Forward on reverse--Marketing reverse mortgages 101: It's all about educationAtare E. Agbamu, CRMSreverse mortgages, retirement financing, consumer education
Money, the ubiquitous personal finance monthly, devoted its
entire June 2003 issue to retirement finance. Among the retirement
experts quoted in the cover story was a well-regarded financial
planner in New York. In the story, he authoritatively posed this
question, "If I have a ton of money in my house, but am going to
stay there until I die, do I really have an investable asset?" Our
highly knowledgeable financial advisor answered, rhetorically, "I
don't think so."
A May 24 article in National Underwriter, titled "What Boomers
Should Know About Reverse Mortgages for Mom and Dad," contained
some presumably informed advice from financial planners to baby
boomers about reverse mortgages. In the concluding paragraph of the
article, a certified financial planner, who described her
philosophy as "Thou shalt not have debt when you retire," offered
the following well-meaning but potentially costly counsel to
boomers on medical expenses and reverse mortgages:
"And, even if money is needed for medical expenses for one
spouse ... (offers a note of caution). The surviving spouse is
often the wife, and if there is a reverse mortgage, there is the
danger she will not have a place to live, as well as the potential
for loss of social security and pension benefits. So, if a reverse
mortgage is being considered, these factors should be weighed," she
says.
In my July 2004 column, "Harvesting Cash for the Golden Years:
To HECM or to HELOC?," I related a personal experience. Peter
Forward, a pseudonym for a seasoned Twin Cities mortgage broker,
put his own mother into a traditional home equity line of credit
(HELOC) because of the "high cost" of a comparatively superior
reverse mortgage.
There is a common thread in these three examples of advice from
otherwise informed financial professionals: a lack of basic reverse
mortgage knowledge.
With an elementary grasp of reverse mortgages, our Money
magazine-quoted expert could have known that reverse mortgages
have, forever, transformed accumulated home equity into an
"investable asset" for retirees. Also, he could have figured out
that reverse mortgages have made home equity a more reliable source
of retirement cash flow for all homeowners than stock-market-linked
401(k)s and mutual funds.
With a rudimentary understanding of these unique home equity
loans, our National Underwriter-quoted guru could have understood
that a "surviving spouse" can never be forced from her home or lose
her "Social Security and pension benefits" in a reverse mortgage
transaction.
And with a fifth grade knowledge of reverse mortgages, our
veteran mortgage broker, Peter Forward, could have concluded that,
given his mother's long-term (more than five years) need for cash,
the government-insured reverse mortgage program's entry cost, high
as it may seem at first glance, was actually a small price to pay
for a 99.9 percent foreclosure-proof home equity loan without
monthly repayments. Instead, he saddled his mother, already
strapped for cash, with a home loan that would burden her with
monthly mortgage payments, cost her more in the long term (in
contrast to the federal government reverse mortgage), and expose
her to the hazards of default and foreclosure in the winter of her
life.
There are several lessons here, but I will stress just two of
them. One: Get your reverse mortgage counsel from specialists who
focus on reverse mortgages. The National Reverse Mortgage Lenders
Association (NRMLA) has a list of referable reverse mortgage
specialists across the nation. You can reach NRMLA at (202)
939-1760 or visit their Web site at www.reversemortgage.org.
Reverse mortgages are fairly complex. It takes much concentrated
study and practice (originating, processing, underwriting or
servicing) to understand them. Besides, they are always evolving.
Features are being removed or added to make them more senior
friendly. A while back, Fannie Mae removed the equity-share feature
in its reverse mortgage program, the HomeKeeper, because the market
did not like it. Today, no reverse mortgage program has this
feature.
Recently, the U.S. Department of Housing and Urban Development
has added a rate lock feature (expected rate only; expected rate is
used to decide how much equity to convert into cash) to its
FHA-insured program. Again, get your reverse mortgage advice from
credible, focused experts.
And finally, lesson number two: there are three keys to
marketing reverse mortgages ... education, education, education.
It's all about education!
Let's think forward on reverse!
The next two articles in the Marketing Reverse Mortgages 101
Series: "It's All About Educating Seniors and their Advisors and
It's All About Understanding Mature Prospects."
Atare E. Agbamu, CRMS is a reverse mortgage consultant with
Credo Mortgage in Twin Cities, Minn. Atare is widely regarded as an
emerging authority on reverse mortgages, and is frequently
consulted by financial professionals and families across America.
His reverse mortgage interviews have been webcast on MortgageMag
Live! Atare serves on the board of Little Brothers--Friends of the
Elderly in the Twin Cities and on the national board. In addition,
he is a trustee of The Little Brothers Foundation, serving on its
investment committee. He can be reached at (651) 389-1105 or e-mail
[email protected].
