Is 62 too young for a reverse mortgage?

Shannon Hicks April 23, 2012 7

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Younger Reverse Mortgage Borrowers

Younger Reverse Mortgage Borrowers

Too Young For A Reverse Mortgage?
“People’s behavior makes sense if you think about it in terms of their goals, needs, and motives.” That’s the case when it comes to the trend toward younger reverse mortgage borrowers. But senior advocates and others see it differently.

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7 Comments »

  1. Bob Linehan April 23, 2012 at 7:34 am - Reply

    Why would a reverse mortgage hamper a borrowers effort to relocate or sell if he/she were in a negative equity situation when it came time to sell? It is a non-recourse loan.

    • James E. Veale, CPA, MBT April 23, 2012 at 10:58 am - Reply

      Bob,

      The issue would then become a discussion about prudent expenditures. Why borrow imprudently?

      Here we go off into a discussion of the decision to get fixed rate HECMs, financial decision making, and on and on. The problem is acquisition of HECMs in proportion to the aging of the population over 62 for the last half decade has nothing to do with this issue.

      I agree with senior advocates that many younger seniors are being imprudent but that has nothing to do with obtaining a HECM; that has to do with how cash inflow is being spent. Yet HUD and counseling (especially the proponents of FIT) will not address this issue. They see little benefits from formal financial budgeting. Yet this is one of the key ways for seniors to extend their cash flow. Few FIT advocates have any formal education in finance or accounting and it shows. If one really wants to help seniors extend their cash flow, one must address rational budgeting based on their economic situation. BCU does not do that!!!

      I know some with degrees in non-finance and non-mathematical fields believe they have created a joyous product in FIT but the truth is it is little more than a facade covering up the inadequacy in counseling regarding how to rationally preserve and extend cash flow. FIT is no substitute for budgeting.

  2. James E. Veale, CPA, MBT April 23, 2012 at 10:34 am - Reply

    When Social Security began paying benefits in 1937, there were less than 54,000 beneficiaries. Today there are about 1,000 times more beneficiaries. Is that unexpected or could that have been reasonably predicted 20 years ago by the mere trends in demographics and covered employers?

    To see the average age of the youngest borrower drop in an era when the average age of those over 62 drops by the day, what surprise is there that the average of the youngest borrower would drop by 1.2 years in the last 53 months? It was January 1, 2008 when the first Boomer turned 62. We always knew there would be a dramatic change in age demographics when that occurred so why all of the outcry now?

    If the average age of the youngest borrower was increasing or even just staying the same, one would wonder if the product was appealing to those who had less control over their mental faculties. Here we see a product which reflects the change in demographics and there is alarm? Why? I strongly believe senior advocates are fishing for their latest cause.

    What will senior advocates say as the voice of leaders in the financial community become louder in confirming that using a reverse mortgage in the earlier years of retirement can extend the cash flow of retirees? No doubt they will be stuck in their mantra of fear for “younger borrowers” whether they have taken the product on the advice of competent financial planners or not.

    Social engineers are always looking for causes, rational or not. It seems the MetLife MMI/NCOA March 2012 study has stirred up exactly the wrong reaction. Demographics explain much more than economics about the trend we are now experiencing in the HECM world. MLMMI/NCOA need to carefully reconsider what they wrote.

    Let’s get it right. If the average age of a market is going down and the acquisition of the product is proportional to age, then one WOULD expect the average age of acquirers to drop (BUT not senior advocates). That is the hard truth of mathematics. It is one truth which generally escapes those who have little inclination in financial and statistical information.

    Based on the recent research, not only should CFPs and CPAs be encouraging younger seniors who own homes to consult with competent financial planners about making a reverse mortgage an option of first choice but so should social engineers. The problem is such ideas seem just beyond their wheelhouse. All we can do is to keep providing them with the correct information and hopefully one day….

  3. Linda Lewis April 25, 2012 at 9:43 pm - Reply

    A HECM borrower scenario: A 62-year-old widow, no children, with a paid-up Long Term Care policy, laid off and unable to find a job when the economy and investments took a dive.

    Upon review with a financial advisor, took out a fixed rate HECM in order to pay off the mortgage and avoid the risk of losing the home. This allows investments and the home value to recover, while focusing on a new career that will ultimately supplement her income.

  4. Tony Rovere April 30, 2012 at 6:42 am - Reply

    I completely agree that 62 is too young.

    The problem is that most people these days are living into their 80′s. With 20+ years left in their lives, the borrowers end up with the problem of being unable to relocate or sell the home later.

    However, I completely disagree that the government needs to come in and make changes to the reverse mortgage industry. If people make the choice to borrow at 62…as opposed to around age 76 in 1990…that is their business. In this case, it is up to the counselor in the counseling session to let them know of the ramifications of their decision.

  5. Rhett Wilcombe June 29, 2017 at 11:19 am - Reply

    Its impossible to say whether 62 is too young or not. It depends on the borrowers particular situation. I have done hundreds and hundreds of HECM and quite a few were only 62.

    Its most definitely NOT the counselors job to tell the borrower what they should or shouldn’t do. That is something that no one can possibly ascertain in a 30-60 minute phone conversation.

    • The_Cynic July 2, 2017 at 4:00 pm - Reply

      Rhett,

      Counseling can at least tell HECM prospects if they qualify when it comes to age, can’t it? Counseling currently provides a FIT (Financial Interview Tool) summary and that summary provides general guidelines as to whether the prospect should or should not pursue a HECM based on the FIT determinations.

      Since NCOA (National Counsel on Aging) has taken no action to modify FIT, it should be terminated. Even Dr. Stucki expressed the need for change in some crucial areas of FIT.

      We need counseling to advise when the senior appears to be incompetent as to forming prudent financial decisions. We do not need counseling to provide a unimproved computer software readout that even its initial sponsor later saw as needing substantial improvement.

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