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Reverse Mortgage Malarkey – When Equity Equals Inheritance Who’s Looking Out For Who?

by Meghan Busch on November 9, 2008 · 9 comments

  

With the market’s level of volatility similar to that of a six-year-old at a candy store, it’s no real surprise that the reverse mortgage market is booming. Okay, maybe ‘booming’ is generous, but let’s say relative to the reverse mortgage market’s performance pre-market-downturn… a few more nodding heads are certainly evident.

Retirees (or should-be retirees) who’ve spent a lifetime busting their proverbial behinds to build a comfortable future are finding their retirement fund severely diminished to the tune of 30 to 40 percent. The result? Exponentially increasing difficulty to pay their mortgage, manage increasing medical bills (with decreasing coverage) afford the cost of living, or simply retire when they’d planned. Fair? Not so. Not for those who deserve better, or who need better… who need to retire for the sheer sake of health.

Reverse Mortgages Explained

And that’s where a reverse mortgage can really benefit homeowners who are 62 and older. Quick definition for those unfamiliar: Reverse mortgages are exclusively for homeowners age 62+ and allow you to eliminate your mortgage payment if you have one, or if you own your home free and clear, you can stay in you home and use your home’s equity like income… and never make another monthly mortgage payment for as long as you live in your home.

But here’s what gets me—as a product of incredibly hard-working parents. There are two major challenges among senior homeowners in need, that stop people from considering a reverse mortgage.

  1. A lack of understanding about the program itself: Benefits, qualifications, risks, fees, myths, etc. This is purely understandable. Without a good understanding of the product, the idea of tapping into your home’s equity without making a payment is so foreign and seemingly surreal that homeowners—particularly older homeowners who are necessarily cautious of fraud—are very hesitant to ‘buy in.’ Makes perfect sense.
  2. But the real mystery to me is The children of these homeowners. The children of these homeowners object to their parents pursuing a reverse mortgage, even when they’re in need of additional income. Why would this be? Because they’re afraid their parents will be taken advantage of? Not usually. Most of these programs are government-insured, with guidelines set by the Federal Housing Administration. Not to mention that there are scads of sources from trusted organizations ripe with explanations on the product. So what’s with the kids? What interest do they have in this transaction? Well, when you get a reverse mortgage, your home’s equity is paid out to you. Which means there’s less equity left in the house once the owner no longer occupies the home. And what’s another word for equity? Inheritance.

It’s this group of protestors that is purely beyond me. As far as I’m concerned, you can dislike the concept of reverse mortgages all day long for any reason… EXCEPT this one. Talking a parent out of a comfortable retirement… or a retirement at all… (funded by their own hard-earned dollars mind you) for the purpose of preserving inheritance is puzzling to say the least. Some “children” of seniors cite the fact that they were “promised” this inheritance, or they built their financial plan around one day getting it, or that this was the only way they were going to achieve ultimate comfort in their own lives… One inquiry on a public online forum asked, “How can I talk my dad out of a reverse mortgage?” then proceeded to cite personal interests.

If I can interject my own opinion here, all I can say is: “Not in this market” (followed closely by, “You kiss your mother with that mouth?”). First, there are still ways to preserve equity in your home with a reverse mortgage or preserve the money you receive from your reverse mortgage in an interest-bearing account. (A financial advisor or reverse mortgage counselor/banker would have a line on this.)

Second, it’d be nice if we could all agree on this: With the cost of living on the rise and retirement funds getting as much endangerment press as the polar bear (without the heartstrings), senior homeowners deserve the first right to their own money and they deserve to know how they can use it to their benefit without anyone’s interest but their own in mind.

Photo Credit: cogdogblog

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{ 9 comments… read them below or add one }

Pam November 10, 2008 at 7:06 am

THANK YOU! Thank you for writing about seniors children who are more concerned about their own personal gain, than their parents comfort or safety.

I have been involved with reverse mortgages for many years, and have seen many children talk their parents out of a reverse mortgage, when the parents REALLY need a reverse mortgage. It’s very sad.

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Cindy November 10, 2008 at 8:18 am

I totally disagree that the main reason retirees’ kids object is basically greed. The main reason they object is because the old addage, “If something sounds too good to be true, it is,” still holds. People don’t want to see their parents get ripped off and there are many mortgage fraud cases going on right now. They also don’t want to inherit a problem that needs cleaning up, whether the parent is still living or not, because the kid will be the one to help straighten out the rip-off if it happens. Just as parents rightfully don’t want to end up “inheriting” their kids’ bad decisions, (e.g. cosigning for a loan they know the kid can’t pay back), grown kids don’t want to encourage or be stuck with an elderly parent’s poor choice of a mortgage. This tactic of saying all the opposition is really greedy children seems self serving, for the benefit of the industry doing reverse mortgages. What better way to alienate seniors from their kids and leave them vulnerable to scams than convince them their kids ARE the ones they should be suspicious of? Disgusting.

