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An Argument for HECMs as a Last Resort


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Financial Columnist Argues When a HECM Should be a ‘Last Resort’

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Dirk Cotton

For decades the federally-insured reverse mortgage, or HECM, has been generally viewed as a ‘loan of last resort’ by both the media and the financial planning community at large. In recent years, our industry has made notable inroads with financial professionals who have begun to embrace the strategic use of a reverse mortgage in retirement income planning. However, one financial columnist says there are many situations in which the using the reverse mortgage as a last resort is the best resort.

Dirk Cotton’s blog “The Retirement Cafe” is a blog which is self-described as “retirement planning for the unwealthy”. In his most recent column “Reverse Mortgages: When the Last Resort is the Best Resort”, Cotton provides an interesting counter-argument to those who have widely embraced the strategic use of a HECM sooner than later stating, “I believe there are many retirement scenarios in which spending home equity as the last resort is the best resort”. His position stands in stark contrast to the position widely embraced within our industry as first published in the paper “Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income (2012)”, by Barry Sachs and Stephen Sachs.

Download a transcript of this episode here.

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  1. It seems to me that as an industry we want to answer questions with absolutes. The reverse is a “loan of last resort” or the reverse should “be taken out as early as possible to allow for the greatest credit line growth.” Those absolutes do a disservice to our clients. It is like asking should I wear a rain coat to the football game. People would extol the virtues of having a raincoat at the game to avoid being wet, and therefore avoid sickness… On the other side, there would be studies quoting meteorologist showing only 20% of football games get rain… The media would write blogs about the person without a raincoat who contracted some disease and died calling for legislation requiring raincoats at football games. Wearing or not wearing a raincoat depends on the situation. So, to, how you use a HECM depends on the situation and the person. For some it should be used as a last resort, for others take it out early and others not at all. The most powerful aspect of the HECM is its versatility. What is great about Dirk’s columns is that he presents all options. As an industry, we are very insecure. One financial planner says it’s a bad product and we quake in fear. Wade Phau writes a book and he is a god! We would be served well by studying learning and being able to answer concerns and questions. We need to be confident and educated originators who know how to present the options and allow the borrowers or financial planners to fit the product appropriately into their lives.

    • Bob,

      Well said.

      Our product is sufficiently complex to meet many situations. It is a shame that so many are tied down to just a few ways to bring a reverse mortgage to seniors and the financial community. Rather than selecting what is best for the consumer, let the consumer with the financial advisor decide; that is what the financial advisor is being compensated for. Bring them ideas not absolutes.

      Far too many times absolutes are the domain of simpletons. It is no different in our industry.

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