Friday Round-Up: Industry Vet Teams with New Lender, RMS President Exits

Happy Friday! The weekend is only a few hours away, but before you take off, check out the top reverse mortgage news stories grabbing the attention of RMD readers this past week:
RMS President Ousted in Major Walter Leadership Shake-Up—The president of top-10 industry lender Reverse Mortgage Solutions, Inc. was recently released from the company as part of a larger leadership shake-up at parent company Walter Investment Management Corp. (NYSE: WAC), sources close to the company confirmed.
Why Financial Advisors Must Accept Reverse Mortgages in Retirement Planning—The negative perception surrounding reverse mortgages not only stunts the growth potential for these products to reach a wider consumer audience, but also deters financial planners from recommending the use of home equity for retirement income planning. A recent article published by Investment News discussed why advisors should take another look at using reverse mortgages to support responsible retirement spending.
Industry Veteran Teams With Lender to Launch New Reverse Mortgage Division—Mich.-based Huron Valley Financial is getting serious about expanding its product offerings to include reverse mortgages, so much that the lender has launched its own division to specifically focus on the origination of Home Equity Conversion Mortgages. The company also hired an industry veteran to lead this new endeavor.
HUD Audit Finds Mortgage Servicing Flaws Cost MMI Fund $2.23 Billion—A recent audit conducted by the Office of Inspector General for the Department of Housing and Urban Development revealed that the agency’s various shortcomings in ensuring mortgage servicer compliance has resulted in more than $2 billion in unnecessary costs paid by the Federal Housing Administration’s Mutual Mortgage Insurance fund. The servicing delays reviewed in the audit pertained only to forward FHA loans and HECMs.
Not Even August’s Big Gains Could Shrink the Reverse Mortgage Volume Gap—August proved to be a big month for reverse mortgage volume in both retail and wholesale channels, but the 24% single-month increase wasn’t enough to lessen the gap between this year’s endorsements and 2015’s numbers, according to recent industry data released this week.
Written by Jason Oliva

It’s Time to Change How the U.S. Thinks About Aging in Place

Millions of U.S. homeowners will want live in their homes for as long as possible, but not everyone will accept today’s antiquated concept of what it means to truly “age in place,” according to a recent study.
It’s time to change the conversation on aging in place to better address the personal preferences of today’s older homeowners and what they expect when it comes to their aging needs, says a report released this month by HomeAdvisor, a digital home services marketplace that provides homeowners with resources for their home repair, maintenance and improvement projects.
“We must change the discourse related to housing and aging,” states the report prepared by Marianne Cusato, HomeAdvisor’s housing expert and professor of the practice at the University of Notre Dame’s School of Architecture. “The dialog must be about adding features that enhance our lives today by offering a return on investment through livability, yet also happen to support the process of aging gracefully.”
One way to start on this path, the report suggests, is by rebranding the phrase “aging in place,” which HomeAdvisor denotes as an activity for old people, and begin a discussion instead about“thriving in place”—a goal for people of all ages.
The report, which is drawn from two recent HomeAdvisor surveys—one of 279 home service professionals and the second of 586 homeowners over the age of 55—arrives in the midst of America’s swelling aging population.
With already 108.7 million people, the population of Americans age 50 and older is expected to grow by another 10 million by 2020, according to AARP data cited in the HomeAdvisor report. Meanwhile, the number of adults age 85 and older is expected to more than triple by 2050.
Discussions about aging in place inevitably include the need for retrofitting the home with certain design elements meant to foster an older person’s ability to continue living in the residence.
As the inhabitant ages and their physical limitations change, installing features like grab bars and wheelchair access ramps are manageable upgrades homeowners can make. But while installing features like these can provide easy fixes to some aging in place issues, these have become elements of last resort for “old” people, HomeAdvisor says.
Today, more cutting-edge solutions such as smart in-home technology are rising to the forefront of aging in place solutions to improve safety and livability. Nearly 70% of homeowners over age 55 believe smart-home tech could help them age in place, yet fewer than 1 in 5 (19%) have actually considered installing it for such purposes. A similarly lacking adoption trend was found even for more conventional home renovation projects.
Although the majority of adults age 50+ plan to remain in their homes for as long as possible, HomeAdvisor found only 22% of homeowners have completed aging in place renovations, while nearly one-third (31%) have never even considered making at least one project.
Among those who haven’t considered any home improvement projects for their aging-related needs, the most common reasons, according to the report, are that homeowners don’t have any physical disabilities that would require such renovations (40%) and they do not consider themselves “old” enough to need them (20%).
There is also a disconnect between the level of preparedness homeowners think they have and what they are actually doing to ready themselves, and their homes, for aging in place.
Most homeowners over age 55 (67%) consider themselves to be proactive about making aging in place renovations, however, roughly 57% of home service professionals surveyed by HomeAdvisor indicated that aging in place projects account for less than 10% of the work requests they receive.
Moreover, only 20% of pros say most homeowners who contact them about aging in place projects reach out proactively, that is, before they have urgent home improvement needs.
Most professionals said the primary reasons homeowners hire them to do aging in place renovations are accessibility (50%) and safety (43%), while only 6% say homeowners hire them to make “ease of living” improvements like lowering countertops or installing low-maintenance landscaping.
When it comes to the timing of these projects, there are several compelling reasons for older homeowners to begin “thriving in place” renovation projects sooner rather than later, says HomeAdvisor’s Chief Economist Brad Hunter.
“If homeowners start early, they can spend sufficient time researching and planning to avoid wasted time and suboptimal solutions,” Hunter says in the report. “And, homeowners can protect, and possibly even raise resale value of the home by making the home more appealing to buyers in all age groups with modifications that have a broad appeal.”
Read the full HomeAdvisor report here.
Written by Jason Oliva

