REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

Reverse mortgages are the new financial miracle cure-all; they can replace the kitchen sink, they buy the cruise tickets, they put new tires on the car, they pay for mistakes you’ve made in your retirement planning, heck, they can put a big screen on your bedroom wall. While you’re at it, have it balance your checkbook, do your estate planning, find a local caregiver, make your mortgage payment dissappear. They cost too much, they don’t cost anything, they help, they hurt, you keep your home, you lose your home. We’re employing a bit of cynicism her but it’s all really overwhelming if you read more than one resource about them, everyone, including this site, has an opinion on them. They will do quite a bit for the over 62 year old homeowner if applied properly but they should be considered carefully before proceeding as with any financial vehicle.

We track reverse mortgage opinion because we care about the product and believe there’s more misinformation than there is good information and we’ve often said that reverse mortgages are not for everyone. Whether you qualify for them or not, not everyone over 62 is in a situation that can find them benefitting from a reverse mortgage. Some folks have more than sufficient monthly cash flow with no bills or their heirs are dependent upon significant portions of home equity that would be put at risk with a reverse mortgage. Some folks don’t plan on staying in their current homes long enough to warrant losing the costs for conversion and some may be too young and too far behind to let a reverse mortgage provide them with enough cash to make it to their expected end of life.

, a published Certified Financial Planner and author of says the following:

“Too many of us keep the bar low by playing “to not lose” instead of playing to win because we assume that life has guarantees when in reality it doesn’t. Because of that one assumption, we’ve become complacent and dependent on guarantees. That dependency builds expectations that create comfort zones that are below our full potential and prevent us from making our greatest impact.

Our previous article spoke about end of life and how young, (some seniors) think they are and the complaceny Mr. Losey alludes to above. Its really amazing that in a glass-half-empty world there are quite a few glass-half-full Seniors out there that are beating the odds. They are 75 living in 60 year old bodies, taking every punch thrown at them and experiencing as much in the last quarter of their lives than they did in the previous 3. They have planned according to professional advice, have saved what they believed to be enough. They bought long term care in their 50′s and have a strong life insurance plan. They’re set financially so they hope to also be set physically.

That particular portion of the population makes up between 20 and 50% of the country. How about the other 50 to 80%? What they don’t know can hurt them- a very well written piece by Donald Jay Korn in shares some details that are quite amazing when it comes to planning and maybe waiting too late to do so to protect the physical nature of things. According to the article, the average age of those purchasing long term care is now 58, down from 67 in 2000 and what is shocking about those statistics is that at 65, 30% of long term care participants are rejected and by 75, 50% were rejected. You want to get in early if you want to make sure you are both eligible and covered. The average need for long term care lasts between 24 to 36 months, and of the estimated 8 million long term care clients registered in 2008, 180,000 received long term care benefits- just over 2% of those eligible.

Reverse mortgages don’t really have much to do with those stats other than bringing to light being able to afford life, caring for oneself and protecting one’s investments in property and self. Since the age to increase your chances of qualifying for long term care are younger than the minimum age for a reverse mortgage, its clear the reverse mortgage should not be used to purchase the long term care but as the article goes on to say below, a reverse mortgage could possibly allow for continued coverage once the client sees the need for both cash flow and the added health coverage:

“Indeed, clients probably should avoid canceling an older LTCI policy whenever possible. “Although there may be a need to reduce expenses as a result of the current economic downturn, maintaining these policies is important,” Ludden says. “The cost of this coverage is age- and health-based; therefore, it may be very difficult to find an affordable policy in the future if a previously purchased policy has lapsed.”

A reverse mortgage will not cure all that ails you but considering it as part of your financial and retirement planning will give you more options than you had been previously aware of.

Thank you for reading www.reverse-mortgage-information.org, please email us with you comments or questions.

This website has often mentioned the notion of having financial planners consider the use of reverse mortgages as possible tools in their planning arsenal. Some financial planners are up to speed on the effective cash flow capabilities a reverse mortgage can provide and others are not very well versed on all aspects of the product. As has been said before that its not an indictment of their effectiveness but we feel some planners think they can provide practical advice with income and investments and they don’t touch the home except as last resort. We’ve penned the use of the phrase “” on several occasions as well as challenging planners and elder law advisors about the “certainty” that exists when a reverse mortgage is used to create cash flow for its users.

