Seniors Do Have Choices to Reduce Risks

Shannon Hicks March 25, 2013 13

 

At look at risks and who really controls them

Are Reverse Mortgages Risky

Reverse Mortgages Are Risky?

It’s interesting. Many media outlets and advocacy groups have painted some reverse mortgage borrowers as increasing their risks in retirement. Before we address that issue let’s take a look at pre-retirement risks. The Pew Research Center reports that the percentage of those who will not have enough money to retire comfortable has rose from 32 to 53% from 2002 to 2011.

Most risks in retirement and for those who get a reverse mortgage arise from independent choices made by borrowers themselves NOT flaws in the product itself.. a point overlooked by many.

13 Comments »

  1. wealthone March 25, 2013 at 5:10 am - Reply

    Thanks for taking the gloves off this time Shannon. I applaud your getting to the point. It IS ignorance keeping some of these folks from reducing their risk, and if you’re not afraid to say it well neither am I too some that would be better served.

  2. CLIFF RIDDLE March 25, 2013 at 8:49 am - Reply

    VERY WELL PUT,,,,BUT,,THEY DO HAVE
    THE SAME RISK ALL THE TIME ,.,WITH OR WITH OUT A R. M.,, IF THE HOUSE IS PAID FOR YOU CAN SURELY LOSE IT BY NOT PAYING YOUR TAXES AND INSURANCE IN CASE OF FIRE,, GETTING PAST IGNORANCE IS THE BIGGEST HURDLE THE L.O. HAS

    • The_Cynic March 25, 2013 at 10:12 am - Reply

      CLIFF,

      You do not seem to get the additional risk a HECM brings when it comes to non-payment of insurance. Rather than educating with transparency you are attempting to overcome objections and by it muddle the risk.

      With no mortgage, a senior CANNOT lose title if fire insurance is not paid. On the other hand with a HECM, when fire insurance is not paid, title IS at risk.

      • Shannon Hicks March 25, 2013 at 10:39 am - Reply

        True, without a mortgage non-payment of insurance alone would not be an issue risking foreclosure for the homeowner. But what about non-payment of property taxes with or without any mortgage? There is still risk. Risks exist with or without a mortgage or a HECM for that matter. What we are discussing is where the true liability is, with the person making the decision on how they manage their finances and meeting obligations.

        • Beth Paterson, NMLS #342859 March 27, 2013 at 10:35 am - Reply

          There IS a risk if one doesn’t have insurance on their property with or without a mortgage/reverse mortgage. While the homeowner would still have title to the home without the property insurance if there is a fire or storm that destroys the home, and they didn’t have the funds to rebuild (most wouldn’t – hence why we have property insurance), they would be without their home and the equity. They would only be left with the value of the land because they couldn’t sell or take out a mortgage on the home value.

          Great post, Shannon! It is all about choices people make without looking at the risks of their choices.

          • The_Cynic March 29, 2013 at 2:24 pm -

            Beth,

            It seems you do not see the additional risk a reverse mortgage brings to the senior who owns her/his home outright or you want to obscure it. It is hard to tell which.

            If the senior fails to pay house insurance premiums, they may be in danger of losing part or all of their home due to fire but if they have a reverse mortgage and can no longer pay their fire insurance premiums, the terms of the loan result in a definite loss of title to the entire home.

            Having a reverse mortgage does create at least one additional risk to homeowners who do not have a mortgage. Rather trying to masquerade the risk it would be wiser to admit that risk exists, because it does.

            Compared to the risk of fire to a home, just looking at the default rate on HECMs, the risk of default from not paying taxes or insurance after getting a HECM is far greater. No insurance company would offer fire insurance at such reasonable rates if fire losses were as high as HECM default rates.

            The risk of not having fire insurance is a risk of loss of part, most, or almost all of the improvements which in many cases is a small percentage of the value of the home. On the other hand losing title to the home can be catastrophic since it not only involves the improvements but the land as well.

  3. Shari Crook March 25, 2013 at 9:05 am - Reply

    Well said !!!!

  4. The_Critic March 25, 2013 at 10:41 am - Reply

    There are two basic problems when it comes to what originators present when they “educate:” content and clarity. Whether we like it or not, after using the benefits of a mortgage, sometimes they can limit and even destroy our choices.

    For example, consider seniors who got their HECMs during the days of the housing bubble. The originator is a great sales person and has done dozens of refis for customers as their home values increase. When she meets with her customers she reminds them that if they run out of loan monies, well, just call her if the lending limit is up high enough and the value has increased, just get another HECM and more money may be available through a refi.

    The dozens who refied learned their lesson and about every two years they call asking about a refi. Then the bubble burst. All of a sudden, not only do these folks not have an additional source of funds but now their equity is gone and if have a medical issue keeping them out of their homes for more than a year occurs, well, there goes the home. Oh yeah, if they had a non-borrowing spouse, well, you know the story.

    My first mentor “educated” seniors. He had hundreds of originations and trained several originators to “educate” in exactly the same way. These are the highest volume reverse mortgage originators I have known. But I also heard one say who kept the same telephone number as she had in her peak volume days: “Why do all of these borrowers keep calling me to tell me about their problems? I told them back then that not only did the lending limit need to go up but so did the VALUE of their home. They just don’t seem to get it.” The truth is she did tell them just that; however, what she forgets is that she did not emphasize those points nearly as much as she emphasized the point that they could always come back and get more money.

    HECMs can be a great product and can mitigate some risks of growing older. Unfortunately it can be abused as well and what we emphasize even when it is true can lead to poor decisions by borrowers.

  5. Rebecca Bulkeley March 27, 2013 at 4:57 am - Reply

    You should be doing the TV commercials instead of Robert Wagner and Fred Thompson!

  6. RDF March 27, 2013 at 7:50 am - Reply

    Shannon great video. Truly standing up and calling it out. Thank you.

    I have had clients who had free and clear homes and did not have insurance.
    Does that make any sense? Is it legal? Not sure.

    I know that if I lived next door to someone that did not have insurance I know I would take issue. If the home was to burn down etc, this would be a big problem to those others in the community.

    If you have no insurance how do you re-build etc.? Thus reducing values in the area.

    As to refinancing the HECM, homeowners that come back asking for more monies is natural.

    You cannot ask all HECM borrowers to understand every nuance of the loan or to remember???
    It is just another kind conversation even if you know the likelihood of the refinance is remote, you still do your job and run numbers.

  7. Hal March 27, 2013 at 8:50 am - Reply

    Good Video.

    But your math is in error.

    32% to 53% is not a 20% gain.

    10% gain of 32% is 3.2%
    20% gain od 32% is 6.4%.

    The gain from 32% to 53% is an increase of 60%!!!
    This makes the message even more important.

    • Shannon Hicks March 27, 2013 at 8:52 am - Reply

      Good point. It is 60% increase and a 20% higher value than the earlier statistic. You are correct. That is sobering.

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