The reverse mortgage industry seems to have one main mission these days, and that’s to get the financial planning community to understand and embrace the HECM as a powerful retirement tool. Security One Lending has taken this charge seriously, assembling a task force of academic and financial professionals to examine how this message can be effectively spread.
With the goal of diminishing product misconceptions among financial planners and their regulatory overseers, this group of eight began meeting quarterly last year to share ideas and discuss obstacles.
Security One Lending’s Shelley Giordano serves as chair of the Funding Longevity Task Force. She says inaccurate press coverage and close-minded compliance officers are the group’s greatest obstacles.
“Reporters can’t describe how housing wealth can be a suitable component on the retirement matrix, and they don’t get the cost correct either,” she says. “All too often, a reporter is just replicating what he read somewhere else.” Giordano says the task force is actively working to tackle the media problem. “They’ve done outreach to reporters that has resulted in some very good articles.”
Tackling the compliance issue, however, will take some time. “We still don’t understand why compliance officers shut the conversation down,” she says, adding that most tend to call conversations about housing wealth “unsuitable” and advise their firms’ planners to avoid any such discussion. “Financial advisors have killed more of our deals than they’ve facilitated, and it’s very discouraging to our salespeople.”
Giordano says the issue is particularly unsettling because the math is undeniable. “American retirees are going to financial advisors and paying them money to help them have the best retirement they can have, and yet, in some instances, they’re not allowed to have a conversation with their planners about their housing wealth, which we know from the work that these scholars have done can greatly improve the probability that they’re going to have a more secure retirement. It’s wrong.”
Among the work that Giordano cites is research from Barry Sacks, who has published studies and spoken extensively on the smart role HECMs can play in a retirement plan. Sacks, who has a Ph.D. in physics from MIT and a J.D. in tax law from Harvard, is a strong proponent of a coordinated strategy that allows a homeowner to access their home equity in order to avoid drawing from a down portfolio.
“Reverse mortgages are particularly useful for people who are in this category called ‘mass affluence,’ which is a misleading term, but it’s a term used by financial planners,” Sacks says. “It means they’re not affluent, but there’s a mass of them, and they’ve got enough so they can come close to having a comfortable retirement, but only if it’s carefully, prudently and responsibly managed.” Sacks says this involves using a reverse mortgage in a targeted way to offset a negative sequence of returns in one’s portfolio.
A member of the task force, Sacks is outspoken about the value of the HECM. “There is a massive need for people to provide more for their retirement than they have provided. Reverse mortgages can be and should be an important part of helping people fund their longevity, as the name of the task force implies. In other words, the objective is to prevent people to the greatest extent possible from outliving their money.”
Sacks feels so strongly about this that he was inspired to act when he came across an investor alert from the Financial Industry Regulatory Authority (FINRA), which described the HECM as a “loan of last resort.” In response, he sent FINRA’s investor education department copies of his research and that of Dr. John Salter and his colleagues at Texas Tech, prompting the agency to remove the inaccurate description and issue a revised alert.
Still, Sacks says he wants FINRA to take it one step further. “What I really want them to do is change their overall view about reverse mortgages, because I believe that for the right group of people, mainly mass affluent retirees, a reverse mortgage should be judicially, prudently and responsibly used as part of an overall financial plan,” he says. “They’re scared of saying anything like that; they elevate caution over analysis.”
Giordano says having people like Sacks actively promoting the cause goes a long way for the industry. “If a mortgage company called FINRA, it would have done nothing. But for a disinterested party who is looking at the math and has the credentials, it’s a different conversation,” she says.
But she admits that there is still much more work to be done. “We have a big problem in our industry and every company has to be doing its part,” she says. “It’s so deep-rooted, this idea that your house is sacrosanct, that it’s something different than an asset and you should only use it if you absolutely have to, despite the fact that the math demonstrates again and again and again that overall wealth is improved if you can keep your portfolio invested, particularly in market downturns, and let it return to a robust value before you start drawing on it again. It’s just math.”
Sacks agrees. “A major step would be to get the financial planners and FINRA to recognize that a large swath of retirees and future retirees in the category called mass affluence should at least examine the possibility of including a reverse mortgage credit line as part of their overall financial planning,” he says. “Will this happen? I hope there’s a chance. I’m certainly working very hard for it.”