Reverse Mortgage Alternatives in the Real World

Over the weekend I was reading an article by a writer from the Wall Street Journal, Kelly Greene, about reverse mortgages and possible alternatives. Ms. Greene's premise of her article was that it is much less expensive for families with at least one adult child with a nest egg to fund their own private "reverse mortgage" for their parents.

And while Ms. Greene does have some of her facts about reverse mortgages correct, she does miss with one HUGE misconception that has been floating around for as long as reverse mortgages have been in existence as a federally-insured loan when she says that "And in the end, the lender gets the home, an asset many parents would prefer to leave to their children".

While Ms. Greene is absolutely wrong on this statement (the reverse mortgage is just like any other loan, the house is passed to the borrowers' heirs and they must repay all outstanding balances from the sale of the asset, from a refinance of the loan, or from other funds at their disposal), she is correct in several other statements. But sadly, she doesn't expand enough on them to really let the reader understand how reasonable this option is for most people in today's real world. We would definitely agree with the author that any borrowers who do not need a reverse mortgage or have other means available to them so that they can meet their living expenses and do not have to pay the fees associated with a federally-insured mortgage should definitely explore those alternatives first. However, there are several things that the author either does not mention or mentions very briefly in a two sentence paragraph.

Firstly, there are the monetary considerations. The people we see applying for reverse mortgages are most often in a completely different situation than that Ms. Greene writes about. We see very few circumstances where the senior homeowners are trying not to inconvenience their wealthy or well-off children, but rather many more times where the children are experiencing financial difficulties of their own. Quite often the parents are back to helping children and grandchildren.

I cannot remember the last time I helped a borrower with a reverse mortgage in which having a well-off child fund their own reverse mortgage was even a viable option.Ms. Greene recognizes that there could also be a potential for a blow up in a family funded reverse mortgage as well. She acknowledges the risks of a child losing a job and not being able to continue payments or home values falling, but let's really look at this. With the volatility in not only the job markets but also the stock market and other liquid assets, children of senior homeowners in many cases would have to have hundreds of thousands of dollars available to retire existing debt.

Many reverse mortgages today are used to first retire existing debt so that the senior homeowners can live without the strain of a monthly mortgage payment. If their funds were tied up in their parents' reverse and the children needed the funds for any financial emergencies of their own, it could seriously inhibit their ability to obtain cash. She also touched on falling home values.

The reverse mortgage is a non-recourse debt. This means that if values do fall and the property cannot be sold for what is owed on it, then under a government-insured Home Equity Conversion Mortgage (HECM or "Heck-um"), the borrower selling the home or their heirs are not liable for any deficiency balances on the home. With the huge drops in value we have seen over the past several years, many borrowers actually received more money than their homes are currently worth and a family funded reverse mortgage would have lost far more than the start up costs on some of these federally-insured loans.

I will not even try to delve into family issues when one child is appearing to buy mom and dad's house out from under the other children. I think Ms. Greene is correct when she says that there should be a recorded legal agreement to keep everything beyond reproach, but I don't know what that will do for family ties later. And as I stated early on, if the family is well enough off to help mom and dad so that they don't have to consider a reverse mortgage, then I'm all for anything that saves the homeowner money. But I did feel as though I had to set the record straight. Ms. Greene has some excellent credentials and knows that the homeowner is not giving their home to the bank for their reverse mortgage.

It's just a shame that journalists often stoop to misstatements like this to try to make a position more plausible. By all means, if you and your family have the resources to fund your own retirements without the use of a reverse mortgage (or any other type of financing for that matter), then I applaud your good fortune. However, I would ask Ms. Greene and other journalists like her to present alternatives to those who can use them without misrepresenting the facts to those who may not be so lucky.

They need to be more mindful to those who really need the help but are afraid to explore the alternatives because they read an article in a respected source such as the Wall Street Journal which mistakenly told them with a slip of the pen that ""And in the end, the lender gets the home, an asset many parents would prefer to leave to their children".

Unfortunately, this statement is just wrong.

Reverse Mortgage Alternatives in the Real World by Michael Branson CEO - All Reverse Mortgage Company >Click Here to receive a detailed analysis We will return a complete, no-obligation personal analysis including a good faith estimate which includes all fees / costs associated. Rather Talk to an Expert?...Toll Free (888) 801-2762