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Guarding Your Wealth for Senior Citizens
Pulling Back the Curtain on Why Reverse Mortgages
are So Heavily Marketed
Don’t blindly fall for the reverse mortgage sales
pitch
By Jeffrey D. Voudrie, CFP
 Feb.
28, 2008 - Last week’s article on reverse mortgages generated
a very interesting response from one reader. Unfortunately, due to his
choice of vocabulary, I can’t print his response here. Suffice it to say
that this advisor doesn’t want me saying anything negative about his
chief source of revenue. This week I’d like to ‘pull back the curtain’
on the real reason reverse mortgages have become so heavily marketed and
what you need to do as a consumer to protect yourself.
(Links
to last week's article in sidebar or box below.)
In my previous article, I mentioned an elderly
couple from Florida who were considering a reverse mortgage as the
answer to their financial crisis. Over the course of a year, they
attended two different seminars presented by their bank.
This couple
was living beyond their means and saw tapping their home equity as a way
to keep making credit card payments. A reverse mortgage would have given
them access to a $38,000 line of credit, but would have cost them almost
half that much in fees.
Fortunately, they shared their plans with their
son. They were scheduled to sign the papers in a week. That’s when he
called me. He gave them my advice and took the time to help them look
at all the options available. More on their decision later; the issue I
really want to explore is why are conservative banking institutions and
mortgage brokers pushing these mortgages so heavily?
The answer is simple and obvious: the collapse of
the housing bubble. Home values are declining, credit is drying up, and
fewer homes are being bought or sold. Mortgage departments are a huge
source of revenue for a bank. Over the last 5 years, the mortgage
department has been generating huge profits. Suddenly, that has all
changed.
Enter the reverse mortgage. These have been
available for some time, but when a loan officer is so busy writing
traditional mortgages, there wasn’t a reason to focus on them. With some
spare time on their hands, mortgage brokers need to find a way to feed
their families. And from their point of view, the reverse mortgage is
the perfect product for a variety of reasons.
For one thing, reverse mortgages are government
guaranteed so the bank doesn’t have to worry about losing money in a
foreclosure. This is especially important when home values have
plummeted 10% or more. In other words, there is very little risk for the
bank.
It also helps that the fees on reverse mortgages
are amazingly high. That means that the mortgage brokers, if they are
successful pushing reverse mortgages, can continue to make money. The
bank likes it because the mortgage department continues to add to the
bottom line.
A third reason why reverse mortgages are so popular
is because the market for them is far larger than the traditional
mortgage market. Most people only buy/sell a home every 5-10 years.
Think of how many seniors are sitting in homes with huge amounts of
equity! Instead of chasing a limited market of home buyers who can
afford large down payments, mortgage brokers can tap a larger, ever
expanding senior market.
It isn’t that banks and brokers shouldn’t make
money. They should. My primary concern isn’t the bank, though. It is
you. I want you to understand the motivations of those involved. You
should research any large financial decision you make. Get all the facts
so you can make an informed decision. It’s the same when considering a
reverse mortgage.
There are certain situations when a reverse
mortgage can make sense, but I expect that there are many, many reverse
mortgages done in situations where there were better alternatives. It
was never intended as an easy way to pay for dream vacations.
What about my friend’s elderly parents? Given all
the facts, they choose credit counseling instead. They consolidated
their credit card debt while reducing their interest rates. They also
decided to sell their home and use their equity to relocate closer to
family. Besides leaving a hurricane zone, they’ll be moving to a more
temperate climate with a much lower cost of living.
Don’t blindly fall for the reverse mortgage sales
pitch. Explore all the options and make sure you’re making the choice
that is best for you. I also suggest you get your children involved as
well. You could just sell the house and move in with them…just kidding!
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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