NAIFA

March 2, 2012 Reverse Mortgages No Comments

Financial Planners & Reverse Loans

There continues to be a misunderstanding in the Financial Planning industry about the effectiveness and the benefits of using funds from a Reverse loan to protect a client’s principal from running out of funds.

I thought the following article was quite informative based upon an analysis to see what the probability of retained equity and investment principal would be in the future if a person also utilized a Reverse loan as part of their retirement strategy.

Financial Planners: Reverse Mortgage Traditional Use is All Wrong
February 27th, 2012 | by Elizabeth Ecker Published in News, Reverse Mortgage | 4 Comments

“Two researchers proved through analysis published in February that a reverse mortgage credit line can lead to “substantially greater cash flow survival probabilities” for people who are planning for retirement.

Published in the Journal of Financial Planning, Barry Sacks, Ph.D. and Stephen Sacks, Ph.D. detail three strategies for using home equity in the form of a reverse mortgage credit line to increase the safe maximum initial rate of retirement income withdrawals.

Examining a last resort strategy; a credit line strategy used after other investments have shown negative returns; and drawing upon the reverse mortgage credit line first, before other forms of investment, Sacks and Sacks find that the retiree’s portfolio plus home equity net worth after 30 years is about twice as likely to be greater when one of the latter two strategies is used.

‘“The conventional wisdom holds that home equity, drawn upon in the form of a reverse mortgage (discussed below) or similar product, should be used as a last resort, only if and when the account is exhausted,” the authors write. “This is a rather passive approach. We show that the probability of cash flow survival is substantially enhanced by reversing the conventional wisdom.”’

The reverse mortgage is not necessarily the best option for everyone, they write, but for those who do decide to take a reverse mortgage, the research shows how it can best benefit them in retirement. The use of a credit line planned in advance is far more beneficial than the “last resort” strategy, they find.”
View the full reverse mortgage analysis.
Written by Elizabeth Ecker

November 4, 2011 Reverse Mortgages No Comments

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:

FINANCIAL PLANNERS CONSIDER REVERSE MORTGAGES NOW BEFORE INDUSTRY CHANGES

“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.”