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The Mortgage Professor Outlines Reasons for Eligible Homeowners to Act Sooner Than Later
One well recognized mortgage expert, The Mortgage Professor: Jack Guttentag. He advocates taking a reverse mortgage now rather than waiting. In his article “To Avoid Outliving your Money, Take a HECM Reverse Mortgage Before Interest Rates Rise”, the professor points out that the shortfall in retirement is not improving for most therefore eligible homeowners should consider acting today.
In his article Mr. Guttentag points out many financial planners working with clients with enough assets to place under management are often at risk. “A favorite planning tactic is to calculate and annual asset liquidation plan that is consisten with a target probability of running out 3 to 4% are the numbers I’ve seen. In other words he states that many retirement plans put in place by financial planning professionals assume this risk. Guttentag says such a risk is unacceptable to most seniors. Put simply he recommends using the HECM as an insurance policy against outliving one’s money utilizing an open yet untapped HECM line of credit.
Why does the professor recommend to act now rather than later? Simply put interest rates. This chart from his article illustrates the true cost of waiting to get a reverse mortgage until rates have increased. He then shows the advantage of securing the HECM in a low interest rate environment and the subsequent growth in the principal limit to which the line of credit is tied as…
Download a transcript of this episode here.
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3 Comments
On the business side of this type of plan of a standby reverse, how will the mortgagee be able to provide this product in bulk with the current system of purchase of products based on UPB which would probably not even cover commissions on the product.
Mr. Koehler,
You will probably hear from others beside me that the mortgagee (not TPOs or human originators) should make its income from tails, i.e., fees generated from proceeds taken from the HECM following initial funding.
Besides, is there really much likelihood that Standby Reverse Mortgages will become the overwhelming strategy for which HECMs are originated? Like the H4P, the value of the Standby Reverse Mortgage Strategy comes from the benefit of having a working model to present to financial planners with the backing of the so called Dean of CFPs, Harold Evensky.
Few seniors are sufficiently foresighted to understand the need to put in place a source for cash flow with an increasing base. Most understand the needs here and now and for the near future. Most understand costs and growing balances due, not the benefits of mitigating insufficient cash flow in the decades to come.
Until seniors begin to understand the predicament they face 10 to 20 years after normal retirement age, few will appreciate what the standby reverse mortgage strategy offers. So until then, CFPs and somewhat sophisticated financial advisors are the best source of business for this strategy since their clients have trust in their financial advice.
(The opinions expressed in this reply are not necessarily those of RMS or its affiliates.)
Unless we have no faith whatsoever in the predictive validity of HUD’s Financial Assessment parameters – i.e., we think FA will disqualify prospects who could, in fact, afford and support the property charges associated with the HECM – then I would suggest that any volume surge prior to March 2 will paint a very negative picture of how and to whom we market our product.