Reverse mortgages are national security assets. They are part of the solution to America’s escalating entitlements and mounting national debt. They are national debt-busters. A fresh narrative crafted around the above ideas is needed if we are to build champions for Home Equity Conversion Mortgages (HECMs) and reverse mortgages at a time of deep anxieties about our national debt.
On June 22, White House Budget Chief Peter Orszag resigned, in part, because of frustration over Congress and the Obama Administration’s inaction on our looming national debt crisis.
On June 24, Joint Chiefs of Staff Chairman Admiral Mike Mullen called U.S. national debt the biggest threat to our nation’s security. Our $14 trillion national red-ink as the biggest threat to our national security? Wait a minute: Admiral Mullen is a military man, and he’s saying that al-Qaeda, the Taliban, Iran, North Korea, and weapons of mass destruction are small potatoes compared to the threat posed by our bloated national balance sheet.
The Admiral’s words reflect concern about the military’s ability to maintain current fighting forces and to modernize weapons systems if the government doesn’t tighten its belt, including at the Pentagon.
Among the world’s developed economies, the U.S. is the only nation without a coherent deficit-fighting plan. Thanks to the financial crisis and the massive rescue, the national debt has grown even bigger. It is projected to hit 75 percent of GDP by 2015. The same day Obama’s budget guy quit, British Chancellor of the Exchequer (Treasury Chief), George Osborne, presented a tough deficit-busting budget in Parliament. Across Europe, austerity budgets and anti-austerity protests are everywhere, from the weakest to the strongest economies, from Greece to Germany.
We have been lucky so far because of the renewed strength of the dollar. The dollar’s current vitality comes from the Euro crisis which stems from the Greek debt crisis and rumors of potential national debt troubles in Spain, Portugal and other Eurozone countries.
Nervous investors have been running into the dollar, raising the prices of U.S. Treasury and Treasury-like assets (HECMs are Treasury-like because of the federal credit insurance behind them), and driving down the yield on the 10-year U.S. Treasury note to about three percent during the week beginning July 25. Some analysts believe the yield could fall to two percent soon.
The Euro-crisis-led flight to the dollar is the reason so much money is chasing HECM-reverse-mortgage-backed securities in the secondary market which, in turn, has led to mouth-watering yield-spread premiums (YSPs) and the current price war in the U.S. reverse mortgage market.
When the pendulum swings the other way and fears over U.S. national debt cause investors and speculators to attack the dollar and dollar-denominated assets, there will be some painful re-adjustments in the reverse mortgage industry. This is the context for my suggestion that reverse mortgages should be reframed as national debt-busters. They will help bring massive private resources to help Congress, the Obama and successive administrations combat the national debt.
In his memoirs, The Age of Turbulence, Alan Greenspan argued that private resources must be part of the solution to America’s entitlements-influenced fiscal problems. Home equity is private resource.
The size of U.S. home equity wealth makes it a strategic financial asset. Assuming zero home price appreciation, “free and clear” home equity controlled by older Americans aged 62 and older could reach $9 trillion by 2030, according to a June 2007 study by The Hollister Group. At a modest home appreciation of 2.3 percent, free home equity could climb to $19 trillion. And at 4.7 percent, the wealth could be a staggering $37 trillion, the study said.
In spite of the recent housing bust, which lowered long-term house price growth expectations, the Obama Administration’s new housing scorecard (www.hud.gov/scorecard) cites Federal Reserve Board data showing that total home equity has already begun to grow again.
That is why reframing reverse mortgages as the key to unlocking this massive private wealth to cushion tight public entitlements dollars and help cut our national debt should be the essence of any reverse mortgage industry communication strategy with policymakers, regulators and the media.
The 20-year-old ad hoc narrative—reverse mortgages saved grandma from certain financial ruin—is persuasive at the micro-marketing level. But at the macro-marketing level, it is now insufficient to persuade policymakers genuinely anxious about our escalating entitlements and runaway national debt.
If Admiral Mullen’s assessment (U.S. national debt is the biggest national security threat) is correct, then reverse mortgages, as the keys to prudently unlocking multi-trillion-dollar private home-equity vaults, are national security assets.
Atare E. Agbamu, CRMS is author of Think Reverse! and more than 130 articles on reverse mortgages. Since 2002, he writes the nationally distributed column, Forward on Reverse. Through his advisory, ThinkReverse LLC, Agbamu advises financial professionals, institutions, and regulators across the country. In a 2007 national report on reverse mortgages, AARP cited Agbamu’s work. He can be reached by phone at (612) 203-9434 and e-mail at
[email protected].
