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Manifesting Their Purpose as an Elder

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Reverse Mortgages Helping Seniors Maintain Their Vitality

 Ellie Drake, a physician and the founder of BraveHeartWomen.com suggests older adults “Forget your age, be the sage!” She’s been meeting many women in their 50s, 60s and beyond who tell her they’re about to burst with an idea that is aching to be born through them, and Drake acknowledges the time has never been more ripe: seniors have gained “the experience and life lessons they require for the magnitude of their vision to come through.”

And a reverse mortgage may be precisely the vehicle to support the birth of this later life vision. Our sixties, seventies, even eighties and beyond are no longer a time to “retire and wait to die”; they are years of vibrant possibility.

 

Reverse Mortgage News
It’s not how old you are, but how you are old, that matters most.

For example: suppose a senior would like to age in place, yet lacks the social support that would make this option viable. One innovative solution might be sharing their home with a student or other young adult who can offer companionship, in addition to fulfilling some basic needs such as assistance with grocery shopping, cleaning or gardening. If the home requires modifications in order for the senior to remain there in safety and comfort, a reverse mortgage can help provide an income stream to enable these changes — as well as allow a companion to live there as a friend who helps enrich the senior’s life, rather than just a paying tenant.

Enrichment can also take the form of work or community contributions that add meaning and purpose to later life. While the majority of older people in good health don’t want to return to the workplace on a full time basis, they are often reluctant to give up the social interaction — and many would also like to put a lifetime of experience and knowledge to good use.

With these thoughts in mind, two avid fishermen put their heads and skills together and approached a sporting goods store manager, suggesting he hire the pair for one full time job, which they shared. The store personnel enjoyed having the elders there — and the fishermen already knew about all the equipment and the best fishing spots. Customers loved them, sales rose, and everyone was happy.

Creativity in all its forms is a key component to successful aging. Charlotte, a self-described “shrinking violet,” confronted her social fears following retirement in her mid-sixties and joined a community theatre. By her early seventies she was acting and singing publicly. Robert, 88, a retired government lawyer, tried his hand at photography and wound up producing an international photo series, traveling from Alaska to Tahiti.

Then there is ElderWisdomCircle.org, a virtual “Dear Abby” for the mature years: more than 600 advisors aged 60-105 offers free online guidance to anyone who writes to them.

Whatever a senior’s aspirations and expectations, a reverse mortgage can serve as an essential resource to help them remain as vital as possible, perhaps enabling them to tap an inner wellspring that has been ripening for decades, awaiting its full-blown expression later in life. As noted in a recent blog post on elder wisdom, it’s not how old you are, but how you are old, that matters most.

 

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Editor in Chief: HECMWorld.com
 
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
 
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
 
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.

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17 Comments

  1. Amara,

    As a long-time advisor on financial matters to many seniors, you and I view financial matters quite differently. My advise is based on prudence, security, and stability while you take a much more creative view of financial matters in retirement at least in this article.

    The ideas expressed in your article are not new to (and have been common in) the industry for years. However, there is one thing that needs to be addressed. You state the following: “…a reverse mortgage can help provide an income stream to enable….”

    Exactly how does a HECM “help provide an income stream?” I agree it can provide cash to achieve those goals but not income!!! Income rarely requires repayment but HECMs are based on the concept that if all else fails, the home and all related appreciation should be sufficient to pay off the amount due at HECM termination. Mortgage proceeds even when the mortgage is nonrecourse is rarely, if ever, expected to be income to the borrower at least not at the time of closing; certainly HECMs are not based on that principle.

    I understand you are not an originator and are less familiar with some of the terms used in the financial community but conveying the idea that HECM proceeds are income on a website dedicated to reverse mortgages is questionable at best.

  2. Amara,

    You just keep pouring out great articles, and this last one was really expertly written. I liked the way you wove in the story about the two men who shared the sales job. Your way of weaving the storyline is just amazing.

  3. The Cynic,

    Since the seniors who obtain a HECM will not have to repay the loan as long as they continue to live in the home, it appears to qualify as “income”. If you prefer the phrase “cash to achieve goals” I can make an effort to use this phrase in the future. All blog posts are approved and uploaded by the Reverse Focus staff, who would request a change if they found an error in the content.