We’ve received a bit of indirect validation today on our thoughts from a publication that echos our sentiments almost to the word where they interview financial advisors from around the country on concerns regarding retirement and the how the aptly named “Fall of 2008″ has affected them. Judy Ludwig, vice president of financial planning services at in Newton, Mass mentions in the article that some are curtailing their spending “while they wait for their portfolio to recover”. We have mentioned that on more than one occasion here and here. She later mentions something that rides along with the certainty issues in the previous paragraph that many clients are focusing more on the guarantees bank accounts provide for their cash reserves, saying “I can’t remember hearing as much talk about CDs as I have recently.” Judy herself doesn’t appear sold on reverse mortgages suggesting that the client could arrange for a sale-leaseback with a younger family member. That’s great advice and a suitable alternative but what if that younger family member already has a home or can’t make this work? Another question for another article maybe.

The well written article by Donald Jay Korn specifically mentions reverse mortgages to help with cash flow concerns. Frank Butterfield, principal at , a wealth management firm in Atlanta, says “We had always ignored the house in our retirement projections, but a few clients might need to include their home equity now.” If a wealth management firm has a few clients in need of additional cash flow, imagine those without professional guidance that haven’t been able to put enough retirement away to warrant a professional’s advice? Where do they turn for advice?

A reverse mortgage is not for everyone as mentioned several times on this website and other places but it can be the RIGHT tool to supplement cash flow where someone’s income capabilities have fallen short and alternative resources are dwindling.

For those with annuities set to run out of money in the future that are relying on that income and cash flow, what to do?

A prospect with an immediate annuity recently contacted us about looking into a reverse mortgage to replace the income she is receiving from her annuity that runs out in 5 months. She is widowed and also supported an older parent that lives with her. She has her mother’s social security and her own social security along with this annuity that was paying her just over $2000 a month. That annuity was basically paying for her mortgage each month and she was confounded about what to do when that money was no longer available.

She looked into selling the home but it would have been too stressful to find a place for both her and her mother so she started looking into other means. She tried to find a renter for a part of the home but found that no one wanted to pay rent, most wanted a hand out. She tried to refinance into a more affordable mortgage but found that her fixed income was not enough to get a better rate and found it hard to satisfy stricter lender guidelines. Her annuity rep had no answer for her other than to seek us out as he had read about reverse mortgages on this website and found us as this site pops up on the first page of under a search for reverse mortgage.

Her home’s mortgage eating up her monthly annuity payment, it made sense to pay that mortgage off and leave that extra money, almost $2000, in her pocket each month for the next 6 months until that annuity runs out. She went from having NO extra money a month while receiving $2000 in an annuity payment to an EXTRA $2000 a month with that annuity payment. Think about that for a moment. Her income is the same but she now has $2000 in disposable cash each month. That’s hard to get your hands around but since she no longer has a mortgage payment, a good portion of that extra money is going into a savings account for her and her mother, maybe a CD. She’s not using the extra money that was left in the credit line, that money is earning growth, but the money that was used to pay off her mortgage has removed a burden she was facing.

Its not an easy decision for her or anyone, but before you completely cast off any ideas about borrowing against your home’s equity, write down all of the other ways that exist in this world that allows you remain in your home, pay the bills and not have to worry about a mortgage payment for the rest of your life in your home and maybe have some money to enjoy life with. Can you, with certainty, know what the future holds and how your bills will control your life or can you manage how your life can control your bills?

HUD released a 2008 State of Housing Counseling Industry report that at first glance does not show anything earth shattering in the world of reverse mortgages since those in the business and those that have undertaken a reverse know that the counseling is a flawed system. Nothing in life is perfect and this study suggests there are needs in most places for additional funding, for additional properly trained counselors, for quicker turn times, for more clarity in the counseling, cost containment, you know, typical bureaucratic issues. I won’t go into the whole 231 page document but a couple of points stood out that I want to bring up- the lack of alternatives to reverse mortgages as summarized by the report and the possible beginning of a larger shift toward higher income clients seeking information about new money sources.

