Shouldn’t Reverse Mortgages Be More In Demand?

I used to know people who actually retired. Not retired and worked, but literally retired.

They didn’t “retire” in the sense of living smaller, instead they retired on a monthly income which was adequate for their needs, including the “need” to travel, eat out and help their children.

How did it happen?

First, they received Social Security.

Second, they had paid off their mortgage over time so housing costs were lower.

Third, they had various investments, things such as stocks, bonds and certificates of deposit.

Fourth, they had Medicare with supplemental insurance.

Today the “needs” are largely the same but the economy has changed.

Income

A funny thing happened to income during the past decade. While prices for just about everything have risen, wages have stalled.

If you made $51,296 in 1999 — the typical household income that year — then in 2009 you would probably earn $50,303. That’s right. Income has been stilled and stagnant, which means it’s been difficult to pay off bills, save or do much else.

“Where have all the economic gains gone?” wonders Robert Reich, former Labor Secretary under President Clinton. “Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.” (See: How to End the Great Recession, The New York Times, September 2, 2010)

Most people — by definition — are not among the nation’s richest families. For the average household the thought of retirement is getting more and more distant. And certainly notions about privatizing Social Security and reducing or getting rid of Medicare don’t help.

Reverse Mortgages

All of this raises a question: Where do reverse mortgages fit in?

As of July, the FHA had insured 66,502 home equity conversion mortgages (HECMs) so far during fiscal 2010. That number is down 31 percent from last year.

You look at the reverse mortgage numbers and wonder: Why should HECM figures be down? After all, the value and utility of such financing is plain given what’s happened to typical wages.

If anything, one would expect reverse mortgage demand to rise.

The view here, for what it’s worth, is purely observational. With home prices down from the highs of April 2007 in virtually all markets, the ability to borrow against equity has been reduced. This financial fact-of-life simply disgusts large numbers of people who “see” the value of their homes in the form of acquisition costs if bought recently or in terms of the high valuations of a few years ago.

The oddity here is that for many seniors a reverse mortgage — properly purchased with the help of an attorney who specializes in elder law or a fee-only financial counselor — can make sense. For instance, a reverse mortgage might be used to pay off an existing mortgage. That would end monthly costs for principal and interest and significantly help many household budgets.

Is a reverse mortgage right for you? Speak with lenders who offer such financing as well your financial professionals for more information and specifics.

This entry was posted on Wednesday, September 8th, 2010 at 12:15 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.