The Birth of a New Industry Part II
Written by Michael L. Banner Friday, 13 February 2009 08:49
Recently I “Googled” Reverse Mortgage, my results, 3,230,000. Then I “Googled” social security benefits, my results, 5,650,000. I had to smile…
Social Security benefits, the accepted savior of past and present senior generations, the monthly check every senior has looked forward to and depended on for 74 years, (The Social Security Act was put into effect in 1935), and the Reverse Mortgage has accumulated 60% as many inquires in just the last few years. If this is not proof that this incredible product has firmly entrenched itself in our society then I don’t know what is…
As this staggering product continues to expand into all arenas of the financial industry, it now takes possibly its biggest step, The HECM Purchase.
The ability for a senior citizen (Lets use a 62 year old for this example) to purchase a home with approximately 50% down and be guaranteed no payments for the rest of their lives is an amazing consideration. Furthermore, there is of course no income or credit qualification. And just for the fun of it, lets add in, the
older you are the smaller the down payment you have to part with.
Is this one of those crazy no income, no asset mortgages that every newspaper and news network claims caused the downfall of Wall Street and created the real estate market to tumble into it’s worst environment in decades? No…. it’s the HECM Purchase!
There’s just no way to get around it. The reverse mortgage has powers and abilities far beyond those of normal mortgages. It is… the Super Mortgage of the mortgage world.
Let’s consider what is going on around us right now. We all have our own frame of reference. I live and do most of my business in Florida so this will be mine.
Right now real estate values have dropped 25-30% and even more in certain areas. With a record amount of foreclosures still in process I wouldn’t be surprised if values dropped even further. We have builders and developers going out of business like never before. We have projects that cease before completion. We have resales on the market for going on a year. We have Realtors and mortgage professionals dropping out of their chosen profession at record rates. I have a feeling, wherever you may be reading this today, your situation is very similar.
Look at your newspapers, look at the ads. Builders, developers and sellers of all types are offering to pay all closing costs, down payment assistance, giving away thousands in extras, free plasma TVs and cruises. There are even several builders across the nation who offered free cars with upper scale homes. Yet, the sales are few and far between. Now imagine this ad...
Watch those houses and condos sell now!!!!! The potential for this program is literally unlimited.
Those of us who have chosen to be part of the emerging reverse mortgage industry are well aware of the staggering figures of “senior equity.” Estimated at 32 trillion as the baby boomers reach retirement age, it is the largest and yet most untapped source of equity in the nation. In other words, when a senior is in the market to purchase a new home the odds are very strong that they possess a very large down payment. Whether from their savings or the sale of their present home a senior, entering the retirement segment of their lives, has planned to either pay cash for their home and have no monthly payment what so ever or, place a sizeable amount down and have a very small monthly payment.
Imagine the ad above as a billboard. Imagine it on the Long Island Expressway in New York, the Jersey Turnpike, the Florida Turnpike, Interstate 75/85 in Atlanta or the largest highways of your state.
Imagine this ad on television and on radio. Oh, the houses will sell…
But, just like everything else connected to the reverse mortgage product the implications of the HECM Purchase reach much farther. Let’s look at the profile of today’s average reverse mortgage client. They are not 62 years old. They are not just reaching retirement age, purchasing their new home and looking forward to the stage of life they have worked so hard to reach.
They are 75 years old. Their savings have been depleted much quicker than they ever anticipated. They are not living the quality of life they imagined years before. It is very possible they cannot afford the luxuries they imagined they would have at this point in their lives. In fact, it is very possible they are concerned about affording the “basics” of life we all take for granted.
How many of you have walked into a McDonald’s lately and been greeted at the counter by a senior citizen? How many of you have entered a WalMart and been offered a cart by man or woman in their 70’s?
I have so much respect for these seniors who have reentered the work force at this point in their lives. I have an equal amount of respect for these mega giants that have given our seniors the opportunity to be employed. Despite all the problems our Nation is facing right now these are just two examples of how great this Country really is.
But at the same time I feel deeply troubled that these seniors have been put in this position. What went wrong? Did they retire too early? Did they not have enough savings to retire? Were they all irresponsible spenders? I don’t think so…
How about taxes and insurance increasing at staggering rates over the last decade? How about gas prices topping $4.00 per gallon just a few months ago? How about record low returns on their savings, CD’s, annuities and other investments? How about after 2008, even if their investments were in what have always been considered the most stable of stocks, their net worth decreased significantly? Or the most common occurrence, an unexpected health crisis that depleted their savings.
How about they really didn’t do anything wrong? Maybe they just weren’t in the “earning” part of their lives but the “depleting of their savings” part of their lives during the worst economy this nation has experienced since the great depression.
So now, let’s get back to the HECM Purchase. Imagine this scenario; a couple just sold their home in New York for $400,000 and is planning to move to Florida. (Not so hard to imagine) They lived in their New York home for many years so it was free & clear.
Their plan, move to Florida, pay cash for their new home ($400,000) have no monthly payments and live their retirement years in quality. They have saved a certain amount of money. They have it invested in several different vehicles. Sounds great doesn’t it? The American Dream….
So how do we decrease the chances that in 10-15 years they won’t be strained to reenter the work force?
Now we’re back to part 1 of my article from last month. The reverse mortgage may in fact be a mortgage but it is also the strongest financial planning tool ever created for the senior segment of our society.
Let’s look at the above scenario one more time but add in one more factor. Let’s add in a trusted senior advisor, a trained professional who analyzed their reserves and made a suggestion. How about instead of paying $400,000 cash for your new home you put $200,000 down and we get you a reverse mortgage for the remaining $200,000 . You will have no payments for as long as you live in the home and you have an extra $200,000 in cash reserves that you never planned on having. And maybe, we can do something with that extra $200,000 over the next 15 years that will make sure you won’t ever be saying “would you like fries with that?”
So what would they do with the extra money? Purchase long term care insurance to ensure that an unexpected medical emergency doesn’t deplete their savings? Purchase additional life insurance, while they are young enough and healthy enough to do so, to protect the spouse that survives the longest? It’s a complicated question with many possible answers. And the answers need to come from a financial professional specifically trained in asset preservation and growth. But the end result is that reverse mortgage just enabled that senior client to greatly increase their cash reserves and have a higher quality of life for a longer period of time.
And that is a really good thing…
So, as I said last month, if you plan on being a reverse mortgage specialist. If you truly wish to enhance the quality of life of your senior clients, then make friends with a certified financial planner, a long term care insurance provider an elder care attorney or the many other trusted senior advisors in the financial planning industry. Make a difference in their lives!
Oh, what about that new law that an incredibly short sided congress past recently against cross selling financial products with the proceeds of a reverse mortgage? How does that affect my scenario above?
That is next month’s article.
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