Financial Advisor: Reverse Mortgages are ‘Overhyped’

Reverse mortgages are an “overhyped” financial tool, and can sometimes lead to an either unintended or even detrimental impact on a client’s finances, according to an article authored by a Certified Financial Planner (CFP).

In an effort to compile a list of financial strategies for clients that are “overhyped” – defined in this instance as strategies that are not likely to have a big impact, can’t be employed by many clients, or are likely to have a negative effect – Florida-area financial advisor Daniel B. Moisand of Moisand Fitzgerald Tamayo Financial Planning and Wealth Management says that reverse mortgages fall into the “overhyped” category, according to a new article at Financial Advisor Magazine.

While reverse mortgages are “much improved” compared with the state of the products in previous years, they make the cut on the “overhyped” list, Moisand says, because greater understanding about what a reverse mortgage entails often leads to disenchantment on the part of a client.


“There are a variety of structures and therefore a variety of potential uses but they make my list because there are few clients that are keen on the idea once they understand how reverse mortgages work,” Moisand writes. “When clients are open to the idea, there are usually ways to address the problems reverse mortgages are touted to fix that are more palatable to clients.”

The crux of the issue related to reverse mortgages is that despite the impression given by the materials that advertise them, they constitute a loan that must be repaid, Moisand says. Still, the ability for borrowers to not have to make regular payments and the nonrecourse nature of the loan can be “useful,” but there is a price that comes with that flexibility.

“The price for that payment flexibility is spending home equity at a faster rate than a lower interest alternative with servicing payments,” he says.

Still, Moisand says that the employment of a reverse mortgage can be effective, and he recommends that financial planners read the works of Dr. Wade Pfau to see an effective illustration concerning how they can be used to further secure the cash flow for a retiree. The responsibility for financial planners to present viable options also can and should extend to reverse mortgages, he says.

“Reverse mortgages deserve consideration but be prepared,” he says. “When you bring up the topic of reverse mortgages, many clients are not going to react favorably. After a lifetime of working to have a paid-off home, they don’t want to borrow against their equity, especially at the higher costs reverse mortgages incur.”

Many clients will prefer looking at alternative ways to address issues related to cash flow because of the upfront cost, and the presence of alternative options to a reverse mortgage makes them a harder sell, he says.

“At least with our clientele, there is almost always an alternative to borrowing against the client’s home to address those issues.”
Read the full piece at FA Magazine.

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  • It is worse than most know. For example, there was an excellent paper written in 2012 and published in a respected financial planning magazine on the risk of the sequence of returns that has little meaning today. Why? We face a different market, the product is much different now, and the assumptions are less credible.

    Yet the article is still in use. Why? One very knowable originator says that the article is the one paper out there that clearly shows that the portfolio can be extended for a longer of time while increasing the net estate with a very high probability of success. Yet we no longer have Savers and have not had them for 6 years, while the article has been in print for 7 years. Not only that, it seems rather incredible that a senior that started the discipline suggested in the integrated method could maintain it during the period that there is a recognized lessening of financial acumen.

    While I like the Standby HECM Line of Credit, as I call it, its concept was also based on the Saver.

    With both of these ideas too many call them proofs. Yet they prove absolutely nothing. They are solely reasonable demonstrations of a particular strategy. They are creative but they also have their risks which are not mentioned. We need to be upfront about the risk of failure with each of these strategies.

    When someone in a profession states what Mr. Moisand states, he is saying our literature is unreliable. That is a problem that needs solving. A HECM is not too good to be true but our literature seems to be making it sound that way to actual advisers.

  • Wow!

    Those financial planners just keep on showing us exactly how much they really like the reverse mortgage industry, huh?

    In show of their support financial planners keep writing more and more of those positive reverse mortgage articles.

    I don’t know about you guys but even though 99% of this article was very negative toward reverse mortgages, it was that one positive sentence that made me forget about all the negative things this guy was stating and it really made me feel as though he likes the reverse mortgage industry.

    I’m sure you guys saw it too.

    It kinda reminded me of Jim Carrey’s character in the movie dumb and dumber when he finally asked Mary what are the chances of a girl like him and a guy like her ever getting together.

    Mary ‘s response was not good, probably “one out of 1 million”.

    And then Jim Carrey responded “so your saying there is a chance?”

    Hahaha.. that’s the level of optimism that I see every time I read an article like this (and there are tons of them) and then soon after read an article from some reverse mortgage originator touting the benefits of financial planners as referral partners…

    Man, you guys are great!

  • In reading this article, I can see where Kevin Vasquez is coming from. The article was meant to be and was negative toward reverse mortgages. However, I did see the one positive sentence Kevin was talking about, which I felt negated a lot of his negativity!

    Moisand said, because greater understanding about what a reverse mortgage entails often leads to disenchantment on the part of a client. I feel he is very wrong in what he is saying.

    A well versed and educated originator will strive to educate and counsel his or her client to fully understand what a reverse mortgage is all about. At the same time, that same originator would have discovered the need of his or her client and approach it on that level!

    A clients understanding of a reverse mortgage should not discourage them in any way. What it should do is either reinforce the need for a reverse mortgage or discover that a reverse mortgage may not be suitable for that client.

    I have discouraged many potential clients in the past from getting a reverse mortgage. I did this purely for the reason the reverse mortgage was not the best thing for them to do at the time.

    It is the originator that does not care about our senior clients well being and only cares about making the sale that scares me. I am seeing thus more and more these days. That is the one single factor that discourages seniors about reverse mortgages, bad advise right off the bat!

    John A. Smaldone

    • John,

      I guess you didn’t realize that I was being sarcastic

      I was poking fun at the many originators who so desperately desire to garner the support of the financial planner community by speaking so very highly of them while most of the financial planner community looks at our industry in disgust and constantly write articles that are 99% negatively slanted toward reverse lending.

      Yet they always seem to include one thing good about the reverse mortgage in these articles.

      Then instead of being totally offended by an article that speaks 99% negatively of our industry, many in our industry will desperately hold onto that one good thing in the article and somehow forgive them for all of the many awful things that were in the article.

      I personally think its so very pathetic that the majority of financial planners can trash our industry while so many reverse mortgage originators continue to seek their approval and speak so highly of them.

  • Kevin,

    I see where you are coming from now. I also agree with what you are pointing out.

    I also feel most originators don’t are doing more harm than good with the financial planning community. Many do not understand how to really approach them properly.

    However, I don’t know if financial planners actually understand the reverse mortgage for what it really is and I also feel most of them don’t care! Vey good points Kevin!

    Thanks a lot,

    John Smaldone

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