How perspective & denial shape our industry
Recently I was reviewing some of our earlier articles here on HECMWorld. While this post is from late 2014, it still holds some timeless nuggets of wisdom on how mortgages have been received by the general public, and where the HECM fits in that historical context.
“Refusal to believe until proof is given is a rational position; denial of all outside our own limited experience is absurd.” These words ring no truer than when it comes to those who embrace or reject the federally-insured reverse mortgage. Reverse mortgage professionals encounter varying degrees of denial with their clientele, but even more insidious is the denial of those in the financial community who often dispense advice which may be harmful to their audience- more specifically attacking the validity of the reverse mortgage or dismissing it outright.
Reverse mortgages have often been the unwanted child of the mortgage industry. Frequently spoken of in hushed tones as toxic, radioactive, predatory by critics the tide is beginning to turn. A 2014 article in the New York Times entitled “Love Them or Loathe Them, Reverse Mortgages Have a Place” reveals a substantial awakening amongst the financial and banking community.
The historical reality is even traditional mortgages were not warmly received. Early mortgages prior to the Great Depression were typically short-term loans where the homeowner had to renegotiate the terms each year. Not surprisingly as home values plummeted in nearly one in ten homes were foreclosed upon. The early stigma was that mortgaging your home was a risky proposition. Even following the establishment of the Federal Housing Administration, mortgages were viewed as a perilous venture. Then let’s consider the economics of a traditional mortgage. A borrower with a 30-year mortgage will have very little of the monthly payment applied to the loan’s principal balance until after year 15. Let’s not forget a borrower could make payments almost exclusively to interest and lose the home after sinking in tens if not hundreds of thousands of dollars of their hard-earned money. So again, which is riskier; a traditional or reverse mortgage?
Fast forward to today. Retirees sitting with their financial advisor will hear the importance of asset allocation while often times they neglect to include their clients largest asset: their home. It seems odd and perhaps borderline malpractice to ignore what is typically one’s largest asset in the planning process. It would seem that even financial professionals can do harm merely by letting their biases and denial influence their recommendations. The good news is times are changing. Retirement reality is about to slap the collective public and the financial community in the face as nearly two thirds or pre-retirees have not saved enough money to live comfortably in retirement.
Alicia Munnell was quoted in the Times article of her belief in the increased acceptance of reverse mortgages saying “When I look forward, I don’t see how people are going to have enough, I really don’t. Our assessment going forward is that it’s (home equity) is a luxury we’re not going to be able to afford. There are going to need money, and this is the place where the money is.”
Denial and an outright rejection of the HECM are luxuries few can afford. The challenge is to position our industry and reverse mortgages (private or federally-insured) into the mainstream of American mortgage lending.
***UPDATE*** Bloomberg released an article entitled “Why Financial Advisors Still Hate Reverse Mortgages” which speaks to the challenge we face in reaching financial professionals.