The much-maligned loan that may be embraced

“ If the overall unemployment rate reaches 25%, we project 10.5 million older workers will lose their jobs. For those in the lower half of the earnings distribution, 6.1 million older workers (29%) are projected to be laid off”. That is the stark prediction released by The New School’s Schwartz Center for Economic Policy Analysis.

The good news is unemployment rates are unlikely to reach such depression-era levels. The bad news? This still leaves millions of older Americans in an incredibly vulnerable economic state. Some are raiding their 401(k)s or Individual Retirement Accounts taking withdrawals far beyond their required minimum distributions (RMDs). Even younger workers under the age of 59 1/2 may take significant sums, often without penalty,  thanks to emergency rules in the CARES Act. However, these early withdrawals while a quick fix has significant long-term consequences which may only worsen a future retirement crisis. Other’s are refinancing their existing mortgages unaware of the dire consequences that lie ahead. 

In the end, older Americans are finding themselves with fewer choices to meet their monthly cash flow needs. Even as the economy restarts many part-time jobs or ‘side gigs’ that once eased monthly financial burdens no longer exist leaving retirees few choices to escape economic catastrophe.

All of which leaves us with the often maligned and misunderstood reverse mortgage looking increasingly attractive. What’s not so attractive is the increase of conventional cash-out refinances. Spurred by historically low-interest rates such loans leave older homeowners burdened with monthly payments long after the loan proceeds have been exhausted.

So what’s a reverse mortgage originator to do? Will email blasting every financial professional in your city yield loans from retirees seeking financial relief? Most likely not. While building strategic alliances with area financial professionals is certainly a commendable endeavor it fails to reach the vast majority of homeowners who are not engaged with a financial planner.

Will your neighborhood’s conventional mortgage broker inform their older clients that a HECM is a viable option or simply recommend a refinance or even a cash-out refi? The answer ringing in your head is likely the correct one.

Instead, consider these strategies* to directly appeal to older homeowners and retirees who facing some hard decisions.

  1. Host seminars that prominently include COVID-19 in the title and perhaps ‘the retirement mortgage’.
  2. Setup regular online ‘virtual seminars’ using Zoom, Skype, or other conferencing platforms. Be sure to include a registration page.
  3. Contact your local television station’s news director and offer to be interviewed on future segments related to COVID-19 and the financial choices retirees are facing today.
  4. Change your ‘pitch’ to mention the HECM not as a means to eliminate monthly payments, but as the only FHA loan with flexible payment terms that allows for some, little or no mortgage payments.
  5. Compare and contrast HELOCs to a federally-insured reverse mortgage. Many are unaware that a HELOC can be frozen by the bank at will leaving them no means to tap into their home’s equity. In addition, under most circumstances, the HECM’s line of credit increases each month.

* Check with your lender’s compliance department prior to utilizing these marketing strategies

Story links:
The New School’s Schwartz Center for Economic Policy Analysis

Cashing Out a 401(k) Due to COVID-19? Consider These Things First

Recession Increases Downward Mobility in Retirement: Middle Earners Hit From Both Sides

3 comments

James E. Veale, CPA, MBT June 9, 2020 at 8:40 am

There are many misperceptions about what is happening today. For example here is one: “…older Americans in an incredibly vulnerable economic state… are raiding their 401(k)s or Individual Retirement Accounts with little or no penalties thanks to emergency rules in the CARES Act….” To be clear the 10% early distribution penalty does not apply to distributions taken by a plan beneficiary once that plan beneficiary reaches age 59 and 1/2 years old. It is presumed that the term “older Americans” consists primarily of those over 59 and 1/2. See Internal Revenue Code (IRC) Section 72(t) for more information. On the hand, the CARES Act does allow for substantially higher plan loans than otherwise provided under the IRC which in effect defer the tax on these “distribution loans.”

As to older Americans and part-time work, several articles have been written about an even deeper dilemma and that is fear of returning to those jobs in case COVID-19 flares up again and they are exposed to it as the flare up remains initially undetected. As a result many part-time working retirees are expressing that less optimistic outlook in retirement than they had just months ago. Many describe themselves as not having the optimistic that has carried through so many life experiences UNTIL NOW.

Shannon’s marketing ideas are worthy of consideration and trial. Another seminar seems appropriate at this particular time. Try a seminar with a title or variation of it which states: “Senior homeowners, hear how you can possibly meet your cash needs right now.”

Reply
Shannon Hicks June 9, 2020 at 8:50 am

Jim- good catch. I have revised the relevant section to reflect my original intention which I convoluted: “Some are raiding their 401(k)s or Individual Retirement Accounts taking withdrawals far beyond their required minimum distributions (RMDs). Even younger workers under the age of 59 1/2 may take significant sums, often without penalty, thanks to emergency rules in the CARES Act.”

Reply
James Edwin Veale June 10, 2020 at 12:08 pm

Good edit

Reply

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