From the :

Page 110 comments on a small percentage (4%) withdrawling from housing counseling which could be from the need for more of the above, counselors, clarity and costs, the 3 c’s. But Graph 7-13 shows something more telling and its the fact that less than .30% (729 out of 202,795) chose an alternative such as moving or selling the home. AARP spends quite a bit of time telling folks to consider alternatives before considering a reverse mortgage and on page 23 of their publication “” they suggest selling and moving from the home as an alternative to reverse mortgage, along with obtaining supplemental income (ala Medicaid, Medicare), property tax relief, the Agencies on Aging and a combination of all of these to postpone the need for the reverse mortgage. This report shows these alternatives have all but disappeared.

Page 102 in the report suggests a possible increase in more affluent clients seeking housing counseling of some kind.

In the HUD report 9902, agencies are required to report the percent of clients served that fall into the following income categories: less than 50 percent of the area median income (AMI), 50 to 79 percent of AMI, 80 to 100 percent of AMI, and more than 100 percent of AMI. According to HUD’s definitions, people with incomes below 50 percent of the AMI are considered very low income, while people with incomes between 50 and 80 percent of the AMI are low income, and people with incomes between 80 and 120 percent of the AMI are moderate income.

While the following paragraph from the report does not signify drastic shifts it could very note the beginning of a trend where more clients with incomes more than the area median income seek housing counseling for ways to access equity from the home.

Page 104

Over the past 5 years, the income distribution of counseling clients has changed somewhat, with the share of very low income clients declining and the share of moderate income clients increasing. However, the magnitude of the change is not very large. The share of clients with incomes below 50 percent of AMI dropped by 3 percentage points between 2003 and 2007 while the share of clients with incomes above 100 percent of the AMI increased by 3 percentage points.

Tied together, this data proves what reverse mortgage advocates have been saying all along. The reverse mortgage is a suitable and viable financial vehicle to supplement retirement income where other means have diminished or are no longer available. It should be considered sooner than later since it has proven to provide more where there is less.

Rebounding from four consecutive months of below average performance, the number of HECM reverse mortgages originated rebounded in January posting the fourth best monthly performance on record. The 9,957 HECM’s approved in January represented a 24% increase over the 8,007 HECMs endorsed in the prior month (December 2007) and a 13% jump over the 8,824 endorsements made in January 2007. (more…)

8,270 HECM reverse mortgages were endorsed during November 2007 according to the most recent HECM activity report released by HUD. November’s HECM production is a 10.6% gain over the 7,478 HECM’s endorsed in November 2006 but a 1.7% decrease from October 2007 when 8,417 HECMs were endorsed. More troubling: November was the third consecutive month that HECM production fell below its 12-month moving average – the first time this has occurred since mid-2005.

The 12-month moving average provides a clearer trend line of HECM loan growth by smoothing out month-to-month variations. Interestingly, despite the fact that monthly HECM activity has dipped below the 12-month average for three straight months, the 12-month average itself hit an all-time high of 9,004 in November, due mostly to the exceptionally strong HECM activity earlier in the 12-month period.

For the calendar year 2007, 100,286 HECMS were endorsed compared to 77,879 during the first eleven months of 2006 – a 29% rise. For the twelve months ended 11/30/07, 108,046 HECMS were endorsed – a 30% rise over the 82,838 endorsed during the prior twelve month period.

Clearly, falling home values and the problems in the traditional mortgage sector are taking their toll on the once torrid growth of reverse mortgages. We’ll have more to report on the most recent HECM statistics in future posts.

In a previous post we noted an important fact largely ignored in the plethora of recent books and articles on reverse mortgages: the majority of reverse mortgages (at least HECM reverse mortgages) terminate within seven years of their origination. For many of these borrowers, a standard home equity line of credit loan (HELOC) might have been a more efficient borrowing tool.

Of course no one can predict the future and we suspect many HECM borrowers entered into their loans with thoughts of staying put for ten years or more. But, as noted, data from actual HECM loans reveals that fewer than 50% of HECMs last beyond seven years. For shorter periods such as these, the HELOC option is certainly worth investigating.

How does someone decide which is better for them – HECM reverse mortgage or HELOC? Let’s start by reviewing the the main points that differentiate the two types of home equity borrowing: (more…)