Record Reverse Mortgage Loan Pools Push September HMBS to $836 Million

Driven by the production of new reverse mortgages, issuers of Home Equity Conversion Mortgage-backed Securities (HMBS) created a record number 119 loan pools in September, bringing total HMBS issuance to the third-highest monthly dollar volume this year, according to the latest market commentary from New View Advisors.
Production of original new loan pools grew to $623 million in September, up from $467 million in August. Compared to the previous month, September’s new original and unseasoned pool production increased 34%.
While September’s total HMBS issuance of $836 million was 16% lower than August’s $996 million, New View Advisors notes that August’s high totals were augmented by $321 million of new pools backed by “very seasoned” loans. On a year-over-year basis, HMBS issuance in September 2016 was up 23% from September 2015’s $680 million.
Among the record 119 pools, 56 were tail pools and 63 were original pools, which are those HMBS pools backed by the first participation in a previously uncertificated HECM loan, typically a recently originated HECM.
The original pool totals for September represent a “breakout” from the typical post-Financial Assessment range of $400-$500 million per month, according to New View Advisors, which compiled its commentary data from publicly available Ginnie Mae data, as well as private sources.
Tail issuances, which strengthened to $212 million, are HMBS pools created from the uncertificated portions of HECMs that have already had their original HMBS issuance.
“September’s tail issuance was typical for HMBS tail issuance in 2016,” writes New View Advisors in its commentary. “No original pools backed by highly seasoned HECM loans were issued in September.”
Total outstanding HMBS grew to $54.9 billion in September, up about $157 million from August.
“We estimate that September HMBS was composed of approximately $170 million in negative amortization, plus the $836 million in new issuance, minus a record $850 million in payoffs,” writes New View Advisors. “Payoffs figure to continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount.”
Read the full New View Advisors commentary here.
Written by Jason Oliva

New Jobs at Reverse Mortgage Funding LLC & More—Apply Today

Another week brings a new round of reverse mortgage job opportunities for loan originators, underwriters and other professionals currently on the job hunt. 
This week’s RMD jobs board features listings from many of the industry’s top reverse mortgage lenders, including Reverse Mortgage Funding LLC, which is looking to fill positions for a reverse mortgage closer, mortgage coordinator, relationship manager and junior underwriter. 
Meanwhile, other lenders and industry service providers such as Open Mortgage, ReverseVision, Retirement Funding Solutions and Nationwide Equities Corp. are also seeking skilled personnel to grow their teams in this final stretch of 2016—but they certainly aren’t the only ones.
This week’s featured job listings:

Reverse Mortgage Closer – Reverse Mortgage Funding LLC
Mortgage Coordinator – Reverse Mortgage Funding LLC
Relationship Manager – Reverse Mortgage Funding LLC
Jr. Underwriter – Reverse Mortgage Funding LLC

Click the following opportunities that are now open to find out more. Or for a complete list of jobs, visit Reverse Mortgage Jobs Online.

