Continuing its recent string of positive reporting on reverse mortgages, CNBC posted an article summarizing the new thinking behind Home Equity Conversion Mortgages last week — with the added caveat that the products aren’t for the “stupid.”
“You don’t have to be old, poor, and stupid to get a reverse mortgage,” the piece by CNBC reporter Andrew Osterland begins, before summarizing the reasons why the products earned such a reputation in the first place: cheesy television ads, unscrupulous brokers, and unwise borrower behavior.
“‘Free money’ has a tendency to encourage bad behavior — one reason the Federal Housing Administration requires borrowers to undergo a counseling session before entering a reverse mortgage contract,” Osterland writes. “In other words, don’t use a lump-sum payment from one of these to buy the Mercedes-Benz you’ve always wanted.”
Osterland also includes a telling quote from a financial planner, who otherwise supports the use of Home Equity Conversion Mortgages as a responsible part of a larger retirement plan.
“The late-night ads are a really bad idea for the industry,” planner and Texas Tech University professor John Salter told CNBC.
Riffs on the industry’s marketing strategies aside, the CNBC piece provides a detailed and unbiased look on the ways seniors can use reverse mortgages, including a handy pro-and-con list for those with shorter attention spans. Among the pros: the “non-recourse” feature of the loan, in which the terms can’t be changed and heirs can’t be on the hook for more money than the home is worth, protection against bearish markets, and the growth feature of the HECM line of credit.
The cons, meanwhile, represent a rational list of factors that older borrowers should consider, such as the continued payment of taxes and insurance, as well as potentially high closing costs. Osterland also cautions curious seniors to consult with multiple brokers and lenders before signing the dotted line to ensure that they get the best deal.
This report comes just a week after a separate CNBC article in which a financial planner said his colleagues would be “remiss” if they didn’t cover HECMs when discussing retirement options with seniors. As many in the reverse mortgage industry have noticed over the past few years, media coverage of the products have grown increasingly positive, with the financial-planning angle gaining significant traction.
The CNBC piece features a quote from Wade Pfau, a professor at the American College of Financial Planning and a frequent HECM cheerleader in the popular media.
“They are the one retirement tool that benefits from low interest rates,” Pfau told CNBC. “Not only is the initial principal limit higher but, if borrowers choose to set up a line of credit, the line grows throughout the life of the contract.”
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