Today (March 4, 2009) Deal Flow Media held their first reverse mortgage conference in Manhattan (New York City). The panels covered an array of reverse mortgage topics. The financial planners, by the end of the day, had a new appreciation for this often misunderstood topic. The conference will last through tomorrow.
Our panel provided an overview of the HECM program. Our panel was composed of Jason Levy, Sherry Apanay, Cheryl Chapin, Brett Kirkpatrick, Ralph Rosynek and myself. A pretty good team if you ask me.
I lead off the discussion with a direct statement: If the reverse mortgage was a sport, I would say that it climbed out of last place into first place. It is not a loan of "last resort". This is due to a confluence of forces; selling is usually not an option and getting a conventional loan is no longer an option. The reverse mortgage has therefore become the weapon of choice.
Later that day, I learned that the information I imparted was totally wrong. There, on the Today show their "financial expert" when answering a question about reverse mortgages, repudiated my comment. Forget for the moment that the mother could never get a reverse mortgage because it was not her primary residence..Better to bash the program......it is easier to do so rather than take the time to learn about it.
Here is the question:
Q: Hi, we've been partly funding my mother's rent in a close-by senior apartment with her dwindling savings while waiting for her home to sell back down south. It isn't moving in this market and we are not allowed to rent her home. Would it be wise to take a reverse mortgage, equity loan or some other type loan until it sells? — Bonnie, Brighton, N.Y.
And the answer:
Carmen Wong Ulrich: Stay away from reverse mortgages unless you need it as a last resort. Reverse mortgages work by basically taking out the equity in your home — selling back what you own in the home — however, reverse mortgages in particular are packed with fees that can lose you up to 20 percent of your equity. If you’re really feeling hardship, take out a HELOC, home equity line of credit, instead. It can be a tax deduction for her as well and all you pay is the interest and maybe small administration fees. However, HELOC rates are adjustable and rates will go up eventually, so be mindful of that and keep a cushion to protect you from a ballooning monthly bill.
Notice the first sentence. Stay away from reverse mortgages unless you need it as a last resort. Not quite sure what that means. But it does sound like they are at the end of their rope.
In the second sentence Carmen says....selling back what you own in your home. Hmmmm. Didn't know there was a selling component. Stupid me.
Then she said reverse mortgages are packed with fees; can lose 20% of equity...Gee. No value was given.......and how long will the loan last? And losing 20% of equity sounds like a scare tactic. No information to base this on. Notice the faces of the three experts when they talk about reverse mortgages......(click experts answer your money questions).They can't even talk about it intelligently.....They haven't asked the probing questions to determine whether the reverse mortgage even makes sense.........or whether mother could qualify for an equity loan. I guess that is not germane. What really counts is that a reverse mortgage is no good.
Sadly there will be people who watched this travesty of "financial advice giving" and crossed out reverse mortgages........even though it could be the one tool that fixes their financial predicament.
To watch the actual question and their absurd answers, fast forward to 8:20 in the video below. I look forward to your comments as well.
Dennis,
It simply amazes me that the HECM loan has been in existence since 1989, and still we have “ financial experts” on national TV who clearly do not understand how the product works. Now, I’m not going to say that reverse mortgages are great for everyone, but these generalizations about reverse mortgages not being for anyone has to stop. Like everyone else in America right now, seniors are looking for financial solutions, and getting balanced and “complete” information is critical to making an informed decision. The Today Show airs for 3-4 hours at a time, yet they seem to never spend more than 2-5 minutes on a topic. That is simply not enough time to cover most financial topics completely and then offer solid advice to anyone. The consistent over simplifying of information on Today is not only irresponsible, it is unprofessional and damaging to viewers.
MSNBC and the Today Show have been recklessly irresponsible in allowing Ms. Wong Ulrich and the others on the panel to dismiss the reverse mortgage for the caller without knowing more information. Here are some questions I may have asked before telling someone to “stay away from a reverse mortgage.”
1. Is it your desire to live in a senior apartment, or are you just not able to afford your home? What is the reason you are choosing to live in a senior apartment? The answer to this question tells us which of two directions to go. No assumptions needed for this question, however if she wants to live in the apartment, then the home doesn’t qualify for reverse mortgage financing. Simple answer. In fact, it may not qualify for a HELOC or other types of financing for the same reason.
2. Are you (or the relatives who are supporting you) having financial difficulty?
3. Will they be able to continue supporting you?
4. Do you think you can qualify for a HELOC or other type of loan with payments?
5. Will your family be able to assist you financially if you could not make those payments?
6. Which overall budget is cheaper, the apartment rent or the home with no mortgage payment, but paying taxes, insurance and maintenance costs.
7. While a reverse mortgage may cost you 4-6% of your home’s value in fees, what will Realtor fees and moving costs amount to? If the costs for both options are similar, then perhaps you should choose your home based on your total budget, your personal needs and your desired quality of life instead of just the cost of the one transaction.
8. I have many more questions….
I also have questions to ask the “panel of experts” so I can be sure that I am not misunderstanding their knowledge of the product.
1. What do you mean when you say that the “equity will be bought up by the bank?” Are you aware that a reverse mortgage is only a lien on a home to which the borrower continues to hold title…just like a HELOC or other type of traditional loan?
2. How do you arrive at the 20% figure for lost equity with a reverse mortgage without knowing the value of the home?
3. You say that a reverse mortgage could cost upwards of $10,000 to obtain. How does that compare to the cost of selling the home if you assume the senior would rather stay in the home? Could selling the home (in a down market as well) actually be more expensive?
I could go on and on (and I have, sorry), but it is painfully clear these “experts” have little or no knowledge of reverse mortgages and their practical uses, and I am sure they are unaware of the damage they may have done to many seniors by misinforming them.
I will be sending The Today Show a similar letter such as this, and requesting a correction or at least equal time with someone who is actually informed. I would gladly appear and debate any of their “experts” about the merits of the reverse mortgages. You can send comments to The Today Show at TODAY@nbcuni.com. I encourage all industry participants to engage the media in a debate, challenge them every step of the way. Not just because it hurts our industry and our business, but mostly because it hurts American seniors who are in need of reliable, honest and complete financial information. The time for rhetoric and sound bites is over.
Posted by: Mike Gruley | March 08, 2009 at 06:00 PM