Loan Closer – Open Mortgage LLC
Customer Service Representative – ReverseVision
Loan Processor – Retirement Funding Solutions
Reverse Mortgage Underwriter – Retirement Funding Solutions
Licensed Inside Sales Loan Originator – Reverse Mortgage Funding LLC 
National Sales Manager – Nationwide Equities Corp.
Reverse Mortgage Underwriter (Remote) – Nationwide Equities Corp.
Senior Sales Originator – Nationwide Equities Corp.
Senior Sales Originator (Texas) – Nationwide Equities Corp.
Regional Sales Manager – Nationwide Equities Corp.
Senior DE Underwriter – Home Point Financial
Reverse Mortgage Originator – Preferred Reverse LLC
Controller/Accounting Manager – Longbridge Financial LLC

Visit our website for additional opportunities in the reverse mortgage industry.
The best and the brightest read RMD. Want them to join your team? Post your jobs to Reverse Mortgage Jobs Online today!
Written by Jason Oliva

Not Even August’s Big Gains Could Shrink the Reverse Mortgage Volume Gap

August proved to be a big month for reverse mortgage volume in both retail and wholesale channels, but the 24% single-month increase was not enough to lessen the gap between this year’s endorsements and 2015’s numbers, according to recent industry data.
Home Equity Conversion Mortgage (HECM) endorsements totaled 32,542 loans year-to-date (YTD) through August 2016, representing a decrease of 16.8% compared to the same YTD period in 2015, when the industry tallied 39,117 units, as indicated in the latest HECM Trends report published by Reverse Market Insight this week.
Despite the 24% increase in August—the largest monthly increase seen this year—the volume gap actually widened since July, when HECM endorsements totaled 28,164 loans YTD and represented a decrease of just 15.6% from the comparable period in 2015.
“HECM endorsements were up by a surprising amount in August, as we pointed out in our HECM Lenders report last month, but pessimists and cynics alike can take comfort that year to date industry volume remains down at -16.8% as of August,” RMI writes in its HECM Trends report for August 2016.
Like July, only two of the top-10 states for volume report growth through August: Colorado and Washington. With 1,259 loans as of August 2016, Colorado strengthened its volume from the previous month, as the state is now up 32.9% compared to last year; while Washington’s 925 loans YTD represent an increase of 2% over 2015.
As for the top cities, Denver ranks third overall in terms of units with 285 loans, but trumps all other cities with a growth of 55.7% year-over-year. And like the Mile High City, much of the growth among the top-10 metros remained out west.
Top-ranked Los Angeles reports 512 loans through August, an increase of 24% over the comparable period last year; while San Diego ranked second overall for unit count with 300 HECMs and a growth of 7.5%.
While reverse mortgage industry volume may be trending lower in 2016 compared to the last two years, on the bright side, August’s big bump in production helped lift HECM endorsements past the 2014 trend line for the second time this year.
Monthly HECM volume in 2016 has lagged behind both 2015 and 2014 on a year-over-year basis. But while single-month volumes this year haven’t yet surpassed any single month from 2015, there were two occasions where 2016 endorsements exceeded those in 2014.
This occurred in April 2016, where the month’s 4,243 HECMs were roughly 2% higher than April 2014’s volume of 4,170 loans; and August 2016, which reported 4,387 loans, representing an increase of approximately 35% over August 2014’s volume of 3,256 loans.
View the full RMI report to see where other states, cities and zip codes ranked for HECM volume through August 2016.
Written by Jason Oliva

