The Most-Feared Loan in America - Skip to content

The Most-Feared Loan in America


“People fear what they don’t understand and hate what they can’t conquer.”

Today I’ll share a story about one of the most feared loans in America that has been disparaged, slandered, misunderstood, and attacked by pundits, radio and TV hosts, financial planners, and mortgage professionals alike. Some fear the loan as if it were a twisted laboratory experiment that escaped only to roam freely to terrorize American homeowners.

The Origins of the Most-Feared Loan

Pretty scary, isn’t it? After all, it was UCLA professor Yung-Ping Chen who pioneered the idea of this most-feared financial product. What would an economist and gerontologist know anyway? Enough to speak before the Subcommittee on Housing for the Elderly of the Senate Special Committee on Aging in 1969. His ongoing research centered on the convergence of economics and gerontology and ways to reduce dependence on social assistance programs.

Mr. Chen wrote this in his column in Reverse Review.

“I believed that incidence of poverty among old people would be lower if poverty were measured using what might be called the “net-worth approach.” The net-worth approach calls for adding up all the assets, liquid and non-liquid.”

Chen added the challenge was how to not have to sell illiquid assets such as the home. This prompted him to develop the concept of a financial product that would convert a homeowner’s equity into a lifelong flow of spendable cash while remaining in the home.

A ghastly endeavor? Quite the contrary.

Then in 1975 Jack Guttentag of The Wharton School, also known as the Mortgage Professor, published an academic paper saying the loan was badly needed.

“It is also very different from, and more complex than, any existing financial instrument. It constitutes a challenge of the first magnitude to the imagination of the government, and to the ingenuity and adaptability of the private financial system”, said Guttentag.

Guttentag’s words were prophetic as the loan is often seen as complex which gave rise to the misconceptions and myths  that persist to this very day. Yet, the federal government and private lenders figured it out.

In 1981 Chen’s theory received the support of the White House Conference on Aging. Six years later a pilot program was launched under the Housing and Community Development Act. One year later the program was made a permanent fixture in FHA lending. The Home Equity Conversion Mortgage (HECM) was born.

The Godfather of the HECM

Dr. Chen was far from a Doctor Frankenstein. He was a visionary with the intellect and passion to help solve some of the most consequential problems of aging. Perhaps we could call him the godfather of reverse mortgages since he spurred the development of the only loan in the United States that doesn’t require monthly payments toward the loan’s principal balance or accrued interest while reaping the benefits of accumulated equity while living in the home.

However, 36 years after the HECM officially became an FHA-insured loan reverse mortgages remain shrouded in mystery and unnecessary confusion even by high-ranking real estate professionals.

An FHA Loan by Another Name Maligned

Case and point- a recent press release from the National Consumer Law Center on increasing measures to prevent the rise of elder real estate and financial fraud. In the release, the National Association of Realtors Vice President of Policy Advocacy Bryan Greene said, “NAR continues to advocate on behalf of seniors to shield them from exploitative tactics such as reverse mortgages, property investment, and foreclosure-rescue offers”. Wow. An FHA-insured mortgage makes the top of the list of supposed exploitative tactics. Since when did a government mortgage cease to be a loan and become a tactic?

And speaking of ‘tactics’ what about those traditional 30-year fixed-rate mortgages or 5/1 ARMs (Adjustable Rate Mortgages) sold to homeowners in their 70s and 80s? Are those not exploiting older homeowners and putting them at risk?  Not to mention, the infamous pick-a-pay loans sold to seniors in the years preceding the great housing crash of 2008. Fortunately, I was able to save a few homeowners from a looming payment shock and eventual foreclosure with a reverse mortgage at that time. Where’s the outcry we asked over a decade ago? Crickets.

However, In a league of their own are the Dave Ramseys and Suzie Ormans of the financial media universe whose bias against reverse mortgages has crossed the Rubicon from truth to stubborn opposition. To this day they opine on a loan they simply don’t know or understand, much to the disservice of their listeners and viewers.

In conclusion, the HECM is simply a mortgage with a very particular set of features. Features, while unparalleled that can create confusion and misunderstanding among homeowners, policymakers, and professionals alike.

As the author and industry expert Dan Hultquist so aptly put it, “It seems nobody wants a reverse mortgage, but everyone wants what the reverse mortgage does for them. Clearly there is a disconnect between the product and what people think about the product”.

Sadly, the reverse mortgage is the most-feared loan in America but it doesn’t have to be.


Shannon Hicks

Editor in Chief:
As a prominent commentator and Editor in Chief at, 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:


Leave a Comment


  1. Either the most feared, or most often dismissed loan in America. I appreciate the Dan Hultquist quote about not wanting the loan but wanting what it does. Keep writing and recording, we need your voice, wisdom and passion.

    • Thank you, Mark.

  2. One of the most entertaining aspects of YouTube is watching all the different ways that HECMs are explained by originators.

    Back in the day there was a large segment of originators who used a home as a way of explaining HECMs. A house was divided up into pieces with some pieces for future growth of interest, MIP, and on occasion, servicing fee and other set asides. While there would be exotic explanations about the growth in the line of credit at times using the house diagram, except for payouts set asides seemed to stay dormant (the same is true today with LESAs). The TALC, Total Annual Loan Costs, which is not an annual cost but a percentage rate (a much better name would have been the TALC percentage rate) has the most interesting originator explanations, the vast majority of which are wrong.

    Some originators on YouTube tell us how the unpaid balance on a HECM grows by the interest rate and then magically at the end of the year (or some other time period other than a month), it is adjusted for MIP at a 0.5% rate. It is as if they have never tried to understand or explain to a borrower how a HECM monthly statement works. When I got asked about why the HECMs I was offering increased monthly not only by interest but also MIP, I would tell the consumer that I could not offer them that version of a HECM since it did not exist but I wished I could.

    When it comes to the more technical aspects of HECMs that make them special, it is strange to hear how they are glossed over. It has been true throughout history that the more something is misunderstood (intentional or unintentional), the more feared it seems to become. Perhaps one cause for the fear surrounding HECMs is how few have seemed to have taken the time to understand them. As many originators have despaired to me: “Do we really have to understand THAT stuff to sell a mortgage?”

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