Forward on reverse: Greenspan's concerns: The reverse mortgage solutionAtare E. Agbamu, CRMSSocial security,baby boomers,George W. Bush
When you are Federal Reserve Board Chairman, you are essentially
paid to worry, and Chairman Alan Greenspan has expressed some
concerns recently that we may ignore at great risk.
What are Chairman Greenspan's concerns, and why should we pay
attention? What are some possible solutions for these challenges?
And what is the reverse mortgage solution? In his five-page
testimony before Congress on Feb. 25, Greenspan expressed his
concerns about the rising federal red ink. Deficits are certainly
not new, and some say as the Bush economy booms, the black ink will
flow again, similar to the Clinton years. Well, Chairman Greenspan
does not think so.
Baby-boomers are aging, and therefore, America is aging. Aging
boomers will be entitled to social security and Medicare benefits
in unprecedented numbers, and in just a few short years, the first
wave of aging boomers will hit 62, three years shy of the
retirement shores. There are the ever-rising costs of modern
medicine, and the most troubling of all; the economic facts are the
ever-declining dependency ratio.
Social security is a pay-as-you-go system, meaning current
workers pay for current retirees. The dependency ratio is the
number of current workers supporting current retirees. Right now,
it is estimated at approximately 3.5 workers to one retiree. In
1935, when former President Franklin Delano Roosevelt created the
concept of social security, the dependency ratio was about 40
workers to one social security recipient, according to Ken
Dychtwald, arguably the nation's leading authority on aging issues,
in his very important 1999 book, "Age Power." What's more,
Greenspan estimates that the dependency ratio will drop to
approximately 2.25 by 2025.
As we can conclude, Greenspan's worries are legit. For years,
analysts and experts have been warning us about the adverse
economic impact of aging boomers and a shrinking labor force, as
varied solutions have already been proposed. Some time ago,
President George W. Bush proposed that the government should allow
Americans to put part of their social security dollars in the stock
market for superior returns; in the wake of the tech bust of 2000
and the economic trauma that followed, his proposal was roundly
criticized. In his testimony, Greenspan urged Congress to consider
trimming social security benefits immediately and indexing benefits
to the new "chained-weighted" Consumer Price Index (CPI), a
comparatively conservative index.
These are very important policy prescriptions, but I believe
there is a reverse mortgage solution with vast positive
implications for consumers and emerging reverse mortgage brokers
alike.
Here is my proposed solution: Congress should let working
homeowners use part of their social security cash to pay down their
mortgage debts. As their debt is decreased, they build a reverse
mortgage reserve account that they can tap to supplement
potentially-reduced social security benefits. With the vast number
of baby boomers moving into their retirement years with sizable
mortgage and home equity debts in tow, the necessity of this
proposed solution cannot be overemphasized. Let's think forward on
reverse!
Atare E. Agbamu, CRMS, is a senior mortgage consultant and
director of training at Inver Grove Heights, Minn.-based Credo
Mortgage, a member of the National Reverse Mortgage Lenders
Association. Atare's reverse mortgage interview has been webcast on
Mortgage Mag Live!, and he currently serves on the Board of Little
Brothers--Friends of the Elderly in the Twin Cities. He can be
reached by phone at (651) 389-1105 or e-mail
[email protected].
