HECM is key means of funding retirement — credibility scores

Written by Jessica Guerin

Public perception has been described as a social phenomenon defined by the difference between fact and popular opinion. It is the reputation of a product or person— a judgment fueled by emotion, rumors and cultural prejudices and given a voice by the mainstream media.

Reverse mortgages (HECMs) have long suffered from a negative public perception. The problem is the result of several factors, including common misconceptions about a somewhat complicated financial product that have been hard to dispel. Most Americans simply don’t understand the ins and outs of the product, with many holding on to the false belief that the bank owns a borrower’s home. Even some financial professionals are uninformed about the details of the loan.

Of course, it would be remiss to deny that the product has had its issues in the past. The woes of non-borrowing spouses entering into foreclosure have inspired many attention-grabbing headlines, and the long-ago misdeeds of some bad apples who pushed borrowers to purchase other financial products with their proceeds didn’t help matters. Then there were unfit borrowers who were running through their money, leaving nothing left for taxes, insurance or living expenses. The fact is that the product is designed for senior citizens, and society is rightfully protective and emotional when it comes to their well-being. Stories about seniors failing to thrive with these loans gave rise to a negative sentiment about the product and its usefulness.

But after years of productive dialogue between the industry and lawmakers, the reverse mortgage program has adopted new rules to safeguard it from the blunders of the past. It’s a unique and complicated product, and it took time for officials to understand the guidelines needed to maximize its effectiveness. With new protections in place for non-borrowing spouses, expanded rules to police industry participants, and a financial assessment to ensure the loan’s suitability for a borrower’s circumstance, reverse mortgages are a better, stronger and safer product than ever before.

The truth is there is no other product out there that allows older Americans to access their home equity, and statistics indicate that many will need to utilize this valuable asset to support their retirement.

Recently, research and commentary from noted academics and financial professionals have outlined the benefits of strategically using one’s home equity through a reverse mortgage, insisting that one’s housing wealth should become an important factor in retirement planning. The media appears to be catching on, citing the latest research and noting that recent program revisions have provided extra safeguards for consumers. With all of this momentum gathering in 2015, some are noticing a change in the tide. The public conversation about reverse mortgages is trending toward positive, and many are predicting that public opinion will follow suit.

Pushing the Needle

In 2015, a handful of academics and financial professionals published research and publicly commented on the use of reverse mortgages in retirement planning.

Joe Tomlinson, an actuary and financial planner, researches and writes about investment options and retirement planning. In April of last year, Tomlinson published a paper on Advisor Perspectives, a website that specializes in “actionable advice for financial advisors.” Titled “New Research: Reverse Mortgages, SPIAs and Retirement Income,” the paper examines how Single Premium Immediate Annuities and monthly tenure payments or line of credit withdrawals from a reverse mortgage could be utilized along with investment portfolio withdrawals to stabilize one’s retirement income.

“Retirees need longevity protection and additional funds. Annuities and reverse mortgages can meet those needs,” Tomlinson writes. “While annuities have been researched extensively, reverse mortgages haven’t received as much attention. We need research on how to fit these two products together in overall retirement plans.” Tomlinson concludes that financial planning software that can analyze the coordinated use of annuities and reverse mortgage proceeds needs to be developed to assist middle-income seniors whose savings cannot provide sufficient retirement income.

In October, Nobel Prize-winning economist and MIT finance professor Robert Merton drew the finance world’s attention to reverse mortgages. Speaking at a wealth management conference before members of more than 140 wealth advisory firms, Merton said he believes that reverse mortgages will become an essential component of retirement savings. The house is the largest and sometimes only major asset for many in the working middle class, he said, and reverse mortgages are well suited to tap that wealth. “Americans have wrongly steered clear of reverse mortgages,” Merton said. “This is going to become one of the key means of funding retirement in the future.”

Jamie Hopkins, an associate professor of taxation at The American College and associate director of the school’s New York Life Center for Retirement Income, has also become a vocal proponent of reverse mortgages. Hopkins said he began researching the HECM’s role in retirement planning after reading research by Barry Sacks, John Salter and others in the Journal of Financial Planning. Their work inspired him to explore strategic uses for home equity in retirement planning, and the frequent Forbes contributor often writes about his belief in the value of the product. “Using a reverse mortgage is no longer just for the cash poor and house rich,” Hopkins wrote in an article last May. “Instead, reverse mortgages can be used strategically as one part of a retirement income plan designed to build a buffer against sequence of returns risk early in retirement, help defer Social Security benefits or reduce cash outflow from traditional mortgage payments.”

In November, The Journal of Retirement published an article examining various ways in which a reverse mortgage can be strategically used in retirement income planning. Written by Tom Davison, partner at the financial planning firm Summit Financial Strategies, and Keith Turner, a reverse mortgage advisor with Retirement Funding Solutions, the paper explores how different strategies can suit different types of borrowers. “Today, there is an evolving understanding of reverse mortgages as a valuable financial planning tool,” Davison and Turner write. “Reverse mortgages are now seen as well suited for retirees—not only homeowners who are underfunded and turn to a reverse mortgage as a last resort, but also those who enter retirement well-funded.”

Finally, a paper published in November by Wade Pfau, a professor of retirement income at The American College of Financial Services, outlines six different strategies for using reverse mortgages. Titled “Incorporating Home Equity into a Retirement Income Strategy,” Pfau’s paper illustrates that taking out a reverse mortgage as a last resort produced the least successful outcome, while taking a reverse mortgage line of credit at the beginning of retirement, and allowing the credit line to grow before tapping it, proved to be the most successful strategy.

