A recent industry study aims to change the conversation when it comes to reverse mortgages. By providing a greater context for the reverse mortgage industry, the study positions reverse mortgages as part of the solution to the larger problem of a mounting federal deficit that hovers around the $14 trillion mark. By encouraging seniors to cash in on home equity before relying on entitlement programs for their health and long term care needs, the study asserts, the use of reverse mortgages can cut down substantially on government spending.
The study, conducted by John Mitchell, CPA, owner of Reverse Mortgage USA (formerly known as 1st AA Reverse Mortgage, Inc.) and board member of Coalition for Independent Seniors (CIS), finds that through reverse mortgages, Americans could save billions of Medicaid dollars each year. Mitchell’s hope in completing the study is for it to be shared with members of the industry as well as Congress, state government officials and the Office of Management and Budget, and for it to show that reverse mortgages are part of the solution when it comes to the national deficit.
“Our industry’s destiny is controlled by Congress and therefore we must have political support,” says Mitchell, who was recently active in conjunction with CIS in getting reverse mortgage participants to engage in a letter writing campaign to Congress, which he says helped the industry to avoid another principle limit reduction that could have been devastating.
“Clearly, the message for the reverse mortgage industry had to be that reverse mortgage saves Medicaid dollars. What could be a better message than that, given the current evolving mood in Washington, D.C.?” Mitchell says. “I knew we needed to quantify the savings and put facts behind it. I also knew time was of the essence. The industry needs something supporting its value proposition now, not one, two years from now.”
The study is based on the premise that three major entitlement programs—Social Security, Medicare, and Medicaid—account for approximately 58% of the federal government’s annual budget and cites National Council on Aging data that shows 81% of America’s 13.2 million households age 62+ own their own homes. In addition, 74% of those senior homeowners own their own homes, free of a mortgage. That amounts to nearly $2 trillion in home equity that is exempt from Medicaid eligibility limits and is usually protected against Medicaid estate recovery, the study says.
“Increased use of reverse mortgages for long-term care could result in savings to Medicaid ranging from about $3.3 billion to almost $5 billion annually in 2010, depending on the future take-up rate for the these loans,” according to the study. “This represents 6% to 9% of the total projected annual Medicaid expenditures. These savings result from the additional cash available to borrowers that would delay or eliminate the need for Medicaid.”
It will change the conversation about reverse mortgages, says Mitchell. “Rather than reverse mortgages being perceived as potentially a drain on the government in a time when the government is going in the direction of shrinking, we can be part of the solution…This country spends almost $400 billion a year on Medicaid, and the unfunded liability is even greater than that. We have the perfect product to take Medicaid from being a inheritance protection program and shrink it back to its originally intended purpose—which is to provide long-term care for the truly needy.”
View the study in its entirety.
Written by Elizabeth Ecker