortgage typically works in the United States, including a change of the property’s ownership, Calment was said to be in her 90s at the time the arrangement was made. The lawyer who made the arrangement ended up dying in his 70s as Calment kept living well into her 100s, with the contract between them still fully in effect.
“The family had to keep paying her the 2500 francs a month because that’s what the contract said,” Giordanao says.
One of the reasons that she includes this story in the book is because it’s illustrative of the HECM’s benefits, particularly in terms of the non-recourse feature, which affects both sides of the HECM transaction.
“The HECM really solves that problem. How do you protect both sides of the transaction from what would be a bad asset? So, she made out on that reverse mortgage deal, but he didn’t. It could’ve been the opposite, though,” she says.
Holdovers from first edition, target audience
In terms of the other popular holdover carried into this edition, “the four nevers,” Giordano says that it has been a source of a lot of positive feedback she’s received from loan officers who read her first edition.
“It’s kind of a shortcut of a way to discuss the non-recourse aspect of the HECM. Those are the two parts of the book I get the greatest response from loan officers on, that they most enjoy,” she says.
Overall, the book is primarily meant for prospective borrowers and financial planners in order to clear up any possible misconceptions they may have about reverse mortgage products, Giordano says. For the borrowers, it explains the emotional relief that can be achieved through properly utilizing a reverse mortgage by eliminating a forward mortgage payment. For financial advisors, it features the mathematical backing to the ideas that should help to satisfy their focus on the numbers of making it work.
“Everything I said about Wade Pfau and Barry Sacks provides the mathematical underpinnings of everything in the book,” she says. “You’ve got two aspects of the HECM: the emotional one, and then the math and science. You don’t want to be doing something just for emotional reasons, you want it to make financial sense, and the book features reasons for both.”
Find more information on the second edition of “What’s the Deal with Reverse Mortgages?” at Giordano’s LinkedIn posting about its release.