Nearly 25% of HELOC Borrowers Unprepared for Credit Line Resets

A large number of U.S. homeowners will be affected by a Home Equity Line of Credit (HELOC) reset over the next few years, and many borrowers of all ages are either unprepared or grossly unaware of the financial repercussions that await them, a recent study indicates.
Of more than 800 homeowners holding HELOCs, 43% will be affected by a reset in the coming years, according to the TD Bank HELOC Reset Measure released this week. And as HELOC borrowers reach their end of draw periods, 23% of survey respondents said they do not have financial plans in place to handle a reset.
Feeding into this unpreparedness were misconceptions borrowers hold regarding HELOC repayment. Only 19% of respondents to the TD Bank survey understand that a HELOC reset will increase their monthly payments, while 34% said they believe their monthly payment will be reduced when their HELOC resets.
Additionally, TD Bank found that one third of borrowers who opened HELOCs prior to 2011 are unaware of their draw period expiration date described in the HELOC contract—a number that rises among Baby Boomers to 42%.
Meanwhile, 53% of respondents who opened HELOCs between 2005 and 2008 don’t know the impact the reset will have on their monthly payments.
Many HELOCs allow borrowers to draw for 10 years and make interest-only payments, said Mike Kinane, senior vice president in TD Bank’s Home Equity division.
“When this draw period ends, borrowers are required to pay principal and interest, which may increase their monthly payments,” Kinane said in a press release. “It’s important that HELOC borrowers plan ahead and review their contract to determine the best course of action based on their current and future financial situations.”
However, the vast majority of respondents (60%) who do not have a plan for their HELOC resets indicated that they will not seek guidance from their lenders.
“If borrowers do not have a financial plan for the end of their draw period they should contact their lender as early as possible,” Kinane said. “A responsive lender will offer multiple ways for you to pay down your line of credit.”
But for  borrowers who are prepared to face HELOC resets, more than one-quarter of respondents said they plan to refinance their HELOC into another loan, and almost 70% of those borrowers plan to approach their current lenders.
For those borrowers considering a refi, using a HELOC for emergency funds was most important to them (35%), followed by home renovation (27%) and travel (26%).
With home values soaring during the housing boom, homeowners sought HELOCs as a means for tapping into their home equity to finance a variety of expenses such as paying for home renovations, medical bills, and even to help with debt consolidation.
In the TD Bank survey, the top three reasons homeowners opened a HELOC were to renovate a home (38%), consolidate debt (24%) and purchase a new vehicle (20%).
“HELOCs can be a smart and flexible way for consumers to make home renovations, consolidate debt, pay for education, or deal with unexpected expenses,” Kinane said. “It’s a wise idea to consult with your banker, and take advantage of the benefits that HELOCs can offer.”
Written by Jason Oliva

Why Financial Advisors Must Accept Reverse Mortgages in Retirement Planning

The negative perception surrounding reverse mortgages not only stunts the growth potential for these products to reach a wider consumer audience, but also deters financial planners from recommending the use of home equity for retirement income planning.
“In short, well-handled reverse mortgages have suffered from the bad press surrounding irresponsible reverse mortgages for too long,” writes Wade Pfau, professor of retirement income at The American College and director of retirement research at McLean Asset Management, in his new book, an excerpt of which appeared in Investment News this week.
Pfau’s book, “Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement,” hit shelves last month and has been generating considerable press in various financial planning news outlets, including Investment News and TIME Money.
Although the media begun to acknowledge the improvements that have taken place for reverse mortgages in recent years, the trend of positive coverage is still a new phenomenon.
And with so much pre-existing bias against these products, Pfau says it can be hard to view reverse mortgages objectively without a clear understanding of how the benefits exceed the costs.
“Reverse mortgages give responsible retirees the option to create liquidity from an otherwise illiquid asset, which can, in turn, potentially support a more efficient retirement income strategy,” he writes book.
At the crux of the book is the concept that retirees must support a variety of expenses if they want to enjoy a successful retirement. So while retirees will have to manage overall lifestyle spending, as well as account for unexpected contingencies and their legacy goals, they will have to look beyond traditional funding sources like Social Security and pensions.
But suppose retirees have two other assets such as an investment portfolio and home equity. The task then, according to Pfau, is to link these assets to spending obligations efficiently while also mitigating retirement risks like longevity market volatility and spending surprises that can impact the person’s plan.
“The fundamental question is this: How can these two assets work to meet spending goals while simultaneously preserving remaining assets to cover contingencies and support a legacy?” he asks.
Since spending from either asset (an investment portfolio and home equity) today means less will be available for future spending, the dilemma becomes how a retiree can best coordinate the use of these two assets to both meet spending goals and still preserve as much legacy as possible.
A reverse mortgage can be one viable option, Pfau notes, but this product is typically only considered as a last resort once the investment portfolio has been depleted.
“The research of the last few years has generally found this conventional wisdom constraining and counterproductive,” he writes. “Initiating the reverse mortgage earlier and coordinating spending from home equity throughout retirement can help meet spending goals while also providing a larger legacy.”
This, he says, is the nature of retirement income efficiency: “using assets in a way that allows for more spending and/or more legacy.”
Read more from Pfau’s book in this excerpt published by Investment News here.
Written by Jason Oliva