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Meghan November 10, 2008 at 9:05 am

Hi Cindy, Thanks for your comment. As the daughter of two hardworking senior parents (one who is retired and watching her retirement savings diminish, and one who can’t fully retire for the same reasons)I couldn’t relate to you more. I’m incredibly overprotective of my parents. To your point “all the opposition is really greedy children”, you’re exactly right: It’s certainly not the only reason clients and kids of clients object to reverse mortgages (See Reason #1 which is the bulk of the opposition). I’m speaking about the trend of children who ARE actually acting in the interest of themselves and their inheritance rather than the interest of the parents who’ve raised them (See line: …You can object to reverse mortgages for any reason EXCEPT this one).
Thanks for your comment again, Cindy.

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RickM November 11, 2008 at 5:56 pm

Cindy, you’re comment is incorrect about reverse mortgages. They are unassumable loans meaning the kids can’t inherit a bad loan. The loan is automatically paid back upon the sale of the home or upon the refinancing after the death of the last remaining homeowner. So the kids end up with money, not a house to deal with unless of course they want the house for their own (then they pay back the money that mom used). If its not a good deal for the child to pay a large percentage of the value of the home, then don’t do it. But don’t blame it on the parents if they needed the money.

You’re right about fraud with these loans, there is some but its no where near as prevalent as the news would lend you to believe. They get one deal and they run it into the ground. In the past 2 years there have been over 200,000 reverse mortgages originated; if they were really as bad as some of you think, they would not be getting done. You hand onto one tiny ounce of fear and you can’t move toward a decision. Don’t deal with the little guys out there if you’re worried, deal with a larger operation that has some under their belt.

Great post Meghan!

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Bill H December 30, 2008 at 10:08 am

Meaghan,

Excellent read and very thought provoking. To add my 2 cents, I would like to speak to those who have commented on your piece and express my thoughts in General.

A reverse mortgage, in my opinion, is yet another vehicle for fleecing those who find themselves in a position of Financial strife. Even though large numbers of these contracts have been written, does not justify their existence. Whether these Contracts have been written by a large Financial institutionss or Fly by night loan companies makes no difference either. Remember, we followed our own Countries Government programs like FHA on decisions that lead us to where we are now.

Anything that sounds to good to be true is exactly right. Someone, somewhere is getting the shaft while someone, somewhere is lining their pockets. AKA…Capitalism.

Let’s also put into perspective the kind of folks that may find Reverse Mortgages attractive. They are not the elderly that may come to mind in rocking chair and shawl, but the still vibrant Baby boomer generation. The same generation by large percentage, that has done a very poor job of saving and managing there money. There backs are up against a wall, with no where to turn….usher in the wolves. It is the beginning of the end to this countries preservation of wealth, when we now have to deal with the irresponsibility’s of a generation and inherent yet another financial burden that will dwarf anything we are going through today.

Reverse Mortgage is just another vehicle on the road that will help us all get to the inevitable, but just a little bit quicker.

After all, advertisements for Reverse Mortgages, that run in the middle of day with Savvy spokesman who’s own acting careers are washed up, should be evidence and warning enough.

Thanks Meg!

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Tiffany December 30, 2008 at 10:27 am

I enjoyed reading this article. People do seem to only give themselves one or two choices and dismiss all other options.
The key, as the article points out, is to openly communicate and educate the family on ALL prospects and avenues that are available. Then an educated decision can be made, in the best interest of the senior/parent.

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Mike M March 12, 2010 at 12:12 pm

Cindy: Reverse Mortgages are assumable, so the heirs of the home-owner can keep the house, or recieve the proceeds from the sale after the mortgage is paid back. I concede that reverse mortgages can be slightly controversial and may not necessarily be the best option for an older homeowner, however there are specific regulations that require full disclosure to the senior(s) regarding all facets of reverse mortgages and the pros and cons.

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Virginia Nightengail January 23, 2011 at 11:33 pm

Excuse me, but isn’t the whole reason for working hard to have something built up that you can leave to your kids??? I am a senior and I wouldn’t dream of depriving my children of their heritage just so I could take more vacations to Vegas. How selfish can you get? If a senior is in a bad financial situation, that’s one thing and kids should help out a parent in those situations, but many reverse mortgages are written to steal home equity from hard-working families. Just stop and think about it for a minute…we’re talking about someone’s legacy here! This whole thing smacks of carpetbaggers riding into town to buy Tara for a cents on the dollar. No, this is just another way for the banks (or the government!) to get their hands on our property. Housing values are dropping and will continue to drop. If a senior is lucky enough to own his/her own home outright, hang onto it! It might be the only way you’ll survive the coming crisis.

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Thomas Sm January 17, 2012 at 11:09 am

This is disgusting. The simple fact is that if you were planning to live off an investment portfolio, and that portfolio is underperforming, a reverse mortgage does NOT make you richer. How the hell can you pay off the loan without a massive increase in income from the investments you already gave up on? That’s crazy. This is just another way for banks, which create money from thin air, to bag people’s property.

How is it simply selfish for children to talk their parents out of this due to inheritance issues? Sure, it can be motivated purely by greed, but what kind of greed is it to have property in the family and just waste it all on your own “quality of life”. People in their 50s, 60s, and 70s didn’t grow up in a USA of 20% unemployment and falling real wages. They probably got inheritance from their parents. They grew up in an America with financial regulation, without derivates and the same degree of stock market manipulation. They were given a chance, they governed the country poorly, ruined it for the rest of us, and now for their “quality of life”, they can just turn their houses over to the banks when they die?

And if you are against this, YOU are bad? Shame, shame, shame!!!!

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