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National Mortgage Professional
Oct 21, 2005

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]
Published
Oct 21, 2005
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