Reverse mortgage lenders have been fighting an uphill battle for years. And blogs and online debates likely won’t change the overall perception (or misperception) about reverse mortgages. There will always be those who can’t help but voice their opinions about a product they simply don’t understand. Nevertheless, as an advocate for proper home equity conversion for retirement cash flow, I’m often the recipient of these negative comments. So, let’s openly discuss the so-called reverse mortgage “scam.”
The media is generally pretty quick to jump on scam coverage. And yet, the national media has actually reacted favorably toward the product reforms of the last three years, and the coverage on the topic has been positive. In addition, publications like Forbes and the Wall Street Journal have touted the prudent aspects of reverse mortgages, adding academic research from respected retirement experts like Jamie Hopkins, Wade Pfau, and others. In this respect, the financial media, and the academic community are way ahead of the game, and offer credible arguments in support of reverse mortgages.
Yet, any time such articles are published in the media touting the merits of reverse mortgages, there will be those who reply “It’s a SCAM!”, “Stay away!”, and “There is a sucker born every minute”. These comments continue to show how poorly the public understands the terms of the product, and I naturally feel compelled to reply.
These negative sentiments have persisted as a result of the unregulated products offered by financial service “professionals” since the 1960’s. The truth is, reverse mortgages have been highly-regulated and safe products since the Federal Housing Administration first insured the Home Equity Conversion Mortgage (HECM) product in 1989.
In fact, Ohio State University recently released a study showing that 83% of seniors were either “satisfied” or “very satisfied” with their decision to obtain a reverse mortgage. That’s extremely high for ANY financial product. Clearly, it is not a scam, a failed government program, or a bank trying to take a home.
One argument for the Home Equity Conversion is that it is insured by the U.S. government. Well, that’s probably a poor argument. Even though I believe the Reagan administration got this one right, we live in an age where distrust of the government is at an all-time high. So there may be more effective ways to debate its validity.
In fact, I have found that replying with a simple question is a great way to open up an honest conversation – “what about them makes you think it is a scam?”
- Is it because you believe the bank takes title of the home?
- Is it because you believe the homeowner can owe more than the value of his/her home?
- Is it because you believe these are similar to subprime loans?
- Is it because you believe they are too expensive for what they provide?
- Is it because you believe they stick the heirs with a bill upon the borrower’s death?
- Is it because you believe those who get them generally regret their decision?
None of these are beliefs are true, and yet they account for many of the objections people have about the product. Asking about their objections opens the door to education, and learning the facts from a specialist should reduce fears.
The good news is that the Financial Planning community is beginning to understand the advantages, and many now base their recommendations on research from the academic community. Top-selling author, Jane Bryant Quinn, has a very good understanding of the product and now advocates for reverse mortgages in her recent book, How to Make Your Money Last. Sadly, Dave Ramsey is still misinformed and refuses to recognize the research of his peers, as well as published papers within the Journal of Financial Planning.
We’ll continue to see comments like “worst idea ever,” “people get screwed,” and “just give the home to the bank”, and I’ll still respond. But the media, academia, and the financial planning community are moving the perception needle from “scam” to “strategic use of home equity.”
Dan Hultquist