    Thanks for your feedback.

  4. Hello Dick,

    Thank you so much for your ongoing support and excellent article suggestions. It is a pleasure to provide information and inspiration to LOs as appreciative as you!

    Blessings,
    Amara

  5. I think it’s interesting that at the reverse mortgage company I work for, there are former long time financial advisors and CPA’s working as loan originators and literally advising seniors on whether a reverse mortgage fits their need. It’s not for every senior, and I’m proud to work for a company that doesn’t just try to close loans, but instead is dedicated to helping seniors by advising them properly based on their needs. Thanks for the article.

  6. Also, on a side note, while income rarely requires repayment, it always requires PREpayment in the form of time and labor. I would submit that a reverse mortgage qualifies as income based on the prepayment of time and labor expended to accomplish equity. And for some seniors, (see above comment regarding needs) the final repayment of reverse mortgage income is something they do not need, nor do they care, to concern themselves with. Therefore, it is effectively income. Regardless of semantics, I don’t think it’s hard to agree that it is immensely helpful for a certain demographic.

    • Blair,

      When it comes to debt proceeds what a ridiculous and foolish “side note.” Do you even understand what a mortgage (or more fundamentally what debt) is?

      Try telling the IRS that your annual income is really nothing more than debt proceeds so they cannot tax it. With some being convicted for fraud for classifying debt proceeds as income in SEC filings, how can you make such a frivolous and irresponsible comment?

      Your comment does not help the industry in creating a professional image within the financial community or among responsible seniors. Do you tell your prospects that HECM proceeds are income?

      Ignorance is bliss until you are held accountable for what it is you say and write.

      • Cynic, while I realize the futility of addressing your comment based solely on your aptly chosen name for this venue, I will, anyway, due to my unwillingness to allow those uneducated in the apparent intricacies of English to ruin it for the rest of us.

        I very clearly said “…it is EFFECTIVELY income.”

        For a senior struggling to choose between making property tax payments and homeowners insurance payments or feed themselves and keep the heat on, it is EFFECTIVELY INCOME.

        At no point did I recommend claiming it as income for tax purposes. I do not advice my clients that it is income. I advise them that it is a LOAN from a bank with an interest rate and that they can receive said LOAN proceeds in the form of a monthly payment if they choose. I also advise them of the cons of such a loan: That it is a negative amortization, compounding interest LOAN and that when they pass, there could be zero equity left for heirs and that the loan balance could be due at an amount more than the house is worth.

        I also said “Regardless of semantics,” (big word for you, I’m sure) “I don’t think it’s hard to agree that it is immensely helpful for a CERTAIN demographic.” For those of you under-educated in English, this means that it IS NOT for everyone. Glad we could clear that up.

        I apologize for not making it more clear to you that when using the term “income” I also used the term “effectively” before it. Next time I will captitalize, underline, italicize, and post in bold terms which are so easily ignored by those who voluntarily describe themselves as “Cynic.”

        • Blair,

          How silly.

          In the comment you reference about “effectively,” you first say: “I would submit that a reverse mortgage qualifies as income…” That premise then becomes the basis for you to conclude: “Therefore, it is effectively income.” So it is because you submit that proceeds qualify as income that you conclude it is effectively income? What irrational, nonsensical logic!!!

          I have yet to see anyone pay debts with income. Have you? What one pays bills with are assets like cash or credit from a bank. Income pays absolutely nothing. It is not an asset but a label for an increase in equity. Anyone who has had a single course in bookkeeping in high school knows that difference.

          You are right HECMs are loans. They are a liability to the borrower and makes available to the borrower something called proceeds and when taken, cash. So as proceeds are drawn it produces an asset, cash, and a credit, called a liability. How in the world does it produce income?

          As James Veale has stated it is not up to us to correct the words seniors use but we should use the correct language. Just remember all seniors who understand paying bills, never have questions when I tell them a HECM can provide cash to pay their bills; they have never asked if that cash is taxable but when I have told them that a HECM provides income, they immediately ask if that income is taxable. One even told me that income does not have to be repaid.

