Reverse mortgages cultivate disreputable images in the minds of many consumers and financial professionals, but that should not dissuade people from looking deeper at the evolution that the product has gone through in terms of more stringent regulations and bolstered consumer protections, which has helped reverse mortgages become a more accepted financial planning tool among planners, accountants and others.
This is according to a new column published by the American Institute of Certified Public Accountants (AICPA), recounting the history of the reverse mortgage product, its current status as a planning tool and elements consumers and professionals should keep in mind when exploring such a product for a client.
“[W]hile detractors characterize reverse mortgages as a quick fix that decreases borrowers’ net worth and the value of their estate, traps them in their homes for the rest of their lives, and subjects them to high upfront costs, this view may be outdated,” writes Joshua Wiesenfeld, an attorney and CPA with the organization.
Wiesenfeld goes on to reference the changing perspectives at organizations including the Financial Industry Regulatory Authority (FINRA), as well as the increasing prevalence of academics including Dr. Wade Pfau describing reverse mortgages as a potentially useful tool for a retiree to facilitate a more well-financed retirement.
Still, that doesn’t take away from some caution that clients of CPAs should be aware of before choosing to actually take a reverse mortgage loan out, he writes.
“Be sure to advise clients who are considering taking out a reverse mortgage to be careful to avoid entrapment by scammers who specialize in targeting older Americans,” Wiesenfeld writes. “Some unscrupulous home-improvement vendors and contractors try to persuade homeowners to take out a reverse mortgage to cover the costs of repairs. Some scammers convince unsuspecting homeowners to take out a reverse mortgage as part of a house-flipping scheme.”
Wiesenfeld echoes the publicized concerns surrounding unscrupulous actors who cite reverse mortgages when substantively exploring the option with clients, which may recall similar warnings issued by entities including the Federal Bureau of Investigation (FBI) and the U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG).
“Encourage your clients to be wary of anyone who approaches them about taking out a reverse mortgage and to consult with a trusted financial adviser before proceeding,” he writes for the AICPA. “Note that meeting with an HECM counselor is mandatory before taking out an HECM.”
Among the circumstances that might make a reverse mortgage a “reasonable choice,” Wiesenfeld says, is when clients plan on remaining in their current home indefinitely; upfront costs of a reverse mortgage are affordable for a client; and a desire on the client’s part to coordinate reverse mortgage proceeds with other assets in an investment portfolio.
Read the column at the AICPA.