“Strategic use of a reverse mortgage can improve retirement outcomes,” Pfau writes. “There is great value for clients to open a reverse mortgage line of credit at the earliest possible age.”

Picking Up on the Trend

Perhaps spurred by the uptick in positive commentary from the finance world, the mainstream media seems to have changed its tune about the value of HECMs. According to NRMLA, 93 percent of news articles about reverse mortgages in 2015 were neutral or positive.

Big-time newspapers like The Wall Street Journal, USA Today and The Boston Globe published articles last year explaining how a reverse mortgage can be used in conjunction with other strategies to enhance a retirement portfolio. Web coverage was equally positive with sites like forbes.com, marketwatch.com and time.com detailing why home equity should be an important part of the overall retirement picture.

“A lot of the positive and neutral news coverage we saw in 2015 came from articles about retirement planning that included general information about how reverse mortgage loans work and the features, benefits and responsibilities to consider before applying,” says Jenny Werwa, NRMLA’s director of public relations. “What I like about these mentions is that they put reverse mortgages in the context of other financial tools and strategies that are already familiar to consumers, so that tells us that we are getting more mainstream, which is very positive.”

Mike Kent, president of Liberty Home Equity Solutions, says he thinks recent product changes have helped elevate the conversation about HECMs. “I believe the changes made to the product over the last year, such as maximum draw limitations and credit-based underwriting, and the changes made regarding non-borrowing spouses, have made the product much safer and more appealing to the general public,” Kent says, adding that new research has helped tip the scales. “These papers have been very supportive and have really helped to change the opinion of many in the retirement planning field regarding the value of a reverse mortgage in overall retirement planning.”

Sherry Apanay, chief sales officer at Finance of America Reverse, credits NRMLA’s collaboration with industry lenders for the recent surge of positive press. “I believe it’s apparent that NRMLA’s P.R. campaign has had a huge positive impact. The campaign is funded by a group of large and small lenders that are committed to the success of the reverse mortgage industry, and even more importantly, are committed to ensuring that accurate information about reverse mortgages is available so consumers can make informed decisions.”

Apanay says positive press coverage is a major element to the market’s growth. “One word: credibility,” she says. “When a trusted publication provides balanced reporting and a positive perspective on reverse mortgages, it helps.”

Teague McGrath, chief marketing officer at AAG, also stresses the value of positive coverage in the mainstream media. “These outlets are powerful when you consider their strength in the areas of potential reach and perceived credibility. Forbes has something like 45 million unique online visitors and WSJ about 20 million. The WSJ has the highest-paid subscriber base in their print news. And when you consider these are one-stop news stores for your business, financial, lifestyle/arts, technology, health and auto news, positive coverage in these outlets translates to greater exposure and increased consumer awareness.”

Sustaining the Momentum

It remains to be seen what 2016 will bring for the industry, but many are hopeful that the year will see a period of much-needed stability after so much change. Armed with a stronger product, many reverse professionals are eager to see this positive momentum continue full steam ahead.

“Public perception is definitely improving,” says Kent. “As we see the positive changes in opinion in articles written about the reverse mortgage product, public opinion follows. We are seeing a corresponding excitement about the product in the general borrowing public.”

While the latest coverage is promising, some industry veterans believe there is a lot of work that still needs to be done to turn things around.

“I believe the positive articles have made an impact, but unfortunately the negative stuff seems to stick around longer and permeate ‘belief systems,’ whether or not they are based on fact,” says Apanay. “I think we still have some work to do.”

McGrath agrees. “We need consistent, amplified positive coverage to create a significant upward shift in reverse mortgage loan volumes.”

To help advance the cause, reverse professionals can continue to spread with word among professional partners and their local media. Combatting inaccurate coverage online is another great way to advance the message. NRMLA’s Blog Squad seeks to do just that, enlisting members of the industry to comment online and correct misinformed reporting.

“It’s important to correct inaccuracies and misconceptions about reverse mortgages that appear in publications,” Werwa says. “We encourage all professionals in the industry to use the comment section in online articles to post positive messages and facts about the product, the industry and our borrowers.”

McGrath also says the industry needs to be vocal when it comes to the press. “When we see a controversial, contentious and all-round negative article, we need to respond and correct it as an industry. Likewise, we should promote articles that depict reverse mortgage loans accurately and positively as a viable financial planning tool for retirement. Borrower stories and articles promoting expert opinions can combat the negative, outdated articles and new groundbreaking studies need to be funded. The bottom line is we just need more of us in the industry to make this our mission, with consistently greater frequency.”

Apanay says reverse professionals can help propel the product forward by acting with integrity and furthering their product education. “A larger number of originators need to be more interested in serving the seniors’ need than making a sale. Don’t misunderstand me, we’re all here to make a living, but there’s a right way and a wrong way. Serving seniors is how this industry was built and with numerous changes over the past several years, I think we’ve lost some level of integrity and expertise. A commitment to education from every loan originator is key! If you don’t fully understand the math, you have no business taking a loan application. If every company, every loan originator, raises the bar on education, we can improve the product’s reputation. It’s a great product, but may not be the solution for everyone, and it’s our job to help consumers figure that out.”

Kent echoes this idea. “Educate, educate and educate. The goals of every organization should be to educate and inform the consumer about the reverse mortgage product. If we do a good job educating and informing, borrowers will be able to make the decision about whether the product is right for them.

Find out if you qualify:

Call a 12 year veteran professional, Warren Strycker, 928 345-1200. He can give you a quote.


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