          So you tell me, is it better telling a senior that by getting a HECM a senior will have cash available to them to pay down debt, pay expenses, or buy items they need or is it better to tell them that HECMs provide income to do all of that? I know what the SEC would say!! Mortgages only become income when some part of it is forgiven by the note holder.

  7. Blair,

    Thanks for your creative and considered response. It’s true, time and labor are definitely an expenditure! Einstein taught us that everything is energy, and a reverse mortgage certainly requires much energy to both understand and undertake.

    Really appreciate your energy in crafting such a thoughtful perspective 😉

  8. Yikes. The proceeds from the HECM is not considered income, therefore non-taxable. The HECM “preserves” other assets and/or income.
    HECM proceeds are considered “Equity”.
    “All payments received from a reverse mortgage represent the conversion of a resource from equity in home property to cash
    and are not considered income.”

  9. Hi Robin,

    This is a really helpful response. So it would be most correct to refer to a HECM as an “equity stream”. Thank you!

  10. Amara, Thank you. Yes, that would be another coinage. No pun intended.

  11. Ms. Faison and Ms. Rose,

    Since my name is being brought up in this thread, I feel compelled to write both of you. A HECM does not produce a stream of equity. If it does then that means equity is increased to the borrower, not decreased.

    A HECM is a mortgage. HECMs do not preserve other assets or income. HECMs provide cash to pay things, such as debt, assets, etc. So one could easily say HECMs produce a stream of cash.

    Ms. Faison, the quotation you cite has no reference so I have no idea who made such a questionable and misleading statement. A conversion of a resource in exchange for cash is indeed a taxable transaction. For example, if I sell a 50% interest in my home for cash, that transaction is a conversion of some of the LEGAL equity in my home for cash and is indeed taxable.

    Ms. Faison, when most of my NMLS peers discuss equity they are not discussing legal equity but rather the label used to describe the difference between the value of the collateral and the liens associated with it. Legal equity is much different and other than through the terms of the mortgage stays unchanged. That is why we can tell seniors that their ownership in their homes remains unchanged when they get a HECM because indeed legal equity does not change even though the difference between the value of the collateral and the amount of the liens may.

    The HECMs we provide today do not convert any asset including legal equity in the home. Yet in the past, there was a feature available with HECMs which did. It was called “shared appreciation rights.” It converted a portion of the legal right to all appreciation in the home into cash. That is why FHA insured reverse mortgages were first named “Home Equity Conversion Mortgages.”

    Rather than trying to change the legal, economic, and financial concepts related to HECMs, let us tell seniors in very simple terms what it is. The rest is sales puff and smoke and mirrors. Too many times these “creative” ideas seem like they were hatched in a slimy “boiler room.”

    The education of seniors about HECMs is simple, if we present the facts clearly without significant flash, fanfare, or creative ideas. I know this goes against the tide but that is what education is all about.

  12. Mr. Veale,

    Your comments are always enlightening. However, after reviewing this thread several times I cannot find where either Robin Faison or I referenced you. Indeed, you are not mentioned anywhere on this blog post page, except and until your own comment.

  13. Ms. Rose,

    Please note that my name was brought up by The_Cynic in a reply to Mr. Hodgdon before my post to both of you. But you are correct that neither you nor Ms. Faison brought it up. As I stated: “Since my name is being brought up in this thread, I feel compelled to write….”

    It is interesting that so many refer to cash as “income” since cash is an asset and income is a temporary equity account in accounting terminology. Income generally provides cash to the earner.

    As I have stated in several places, seniors are rarely confused when one states that HECMs provide cash. Too many times they are confused when originators state that HECM proceeds are income. So why even go the way of the very confusing idea of income. Why not just be straight with borrowers?

    Simply put HECM proceeds are cash provided through a very friendly senior oriented mortgage. Its benefits exceed most other mortgages since, for example, it requires no monthly payments of principal or interest but neither does it prohibit any size repayment in any period desired while the HECM is active. It also has a Line of Credit which to the extent unused can grow. There are no credit dings to the borrower for late monthly payments since there are none required and when considering risk to the lender (note holder), its costs are reasonable.

    HECMs are a great product. I just see no real benefit to exaggerating what they do.

  14. The opinions I expressed in this thread are not necessarily those of RMS or its affiliates.


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