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Baby Boomer Equity Should Be Considered


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Baby Boomer’s Wealth is in Their Home

reverse mortgage newsThe new expanded definition of a fiduciary for financial advisers could expand the required discussion of assets to be considered in a comprehensive retirement strategy. Good news considering the fact that the baby boomer generation is largely unprepared for retirement. In last week’s episode we discussed the recent ruling by the Department of Labor expanding the definition of a fiduciary to include those who give investment advice on more common retirement accounts such as IRAs. Soon red flags could be raised for financial professionals who fail to look at home equity when advising their clients.

A recent article in Investment News by Jamie Hopkins explores the implications of the new fiduciary standard. Hopkins says “an expanded fiduciary standard for financial advisers will put pressure on a variety of areas in the retirement income-planning profession.” The expanded fiduciary standard may seem overreaching to some financial professional trade groups but it could help protect baby boomers from receiving incomplete advise which could cost them dearly financially or in lost opportunities.

Consider the three sources of wealth…


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  1. It would obviously be a major change to how FP’s work with their clients. The only real way that the industry has to reach them are those credible and experienced reverse mortgage professionals in the field. Unfortunately, a number issues come up. Lack of training for many reverse mortgage professionals, many of these RMP’s are underfunded and undercompensated in the capacity to include spreading a wider more financially sophisticated message. Educating and working closely with that critical mass of FP’s to move in a different direction will be a major investment from the industry.

    • Mr. Kalscheur,

      The good news is that the effective date will not take place for about a year. That is also the bad news.

      It is hard to believe that DOL will adopt the use of negatively amortizing debt on a principal residence as a prudent alternative to taking assets out of a plan or IRA. DOL has no authority to even monitor a principal residence, let alone the debt on it. A principal residence cannot be a plan or IRA asset.

      Right now DOL can not monitor or oversee portfolio assets and income producing real estate unless they are part of an employment benefit plan. Many plans are completely exempt from DOL oversight. Since IRAs will bring participants and beneficiaries of exempt plans under their purview for this purpose, DOL will have to walk a tightrope in regard to monitoring these individuals to avoid crossing the line of monitoring exempt plan assets.

      Will DOL ever look at debt on a principal residence as a prudent transaction to provide money to live on or to carry portfolio or non-exempt as well as exempt plan and IRA assets? It is harder yet to see DOL considering it prudent to replace fully amortized forward mortgages with negatively amortizing nonrecourse mortgages where the principal residence is the collateral, just to provide temporary cash outflow relief especially when considering the upfront costs of that transaction.

      Until there is better guidance on what is and what is not a prudent alternative, we are all just guessing. Dr. Hopkins believes DOL will reach that conclusion and I doubt it. Yet none of this is relevant until April of next year.

  2. Shannon makes an excellent summary of the approach advocated by Dr. Hopkins. Overall Dr. Hopkins covers most of the significant uses of the home that will provide cash flow or services to the homeowner.

    Whether an expanded definition of fiduciary will extend to a principal residence or even further to debt is a question open to debate. It certainly is not a given. Currently DOL has no authority to oversee either a principal residence or taking proceeds from debt.

    BUT can it be said to be responsible when a planner is evaluating client cash flow to overlook using the home as a source of additional cash flow when the situation seems to beg for it? Most likely not.

  3. Agreed, Jim. Regardless of the outcome, the debate itself seems to be making an impact. Between NRMLA education week, research from Dr Hopkins, Dr. Sacks, Dr. Pfau, and broadcasts from Shannon Hicks and others, the conversation about the HECM product is quite different than it has been in the past. Misguided and derogatory articles in the media are becoming less frequent as we begin to highlight homeowner sustainability.

    • It is not clear if views of less than 1,000 per post (most of whom are us) are all that significant but the articles that made the major professional journals in 2012 have made significant inroads into the personal financial planning academic and to a more limited extent practitioner circles.

      To a large degree the views of many real estate and personal financial columnists have not changed. Yesterday I read an article recommended in (and linked to) a Linked In post by Mr. Freddie Lambert about “Three Tips” on reverse mortgages. The article concluded with the same warning of yesteryear — because of the risks (whatever they were) reverse mortgages are loans of last resort. (Why Mr. Lambert added it to his post was a mystery as it is with so many such linked articles recommended on Linked In by members of our industry. It is almost as if because the words “reverse mortgage” are in their titles, those articles are recommended to those who read Linked In. There seems to be no filter applied to these recommendations but somehow the posters want to be seen as providing a service to the industry. Worse it is as if not even compliance have reviewed some of the posts that are in substance ads.)

      When articles were most negative, HECMs seemed to thrive as in fiscal years 2006, 2007, 2008, and 2009. Now that HECMs get less negative attention, we find ourselves in another down cycle despite most lenders claiming that the negative impact of financial assessment would be only about 5% at most when in fact it has been running significantly worse.

      The one noticeable thing that seemed to propel endorsement production about 10 years ago was the introduction of major celebrities into our marketing. There is little doubt that Mr. James Garner, Mr. Jerry Orbach, and Mr. Robert Wagner greatly changed the attitude of seniors (in combination with many seeing their home values climb).

      Many of the articles and broadcasts seem to do little more than make us feel good about ourselves and provide marketing materials. That is not to say that those things are unimportant but they generally do not bring in new loans.

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