Pairing an Annuity with a Reverse Mortgage

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Annuities & Reverse Mortgages:
The Good, the Bad and the Ugly

Annuities and reverse mortgages don’t go together! If you’re a seasoned reverse mortgage professional- that concept has been chiseled into your mind like the 10 commandments Moses carried down from Mt. Sinai. After all, we’ve been warned against what regulators call cross-selling. That’s where a commission-motivated insurance agent invests a reverse mortgage borrower’s loan proceeds into an annuity contract. This practice is strictly verboten and in fact, is directly spelled out in the 2008 HERA (Housing & Economic Recovery Act) legislation which prohibits a lender from requiring a borrower to purchase an annuity as a condition of obtaining the loan.

Jack Guttentag, also known as The Mortgage Professor turns the conventional wisdom of annuities and reverse mortgages on its head in his recent column “Why Annuities Are Underutilized (And What Could Be Done About It)”. He argues that annuities should be part of most retiree’s financial plans yet those who stand to benefit the most rarely use them. Read More

Economist Claims Annuities ‘Safer” than HECM

ePath 100K RM leads

Syndicated Columnist Recommends Cross-Selling Strategy…with a Twist


reverse mortgage newsJust as the reverse mortgage suffered much negative media coverage and hand-wringing from financial pundits, so have annuities. If an annuity sounds familiar to reverse mortgage professionals, it should. Annuities were the financial product most often associated with what many considered a questionable and unethical practice- the cross-selling of financial products investing the proceeds into annuities.Surprisingly, one columnist and economist recommends taking out a traditional mortgage and investing in an annuity.

An annuity is a contractual agreement between an investor and typically an insurance company. A lump sum is invested and then can be ‘annuitized’ or paid out over a period of time, deferred until a later date for full withdrawal, or rolled over into another investment. There are four basic types: immediate, fixed, indexed and variable. An immediate annuity converts a lump sum premium investment into an immediate stream of payments over a specified period of time, usually over one’s lifetime. This is often referred to as a Single Premium Immediate Annuity (SPIA). A fixed annuity guarantees a declared interest rate. The indexed annuity is a variant of the fixed but credits interest based on the percentage growth tied to marked indices such as the S&P500 or the Dow Jones Industrial Average (DJIA). Variable annuities invest funds into mutual funds or other market investments that can be subject to loss of principle in many instances.

Syndicated columnist Laurence Kotlikoff opens his column with the statement, “HUD fails to mention a clear-cut and, to me, far safer way, at least for older people, to tap home equity.” But is Kotlikoff’s ‘way’ truly a safer option? Let’s examine his suggestion more closely.

“HUD fails to mention a clear-cut and, to me, far safer way, at least for older people, to tap home equity. This entails taking out a long-term fixed mortgage on your home and using the proceeds to purchase a fixed annuity payment.