By Peter Bell
For far too long, attempting to interest financial planners in reverse mortgages has felt like swinging at a baseball cemented to a hitting tee—it never went anywhere. But now, suddenly, there seems to be a burst of interest in us within that community.
“The days of the reverse mortgage being used as an emergency measure are over,” wrote investment advisors Robert Bloink and William H. Byrnes recently on the Advisor One website. “And it’s likely that the use of reverse mortgage in retirement income planning is here to stay.”
“It looks like this is going to be an immensely valuable tool (to create “standby” liquidity),” wrote Harold Evensky, a financial planner with Evensky & Katz Walth Management, professor at Texas Tech and one of the industry’s most influential voices.
Variations on these opinions seem to be cropping up regularly now in the daily press clips we receive from all around the country. Some of the current advocacy, such as Benny Kass’s comments in the Washington Post and Rick Kahler’s comments in the Rapid City Journal, comes in the form of answers to questions submitted by consumers.
Why are financial planners and advisors coming on board now? I believe a number of factors are involved:
(1) The creation and implementation of the HECM Saver with its lower upfront costs, offers a more appealing and useful product in the minds of financial advisors. According to Dr. John Salter, Evensky’s colleague at Texas Tech and research partner, “Before the HECM Saver came out, financial advisors had a negative view of reverse mortgages. They treated them as a last resort.”
(2) The recession has yielded a greater sense of need for utilizing all available financing options given the decrease in home values and portfolios as well as the lower yields on fixed products. Planners looking to achieve certain numbers (generally around a 4% cash withdrawal rate per year for the balance of life) often cannot find their way there with current yields and without home equity.
(3) Over the past two years, there has been a sharp reduction in criticism of reverse mortgages by politicians, consumer groups and the press. A close audit of press stories now and then would show this is at least partially a result of NRMLA’s aggressive call out to those who publicly express misperceptions—to provide them corrections and offer them education.
(4) In an ongoing avalanche of anecdotal justification, good modeling is difficult to refute. And since businesses are usually bandwagons, once a few high profile players jump on, the crowd generally follows. In this case, the maestros have been Evensky and Salter. The latter presented NRMLA membership at our Annual Meeting last October with a graphic model demonstrating that use of a reverse mortgage to maintain cash flow reserves while allowing a portfolio to continue to grow vastly increases the likelihood of not outliving your money.
Now comes an article by Barry H. Sacks and Stephen Sacks in the Journal of Financial Planning entitled Reversing Conventional Wisdom: Using Home Equity to Supplement Retirement Planning which encourages an active rather than a passive use of home equity in retirement planning and shows that “a reverse mortgage credit line can lead to substantially greater cash flow survival possibilities.” (Barry Sacks will present this research at NRMLA’s Western Regional Meeting on May 16 in
These two studies combined with the recent report from the MetLife Mature Market Institute that shows a vast increase in the number of people 62-64 taking reverse mortgages and thus a corresponding decrease in the average age of reverse mortgage borrowers presents a lure the financial advisory community will find hard to resist.
We are eager to welcome more and more of them into our conversation.
