This is the final post on a rather long article that discusses a recent report that was published by the Department of Housing and Urban Development that expressed concern about the amount of housing debt seniors are carrying.
Some made the decision in the last few years to either do a traditional mortgage and take some money out at the close of escrow or they applied for a LOC from their bank because they needed additional money for their monthly expenses.
The problem with this idea is that eventually they run out of that “cash” and still have a mortgage payment each month when a much better option would have been for them to apply for a Reverse loan.
Here is the remainder of the article that was written by Jason Oliva.
“The Home Equity Conversion Mortgage (HECM) enables homeowners age 62 and older to convert their home equity into tangible funds that can be used to pay a variety of living expenses, including paying off existing mortgage debt.
But although HECMs have undergone substantial changes in recent years that have made them safer products for borrowers, not many eligible homeowners are aware of these new updates, let alone know how a reverse mortgage could supplement their retirement.
“The HECM program currently serves a relatively small number of older homeowners, but many more households could potentially benefit from the program,” HUD writes. “Although FHA endorsed fewer than 1 million HECM loans between 1989 and 2015, HECM may be an effective option for some seniors looking to access their home equity.”’
Initially, I found the opening paragraphs particularly toxic and quite often the typical response that people have to Reverse loans.
I thought to myself….oh no. Not again. People and many professionals are simply and horribly ignorant about the federal loan program and because of such a negative attitude, it can end up hurting a senior who could benefit from the loan program.
But the overall attitude of professionals and others, is gradually shifting away from these opinions as the writer states in his article.
Here is the remaining portion of the summary plus a link to the entire article.
NY Times: Reverse Mortgage Time is Coming
Posted By Elizabeth Ecker On September 28, 2014 @ 11:30 am In News,Reverse Mortgage
“The article cites several positives that have developed in recent months around the reverse mortgage market: the re-entry of BNY Mellon to the space this year following big bank exits of the past; the personal investments of two well-known economists and academics into one reverse mortgage startup company; and the embrace of a growing group of financial planners who at once would never have recommended reverse mortgages to clients but who today are incorporating them into retirement plans even for those who have saved and invested wisely for retirement.
Recent research conducted at The Ohio State University also bodes well for the loans, he writes, in shedding light on factors leading to defaults and being able to recommend product overlays that maybe able to reduce defaults by as much as 45%.
“Call the loans and the lenders and the executives who run them all the names you want,” Lieber writes. “But the tool they sell is one whose time is coming, and people who refuse even to consider a reverse mortgage in the coming years may do themselves a disservice.”
An interesting study was recently completed by Jerry Wagner of Ibis software, illustrating how by using a reverse loan in lieu of drawing down on a retirement portfolio, one can extend the spending horizon by many years.
The study is quite lengthy and involves charts and graphs to make his point and rather than try to share it here, I will provide a copy of a summary of his study.
The use of reverse loans for funding longevity and preservation of investments, is gaining greater acceptance among Financial planners, Estate Planning attorneys and CPA’s.
It is not the loan of “last resort”, but a safe and affordable method to assist people to move into their retirement years by leveraging the funds they have through the use of a reverse mortgage.
Study Touts Reverse Mortgage Benefits to Financial Planners
Posted By Jason Oliva On December 30, 2013 @ 6:53 pm In News,Retirement,Reverse Mortgage
“A recent study  aims to help financial planners realize the merits of using reverse mortgages to supplement their client’s portfolios.
The study, published by Jerry Wagner of Ibis software, a reverse mortgage software provider, was included in the Journal of Financial Planning, an industry publication for financial planners.
Deviating from what financial planners have known as the 4% rule, which determines the spending success of an individual’s portfolio throughout the course of a 30-year retirement, Wagner introduces what is known as the 6% rule, outlining a portfolio’s spending success when it becomes supplemented by a reverse mortgage.
The study affirms that with a 30-year spending horizon and a first-year withdrawal of 6%, reverse mortgages can provide “spending success” levels of 88-92%, writes the study’s author Gerald Wagner, Ph.D., who is also president of Ibis Software.
“A financial planner’s goal is to be able to sit down with a couple (or person), review their portfolio and other income sources, and create a plan that is both logical and explainable,” Wagner says.”
I will share the rest of the article in my next post.