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When A Reverse Mortgage Makes Sense For A Client

It has been more than 55 years since the first reverse mortgage was written. The year was 1961 when a banker at Deering Savings & Loan of Portland, Maine, created the loan to help the widow of his former high school football coach. Since then, the reverse mortgage has evolved in many ways.

I did not come to learn about this unique loan product until about 2007 or so. I was still early in my planning career and had few, if any, clients in or approaching retirement. Therefore, this was not an area in which I gave much attention. Not to mention that what was being written at the time about reverse mortgages was not all positive. The stories did not always talk about how the loan helped an elderly homeowner access much-needed equity to stay in their home. In some unfortunate cases, homeowners were taken advantage of and put in even more precarious financial situations.

Even just a few years ago, for some financial advisors, the mere thought of discussing a home equity loan or a reverse mortgage with clients as part of the overall retirement planning conversation was, and in some cases may still be, seen as taboo to their compliance department. Other advisors may have even been expressly prohibited from discussing the topic altogether. Given that America is in the midst of a retirement income crisis, this is not only unacceptable, but also it is irresponsible.

Fast-forward to today. Reverse mortgages, also known as Home Equity Conversion Mortgages, have undergone numerous changes. The Housing Wealth in Retirement Symposium, co-hosted by The Funding Longevity Task Force at The American College of Financial Services and the Bipartisan Policy Center, is attempting to fill a void in this space. The goal of the symposium, held on March 23 in Washington, DC, was to facilitate collaboration between stakeholders including regulatory agencies, nongovernmental organizations and the financial services community to address the underutilization of housing wealth in retirement.

Experts from across the industry came together for this one-day event to share their thoughts on this increasingly important, and in many cases still misunderstood, topic. Speakers included thought leaders such as Wade Pfau, Shelley Giordano and Christopher Mayer.

Jamie Hopkins is an outspoken proponent of the need to incorporate reverse mortgages or home equity into the retirement income planning conversation. In a recent article, he stated, “The home, a potential reverse mortgage, or an existing forward mortgage are clearly factors that need to be considered when reviewing a client’s financial plan. While many advisors do review the existing mortgage and perhaps recommend refinancing, this is usually where the advice stops — leaving a wide range of factors affecting the client’s situation unexplored.”


Addressing the Challenge

The Bipartisan Policy Center’s June 2016 report, Securing Our Financial Future: Report on the Commission on Retirement Security and Personal Savings, presents a comprehensive package of proposals to address six key challenges. One of those challenges is failure to build and use home equity to support retirement security. The report explains that housing is an integral part of savings. “Americans own more than $12.5 trillion in home equity — a sum that rivals the $14 trillion that Americans hold in retirement savings. For individuals or couples who lack substantial savings in a retirement plan but who own their residence, homeownership can be a major source of retirement security.

“A variety of mechanisms exists for tapping home equity to fund regular consumption needs in retirement; for example, homeowners can downsize, use a reverse mortgage or sell their home and rent instead. These approaches have advantages and drawbacks; retirees with home equity should be aware of the available alternatives and have independent advice to make an appropriate choice for their circumstances.”

It is time for more financial professionals to adjust their approaches to reverse mortgages. Ignorance is neither an excuse nor an option. The Retirement Income Certified Professional courses are an example of curriculum that professionals can use to increase their knowledge and understanding around the use of housing wealth. 

Finally, Hopkins contends, “By ignoring home equity and the benefits of a reverse mortgage, the advisor may be placing the client in a worse situation than if there had been an error or omission. The failure to plan or the failure to consider an option can also lead to liability.”


Jocelyn Wright is the chair of The State Farm Center for Women and Financial Services at The American College. Jocelyn may be contacted at [email protected] .

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