Head Of Reverse Mortgage Group Says Article Was Tainted
To The Editor:
We are writing to urge you to consider ways to amend your publications taint of reverse mortgages caused by the May 24 article entitled, “What Boomers Should Know About Reverse Mortgages for Mom and Dad.” This article heavily quoted the views of financial planners who appear not to have worked with or even considered reverse mortgages for their clients. A balanced viewpoint, with perspectives from financial planners who are actually knowledgeable about reverse mortgages, would have provided a more useful discussion.
While I dont profess to be an expert in financial planning, I do believe that the role of the financial planner should be to evaluate the clients particular situation with an open mind and recommend actions and products that will best meet and serve the clients future financial needs, goals and desires. This evaluation should take into consideration the clients lifestyle needs and desires.
Your article is confusing in terms of the types of clients of financial planners that are being talked about. The headline and numerous sentences, though, suggest that financial planners should first and foremost try to maximize as much of the expected inheritance from the parents as they can, even to the point of facilitating actions to discourage the parents from taking any stepssuch as getting a reverse mortgagethat might help the parents financially, but result in less money to the kids. In our view, if the financial planners client is the senior, the planner has a fiduciary responsibility to act in the best interests of the client. Conversely, the financial planner whose clients are baby boomer children should not be trying to meddle in the parents finances to assist the clients own personal motivations.
Reverse mortgages should be viewed as a potential component of a financial plan that is put together for senior clientsnot as a threat to this financial plan. In fact, a reverse mortgage can provide the cash to fund other financial products that the planner may suggest as part of an overall plan, like annuities, long term care insurance, etc., and, in fact, we hear from financial planners every day who recognize the value of reverse mortgages as part of their planning efforts.
As an organization that promotes public awareness about reverse mortgages, we consistently say that reverse mortgages aren’t for everybody. For instance, it might not make sense economically for someone expecting to move or sell his or her home within the next few years.
For many seniors, though, a reverse mortgage does make sense and can provide innumerable benefits. A reverse mortgage can enable seniors to increase their monthly cash flow to meet specific important needs and goals. For instance, seniors using the proceeds from a reverse mortgage might: pay off their remaining first mortgage to boost monthly income; repair or make improvements to their home; purchase long term care insurance or pay out-of-pocket medical costs; buy a new home (or second home) without having to use up their own cash or make monthly payments; pay off high-interest credit card debt; etc. A number of seniors also are obtaining reverse mortgages as part of broader estate-planning strategies, but thats a topic for another whole article.
Some of alternatives to reverse mortgages suggested by financial planners in the article are unrealistic, costly or potentially harmful. One suggestion was that seniors instead take out a home equity line of credit or loan. Many seniors, however, will not qualify for either because they don’t have sufficient income to make monthly payments. They also would be using the money borrowed to make the monthly payments on the loan, hardly an effective strategy.
A second suggestion was that to pay for medical expenses a senior might want to spend down his or her assets to qualify for Medicaid. What a horrid thought! Not only will the senior have no money left to pay for anything else in life (here is where the adult children will probably have to chip in), but this step would be a terrible blow to self-esteem and independence. The senior would lose all control over how, when and where to get medical services and would be forced to utilize whatever facilities are dictated by the state administering the Medicaid program. With a reverse mortgage, a senior could use some of the proceeds to buy health care services, including home care, from whomever he or she chooses, or to purchase long term care insurance, providing a higher degree of personal choice in obtaining care.
A third suggestion was to find a relative to buy the parents home and rent it back to them. In this case, the parents would lose the benefit of future appreciation in their homes value, would no longer have the sense of self-independence and worth that home ownership conveys, and would have to pay tax on the earnings from the invested sale proceeds. There also would be costs involved in selling the property.
Several of the financial planners quoted say a reverse mortgage could cause tension with boomer children who realize they won’t inherit the full equity in their parents house, or who will resent the loss of some of their inheritance if a reverse mortgage must be repaid. This assertion is disputed by the fact that as many reverse mortgage transactions are initiated by adult children who are trying to help their mom and dad live more comfortable lives as are initiated by seniors themselves.
Reverse mortgages give seniors additional income to live their retirement more comfortably plus peace of mind knowing they can remain independent and not pose a burden to their children. Equally important, a reverse mortgage can enable them to stay in their home, which AARP surveys consistently show is where most seniors want to live as long as they can.
In the past 3 years, the percentage growth in reverse mortgage volume has been astounding, and we are on track for another record year. This popularity reflects both a recognized need for the product, and satisfaction by the seniors who have obtained them and recommended them to other family members, neighbors and friends.
We would encourage financial planners to learn as much as they can about reverse mortgages and consider the possibility of recommending a reverse mortgage to a client where this makes sense. If your publication, through its influence, can help further this effort, rather than paint the product as a costly last ditch option for losers, we would appreciate it.
Peter H. Bell
National Reverse Mortgage Lenders Association
Reproduced from National Underwriter Edition, June 18, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.