HUD Audit Finds Mortgage Servicing Flaws Cost MMI Fund $2.23 Billion

A recent audit conducted by the Office of Inspector General (OIG) for the Department of Housing and Urban Development (HUD) revealed that the agency’s shortcomings in ensuring mortgage servicer compliance resulted in more than $2 billion in unnecessary costs paid by the Federal Housing Administration’s Mutual Mortgage Insurance fund.
Concerned that HUD overpaid servicers’ claims for FHA insurance benefits, the OIG conducted the audit to determine whether HUD paid such claims for properties that did not foreclose or convey on time. What it founds was that HUD paid claims for an estimated 239,000 properties that fit this description.
“This condition occurred because HUD did not have adequate controls to ensure that servicers complied with Federal regulations,” the OIG wrote in its audit report.
As a result, HUD paid an estimated $141.9 million for servicers’ claims for “unreasonable and unnecessary” debenture interest that was incurred after the missed foreclosure or conveyance deadline, and an estimated $2.09 billion for servicers’ claims for unreasonable and unnecessary holding costs that were incurred after the deadline to convey.
The OIG reviewed a statistical sample of 90 claims HUD paid from nearly 250,000 with indicators that they had missed their deadlines in the past five years.
“We reviewed each loan in our sample using applicable regulations, HUD handbooks, and mortgagee letters to determine whether servicers foreclosed or conveyed on time,” the OIG wrote.
Of the 90 loans that were reviewed, 89 missed a foreclosure deadline, a conveyance deadline, or both. Projecting the sample results to the OIG’s “universe” of nearly 250,000 claims, the auditor determined that HUD paid claims for 238,978 properties that missed their foreclosure or conveyance deadlines.
“The foreclosure and conveyance process is sequential, so when a servicer misses the foreclosure deadline, it is more likely to miss the conveyance deadline as well,” the OIG wrote.
Servicers were found to have missed their deadlines to initiate foreclosure for 56 of 90 loans in the OIG’s sample. HUD regulations state that servicers must start foreclosure within 6 months from the date of default, however for these 56 loans, servicers were late initiating foreclosure by an average of 419 days, or approximately 14 months. Additionally, the longest delay was on a loan that missed this deadline by 1,862 days.
Under existing regulations, servicers are required to exercise “reasonable diligence” in prosecuting the foreclosure proceedings to completion and acquiring title to and securing the property. HUD defines “reasonable diligence” for each state through the issuance of mortgagee letters, however, this can vary from 3-30 months, depending on the state and the period covered by the various mortgagee letters, noted the OIG.
Taking this criteria into account, the OIG found that for 68 of 90 loans servicers missed their deadlines to finalize foreclosure and secure the properties in question. On average, for these 68 loans servicers were late foreclosing upon and securing the properties by 523 days, or roughly 17 months. The longest delay was on a loan that missed this deadline by 1,779 days.
As for conveyance delays, the audit found that servicers missed their deadlines to convey properties to HUD for 87 of 90 loans in the OIG sample size. Servicers are required to obtain “good and marketable title” and transfer the property to HUD within 30 days of securing the property.
But for these 87 loans, servicers were late conveying the properties to HUD by an average of 495 days, or approximately 17 months—the longest delay occurring on a loan that missed this deadline by 1,896 days.
The OIG audit underscores the need for HUD to provide greater oversight in efforts to ensure compliance among servicers. In this regard, the OIG recommends that HUD issue a change to 24 CFR (Code of Federal Regulations) Part 203, which corrects deficiencies that it believes allowed an estimated $2.23 billion in “unreasonable and unnecessary” costs to the FHA insurance fund.
“We recommend that HUD develop a strategic information technology plan to make significant operational changes to HUD’s monitoring of single-family conveyance claims to ensure that servicers comply with foreclosure and conveyance timeframes,” OIG writes. “We also recommend that HUD develop and implement controls to identify non-compliance with current regulations at 24 CFR 203.402.”
Read the full audit report here.
Written by Jason Oliva

