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Investment Advisor Magazine and Reverse Loans

I am posting a article that discusses how more financial Advisors are reconsidering the use of a Reverse mortgage for their clients.   Typically, the stumbling block has been the “reputation” that the FHA loan product has had to endure, as being a terrible option for additional funds as we age.

Investment Advisor magazine:   Reconsidering Reverse Mortgages

Posted By Elizabeth Ecker On April 3, 2012 @ 10:33 am In News,Reverse Mortgage | 1 Comment

Trading their reputation as a loan of last resort, reverse mortgages are gaining popularity among borrowers and investment advisors, according to an April 2012 article [1] in Investment Advisor magazine. As the need for retirement income grows and product options have changed, advisors may be starting to take another look at reverse mortgages as a retirement tool. Investment Advisor writes:

…the product is often seen as an overpriced retirement income vehicle of last resort for distressed seniors. In fact, advisors typically avoid recommending them to their clients, and following Wells Fargo’s and Bank of America’s exit from the reverse mortgage market in 2011 due to worries about rising defaults, the product has come under an even greater cloud of suspicion.

…yet as the U.S. population ages in pricey properties they don’t want to give up, the market for reverse mortgages is growing. In particular, HECMs have gained popularity because the federal government backs the program. As baby boomers age and home prices remain stagnant, seniors are likely to rely on them even more—and ask their financial advisors about reverse mortgages.

Here’s the surprise for advisors who decide to give reverse mortgages a closer look: Under the right circumstances, there are times when the product may actually benefit a client.

…If anything threatens them now, it’s not a lack of demand. It’s the risk that the FHA will go broke and require a tax bailout for the first time in its 77-year history

“I’m hearing about a lot of changes going on in that marketplace that I think will make reverse mortgages dramatically more relevant for advisors,” says [Michael Kitces, publisher of “The Kitces Report” and director of research for Pinnacle Advisory Group in Columbia, Md.]. “I don’t think advisors ever were really using them in the first place, but with some of the changes coming forward now, we may start seeing reverse mortgages used for the first time with some increased regularity by advisors.”

“I don’t care how bad the market gets, this loan is virtually never going to be underwater,” Kitces said. “It’s a way to take a loan out against your house and not have cash-flow constraints in paying it back.”

Written by Elizabeth Ecker [2]


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Reverse Mortgages & Financial Planners

In the previous post, I mentioned how difficult it has been for me to speak with Financial planners or Advisors about Reverse Mortgages.   As I noted before, even though I was a member of their trade association, NAIFA & supported a local chapter, they would not give me an opportunity to educated them on how the FHA Reverse loan program could benefit their senior clients and frankly, increase their professional image.

Everyone was polite but not interested in what I had to share.

That is finally beginning to change and I’m quite relieved about it, because if a senior or the adult child of a senior is relying on a Financial Advisors guidance in this decision, sadly they may discourage them from considering the Reverse loan as a resource for additional tax-free income.

Here is the remaining article from Reverse Mortgage Daily:


While reverse mortgages are most commonly taken out by low- to middle-income seniors, they’re growing in appeal among other demographics, too, said one certified financial planner, noting a trend of more affluent people using the product as a planning tool to fund long-term care and supplemental life insurance.

“Their investments have taken a big hit, and if they have needs that have to be addressed, they’re looking to their house to fund it,” said Dennis Loxton, regional vice president of the reverse mortgage division of First Century Bank in Gainesville, Ga., in the article.

The exits of big-name lenders such as Wells Fargo and Bank of America also makes the future of the program unclear, it continues, going on to mention several industry lawsuits including deceptive marketing charges and allegations of illegal foreclosure procedures against spouses of deceased borrowers.

“While these headwinds are unlikely to cause the reverse mortgage industry to disappear, in the short run they will probably have a negative impact,” says Financial Planner, going on to predict the possibility of consolidation among bigger players, tighter underwriting standards, and higher fees.

The article also explains how the program works and runs through the pros and cons of reverse mortgages.”

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Wells Fargo & Reverse Loans

In an effort to catch up on the latest news in the Reverse mortgage industry, I just found out that Wells Fargo is exiting it.   Long considered to be the leading lender for the FHA/HUD product, I was very surprised to hear this news.   Along with Bank of America who earlier stepped away from offering the loan, we see two very big players disappearing from the Reverse loan industry, along with Financial Freedom who left in March of this year.

With the continued uncertainty due to the wobbly economy and the housing market, they apparently feel that they would rather not risk originating loans when property values continue to decline, even though there is a greater need for it them now then  in previous years.  With the economic uncertainty,  concerns about Medicare and Social Security, more senors could be utilizing the funds from a Reverse loan to pay their monthly obligations and particularly any medical expenses.

The economy future is murky and my personal feelings are that we are a long ways from any recovery.  And as the need for the Reverse loan grows ( And it will), the amount of funds that a senior could receive will shrink.  The continual slide of the housing sector is directly affecting future of the government program and the financial security of  seniors financial safety net.

The housing crisis and it’s inability to recover is  mainly due to the continual foreclosure activity and is having a direct effect on Reverse mortgages.   Currently the HUD lending limit it set at $625,500 but as of this writing, they are considering reducing it back to a previous limit of $417,000 this coming October.

The immediate effect of the reduction will mean less money will be available to the senior homeowner and if anyone is “thinking” about using the loan, it’s imperative that they do so before the change in October.

The first step is to complete the counseling that is required by HUD and then meet with a Reverse Loan Consultant for further information.   Once this has been done, those who are considering the option of a Reverse mortgage will be able to make an informed decision as to whether or not to move forward on an application.

Fear, hesitancy, inertia or not making an effort to be informed only hurts ourselves.  Life will move on and it’s up to us whether or not we do too.

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Financial Advisors and Reverse Mortgages

Financial Advisors Encouraged to Offer
Mortgages to Customers
January 6th, 2011  |  by admin Published in News, Reverse Mortgage

Dow Jones is reporting that financial advisers are being encouraged to work with bankers on getting mortgages and other loans from their clients.

According to the article, Wells Fargo has seen loan originations by advisers increase by 33% this year and originations by advisers who are based outside the bank branches are up 17% year to date, “a great example of how our businesses work together to generate revenue,” Chief Executive John Stumpf said at a conference recently.

Wells Fargo, prior to acquiring Wachovia, was doing about 75% of its business in consumer banking and 25% in commercial banking and wealth management. “One of the real values of this merger is that it really balanced the company,” Stumpf said. “We’re more now 50% consumer and 50% wealth and commercial.”

The greater banking support for Wells Fargo Advisors and increased wealth management support for the bankers has driven up loan originations. The company now is also testing a program that will partner financial advisers with their counterparts in Wells Fargo bank branches. This could increase lending business even more.

At the conference, Stumpf also said the average number of Wells Fargo products its customers have was 9.76 at the end of the third quarter, up from 9.37 at the time of the merger. That is “demonstrating the success we are having at growing deposits, loans and managed assets,” he said.

Bank of America Merrill Lynch says its mortgage applications among advisers are 44% higher in 2010 compared with last year. New securities-based loans increased 62% year over year, and net balances outstanding have grown 30%, the company said.

Reverse Mortgage Daily 1/7/11

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