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For most retirement is unaffordable
Reverse mortgage professionals don’t live in an economic vacuum. The same financial pressures you’re grappling with are being faced by retirees and the older homeowners you meet with. For example, our auto insurance premium skyrocketed by nearly 70% when the policy was renewed in June. No accidents, tickets, or claims- just a gut punch of another bill nearly doubling. How much has your grocery bill increased? Our expenditures are nearly 25% more than the same items were in 2021.
Two weeks ago we covered how many retirees are seeing homeowners’ insurance premiums that now rival or exceed their current or previous mortgage payments. An untenable situation for those living on a fixed income in their non-working years.
BadCredit.org recently surveyed more than 800 retired Americans aged 65 and older and the results are sobering. While 78% have retired, 59% don’t have the money to remain retired without making some serious cutbacks.
The typical expenses retirees cannot afford include unexpected emergencies (67%), travel (60%), living longer (49%), everyday expenses such as groceries and insurance (37%), and caring for their partner or family members (31%).
What is one to do in such circumstances? The survey found that 86% have reduced eating out and entertainment expenditures 81% have cut back on travel and leisure activities. And, 63% are delaying or foregoing major purchases of durable goods. This is not good news for today’s struggling restaurant, hospitality, and manufacturing industries- some who are already cutting their workforce.
Consequently, retirees increasingly feel financially unstable. 1 in 4 retirees state they had to return to the workforce to make ends meet- not surprising considering the ravages of inflation continue to decimate the purchasing power of Americans. 77% of survey respondents say they have postponed their planned retirement date due to finances by an average of five years.
Unfortunately, it’s highly unlikely older Americans can catch up on their underfunded retirement savings. All this leads to some difficult decisions such as dramatically reducing expenses, downsizing, or finding other sources of cash flow.
Tragically, many are sitting inside a potential solution to their retirement woes. Their home. For homeowners age 65 and over, the median home equity was $250,000 in 2022, up 47% from $170,000 in 2019. This means despite higher interest rates which have reduced the available funds from a reverse mortgage, the average homeowner is still house-rich and cash-poor. Yes, the typical reverse mortgage borrower of yesteryear and today yet a significant number of homeowners who could benefit by tapping into their home’s value without the burden of a required monthly mortgage payment.
Knowing this reverse mortgage professionals should reevaluate their approach with prospective borrowers asking these questions. Am I routinely determining a homeowner’s monthly income, expenses, and cash flow? Do I know what their long-term sources of income are and if they are at risk of interruption or reduction in the future? Have I uncovered any ticking financial time bombs that may blow up their retirement plans? Have analyzed and presented how a reverse mortgage could reduce their monthly obligations by eliminating mortgage and possibly credit card payments?
Without knowing their financial situation it’s nearly impossible to compare the long-term benefits of a reverse mortgage versus the cost of the loan. Those who can competently fact-find and expose potential risks may even be able to salvage a short-to-close loan if the short and long-term benefits outweigh bringing a significant sum of cash to closing.
With living expenses unlikely to fall all reverse mortgage professionals would be wise to embrace financial fact-finding to effectively sell a solution instead of a loan.
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Shannon Hicks
Editor in Chief: HECMWorld.com
As a prominent commentator and Editor in Chief at HECMWorld.com, 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: info@hecmworld.com.
1 Comment
I agree with Shannon, fact finding makes you a better mortgage adviser. Since more applicants are short to close, the need to delve deeper into the financial situation of an applicant is a very real part of what we need to do to fully serve our customers.
One RMO who Dan Hultquist brags about and understands how to get past the short to close issue works with him. George gets into the assets of an applicant and tries to understand the budget issues of applicants so that the applicant not only understands the value of cash flow from a RM but he also can help the applicant evaluate whether parting with certain assets or being pinched for a few months budget wise is worth the financial liberty and peace of mind that RMs can provide soon thereafter.
As a CPA/Tax practitioner, I knew far more about my clients than I have known about customers as a RMO (reverse mortgage originator). In fact, as a CPA there were times when I knew more about the financial situation of a client than even their own spouse. By the way never assume or presume that one spouse has all of the information on the financial matters of a family. if it is permissible by both spouses, verify the correctness and the extent of the information provided by one spouse with the other spouse. Remember getting permission to delve into financial matters is worth the time and effort in getting it.
As a SVP of a major lender, I got into many conversations with RMOs who were employed by my employer as well as those who were not. Too many RMOs promote the idea that because they had been through a borrower’s income tax return, they knew that person’s financial and tax situation. That is nonsense. As someone who worked with the same taxpayers for decades, when I allowed myself the luxury of such presumptions, I usually made mistakes. Upon hearing this kind of dribble, I usually ask about the basis in major assets, or talk in terms of built in gains and losses. I then ask about assets that they may hold that do not generate income that needs to be reported on a tax return annually, such as life insurance, collectibles, intangibles such as stock that is privately held, partnerships, trusts that are a beneficiary in, jewelry, cars, unimproved real property, child support, supplemental Medicare coverage, etc.
I have also learned not to trust in financial advisers and planners knowing the full extent of the financial transactions and holdings of their clients. I have been in situations where I am but one of several financial advisers to a client and no adviser had full knowledge of the client’s financial situation. I even had clients for whom I only did part of their income tax work with other firms doing the rest; most of the time, it was vice versa. The more you know, the more prepared you are to help your prospect/applicant through the RM journey with a closed RM at the end.
This is a period of time where learning the best strategies to help applicants find the cash needed to overcome “short to close” is vital. Without fact finding, your chances of closing a RM go down, sometimes way down.