Industry Veteran Teams With Lender to Launch New Reverse Mortgage Division

A Mich.-based mortgage banker is getting serious about expanding its product offerings to include reverse mortgages, so much that the lender has launched its own division to specifically focus on the origination of Home Equity Conversion Mortgages.
Headquartered in Ann Arbor, Mich., Huron Valley Financial (HVF) is a full-service mortgage banking firm and Fannie Mae seller and servicer. The company maintains retail, wholesale and correspondent lending channels and originates a variety of products, including conventional loans, FHA, VA, USDA-RD, jumbo loans, construction loans and reverse mortgages.
This month, the company announced the launch of its wholly-owned reverse mortgage division, 1st National Reverse Mortgage, led by industry veteran and Certified Reverse Mortgage Professional, Mike Gruley.
As the new reverse mortgage division looks to drive volume, it plans to leverage the existing retail, wholesale and correspondent lending platforms of HVF.
The advent of new HECM program changes created greater consumer protections for reverse mortgage borrowers, while financial planning research in recent years has made a case for the effective use of home equity in retirement income planning.
But while these developments have helped reverse mortgages overcome their long-held loan-of-last-resort reputation, HECM complexities and market nuances have heightened the barriers to entry for forward mortgage lenders to add these products to their service offerings.
By leveraging HVF’s existing lending platforms, 1st National Reverse Mortgages hopes to make these barriers to entry easier to traverse for non-reverse players.
“We think we can play an intermediary role to introduce smaller banks, credit units and mortgage companies to reverse mortgages—helping them with the process and offering them a more hands-on service than perhaps a big wholesale lender could,” Gruley told RMD.
“They have a long track record of success and their commitment to the reverse mortgage space is absolutely unmatched,” Gruley said. “The entire HVF team possesses the talent, skill and passion to grow a sound, reputable reverse mortgage business.”
Formerly with 1st Financial Reverse Mortgages, a division of Success Mortgage Partners, Inc. in Plymouth, Mich., Gruley served as the director of the company’s reverse lending operations. Year-to-date, Success Mortgage Partners totaled 67 HECMs through September 2016.
“Speaking on behalf of my entire executive management team, we are thrilled to have Mike Gruley leading this new division for HVF,” said Eric Bradley, president and CEO of HVF, in a press release. “Having personally known Mike for years, we all consider him one of the foremost leading experts in the reverse mortgage industry and feel fortunate to have him join our executive management team.”
Joining Gruley at 1st National Reverse Mortgage is Mike Hicks, who will serve as vice president of the company’s national retail sales. Previously, Hicks served as reverse mortgage divisional manager for Plano, Texas-based lender Willow Bend Mortgage.
“I am also tremendously excited to welcome Mike Hicks, as head of retail sales, to our team,” Gruley said. “Mike’s personal character, knowledge and leadership are all strong positives for our company.”
1st National Reverse Mortgage is actively recruiting personnel to add to its reverse mortgage team, with plans to have around 15 originators before year’s end, Gruley said.
While the launch of 1st National Reverse Mortgage is not the first foray into the reverse market for HVF—the company has originated HECMs in the past—the creation of this distinct division signals a greater focus from HVF to grow this segment of its business.
Part of the motivation stems from the demographic trends of the U.S. aging population and the need for more retirement-oriented financial tools that help people age in place.
“HVF believes this is a market they need to serve,” Gruley said. “They are genuinely committed to the benefits reverse mortgages can provide for people, and the company sees this [1st National] as a separate business that creates value to people who are in the retirement stages of their lives.”
With retail branches located throughout southeastern Michigan, HVF is licensed to lend in Michigan, California, Delaware, Florida, Georgia, Illinois, Indiana, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina, Tennessee and Texas.
Written by Jason Oliva

When Last Resort Reverse Mortgages Are the ‘Best Resort’

The idea that reverse mortgages should be used only as a last resort once all other options have been exhausted is becoming an antiquated perception. But there are some situations where using a reverse mortgage as a last resort can be the “best resort,” says one financial planner in a recent blog post.
Research published in recent years, such as those from Barry Sacks and Stephen Sacks as well as Wade Pfau, have demonstrated that by reversing the conventional wisdom on reverse mortgages, that is, using home equity early in retirement as opposed to a last resort, retirees can actually increase the spending horizon of their invested retirement portfolios.
But while researchers maintain that the early use of a reverse mortgage can provide the best strategy to supplementing a retirement income plan, there are also certain scenarios in which spending home equity as a last resort would be advantageous, writes Dirk Cotton, a fee-only financial planner, in his blog The Retirement Cafe.
One such scenario, Cotton suggests, involves avoiding risk to home ownership when it may never become necessary. This could be particularly true for retirees who wish to leave their homes to heirs, but realize they might not be able to pay for retirement without using home equity.
“By spending home equity as a last resort instead of committing it early in retirement, the latter group might find that they never need to risk their home or that they can at least minimize the amount of equity they do need to spend,” he writes. “Think of it as matching home equity to contingent late-retirement liabilities.”
It’s also important for retirees to control their balance sheet leverage, since any balance sheet that includes debt is leveraged.
“Retirees who spend home equity as a last resort after depleting their portfolio will not simultaneously hold reverse mortgage debt and an investment portfolio—they will hold them sequentially,” Cotton writes. “That doesn’t mean they won’t have leverage from other debts, or that the amount of leverage created by the reverse mortgage will be imprudent. That depends on the rest of the balance sheet. But, it does provide an opportunity to manage that leverage.”
Read more at The Retirement Cafe here.
Written by Jason Oliva