April 2014

Financial Advisors and Using a Reverse Mortgage

This post contains the remaining part of an article I shared in the previous post, regarding how Financial advisors are gradually seeing the benefits of using a Reverse loan to extend their clients retirement funds.

There have been many changes in the HUD program recently, making them even more attractive as a solution to fund longevity.   The costs have been reduced and there are more options to chose from than in the past and of course, they are insured by the federal government.

Here is the remaining portion of the article:

Investment News:  Reverse Mortgages Recast for Financial Planners

By Alyssa Gerace on February 19, 2014

Giordano is chairman of the reverse mortgage industry’s Funding Longevity Task Force, which includes members like John Salter, a tax attorney specializing in pension matters; Harold Evensky, president of Evensky & Katz Wealth Management; and Shaun Pfeiffer, a professor of personal finance at Edinboro University.

The three have done extensive research [2] on how the government-insured Home Equity Conversion Mortgage (HECM) product can be used as a retirement planning tool [3].

“Our study considers using a HECM Saver reverse mortgage as a risk management tool in conjunction with a two-bucket investment strategy, coined the standby reverse-mortgage strategy, in order to increase the probability a client will be able to meet predetermined retirement goals,” they wrote in a 2012 article published in the Journal of Financial Planning.

Since then, HUD has issued new rules for HECMs that limit homeowners from borrowing more than 60% of the maximum reverse mortgage loan amount when it closes for a one-year period, Investment News writes. The program changes are meant to ensure loans will cover borrowers’ ongoing expenses, in addition to other common uses such as improving cash-flow.

“A HECM is just another way we can help clients address their retirement income needs,” task force member Marguerita Cheng, a financial planner and chief executive of Blue Ocean Global Wealth, told Investment News

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Financial Planners and Reverse Loans

Gradually the negative image of a Reverse loan that has been historically held by the financial planning community, is beginning to change.   It’s been a long process, but many financial planners are beginning to see the positive benefits of the HUD loan program as part of an over-all retirement plan.

Following is a recently published article that discusses this change in the attitude of many financial advisors.   The remainder of the article will be in a follow-up post.

Investment News: Reverse Mortgages Recast for Financial Planners

Posted By Alyssa Gerace On February 19, 2014 @ 5:06 pm In News,Retirement,Reverse Mortgage | No Comments

Reverse mortgages could get recast from their commonly-perceived “loan of last resort” role to that of a financial tool for retirement if industry lenders get their way, says a recent Investment News article [1].

Despite more than two decades of being seen as a financial lifeline for seniors who are house-rich, cash-poor, reverse mortgage lenders are hoping research from leading financial advisers paired with new rules from the Department of Housing and Urban Development will change the product’s role, says the article.

“We in the reverse-mortgage lending industry find financial advisers are subject to the same myths and misconceptions as the general populace,” Shelley Giordano, director of business development for Security 1 Lending, told Investment News. “We thought if we could bring together some thought leaders from various disciplines, we could focus on what’s new in terms of housing wealth in the retirement distribution phase and help Americans have a more secure retirement.”

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The Inheritance Question

A recent article that was published in the New York Times, discussed how sometimes the adult children  (supposedly “grown up”), children of seniors, become worried about receiving their “inheritance” if their parents decide to use a Reverse loan to fund their retirement years.

Personally in my 12 years of being a Reverse Loan Consultant, I have only encountered this a couple of times, but never directly.   Sadly, it’s a question of poor communication between the parents and their children and in general the “kids” have no idea about how a Reverse loan works and the benefits that it provides to allow older people to age in place.

I actually had a situation, where a women was referred to me who has very difficult circumstances and very little income to live.  Her home is paid off and a Reverse loan would allow her to have peace of mind and be free of fear and anxiety about how she was going to manage to live, pay her bills and buy food.

And you know what her son said to her when he found out that she was going to look into a Reverse loan?   He told her he would “disown” her.   Awful, isn’t it?   And he’s doing nothing to help his Mother.

Here is a summary of the article that was published, discussing this situation.

“NY Times: Inheritance Blinds Heirs to Reverse Mortgage Realities

Posted By Jason Oliva On April 13, 2014 @ 4:06 pm In News,Reverse Mortgage | No Comments

Even though an entire family may be involved in the discussion of whether to obtain a reverse mortgage, experts find that heirs of prospective borrowers are more concerned about losing their “presumed” inheritance than learning about the terms of the loan, reports The New York Times [1].

Elder law and reverse mortgage experts in the article say they frequently encounter instances where the adult children of potential reverse mortgage borrowers are “openly opposed” to the idea of their parents spending away their inheritance.

“A lack of communication can lead to a rude awakening for adult children who still live at home and don’t realize what a reverse mortgage will mean after their parents die,” said Deborah S. Ball, a New York elder law lawyer, in the article.

Frank Melia, a mortgage planning specialist with United Northern Mortgage Bankers in Levittown, N.Y. told The New York Times that he has noticed more adult children open to the discussion of their parents borrowing against their home equity since the recession.

But the same statement continues to come up, he says, of adult children telling their parents: “You’re spending my inheritance.”

“Sometimes there’s just no getting through to them,” he said in the article, “because they’re just being selfish about their inheritance possibility.”’

Written by Jason Oliva [2]

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