Pfau Makes Case for Emergence of Reverse Mortgage

The prevailing reputation for reverse mortgages in our society is not healthy.  Stories of elderly abuse, high fees, and financial deceit are wrapped into the memories of many of our nations aging population.  However, over the past few years the Department of Housing and Urban Development has significantly overhauled the program by instituting measures that prevent financial abuse and reduces the fee structure on these loans.

Over the past couple years I have studied the reverse mortgage programs and given my financial planning background have recognized that the reverse mortgage could help solve many of forecasted problems with underfunded retirement plans by eliminating a mortgage payment for many Americans in retirement (studies show that today’s baby boomers are entering retirement with more debt and less retirement savings than any other age cohort in our history).

Wade Pfau, a personal financial planning expert who often contributes to the Journal of Financial Planning, wrote a piece back on November 30th for the Wall Street Journal making the case for how the reverse mortgage can help household bridge the financial gaps in retirement.  SEE HERE to read the entire piece.

If you have any interest in retirement planning then its worth a read.

Great article on end of life planning for reverse mortgages

Kiplinger Magazine posted a great piece last month entitled, “What Heirs Need to Know About Reverse Mortgages“.

HEIRS TO AN ESTATE WITH A REVERSE MORTGAGE SHOULD BE FAMILIAR WITH END OF LIFE DETAILS.
HEIRS TO AN ESTATE WITH A REVERSE MORTGAGE SHOULD BE FAMILIAR WITH END OF LIFE DETAILS.

Here are a few of the key points that I think consumers considering a reverse mortgage should take into account:

  • At the death of the last borrower, though, adult children and other nonspouse heirs must pay off the loan. They can keep the property, sell the property or turn the keys over to the lender.
  • The good news for heirs is that reverse mortgages are “nonrecourse” loans. That means if the loan amount exceeds the home’s value, the lender cannot go after the rest of the estate or the heirs’ other assets for payment.
  • When the last owner dies, the estate’s executor should contact the lender.  Loan proceeds disbursed as monthly payments will stop. If the borrower took a line of credit, that line will be closed.

If any equity exists in the home and the heirs elect to sell, the estate will receive the equity after the loan and other settlement fees are satisfied.

Alt’s to reverse mortgages

I got an email over the weekend from Terry Donahe, CFP(R), a financial planner in Lake Oswego and instructor at the University of Portland Pamplin School of Business.  He has put together THIS ARTICLE discussing alternatives to reverse mortgages.  It is a valuable read if you have thought about such a program.

Reverse Mortgages and the 2008 Housing Bill

As I’ve written about multiple times in this blog the 700-page 2008 housing bill has many differnet provisions embedded in the law.  Although I don’t do a lot of reverse mortgage business I wanted to at least provide a link to an article which summarizes how these loan products were impacted by the 2008 housing bill. 

Here is a link.