Ok, enough is enough – what started off as sloppy journalism unbefitting a widely-read publication that purports to “help people take control of their financial lives” has become flat-out obnoxious as it spreads through the news channels.
I’m speaking about Peter Bennett’s poorly-reasoned, poorly-researched piece on reverse mortgage, published yesterday in The Motley Fool. The first time I was emailed a link and asked to comment I was willing to be forbearing: year’s end is historically slow in the financial markets, and doubtless the reporter was compensating by resorting to a favorite whipping boy.
Then I was sent the piece again for comment. And again. And…yet again. And pathetically, each was from a different news outlet. Apparently, fact-checkers for every major American publication are in Boca for the New Year, and left their cell phones in their hotel room.
So let me address some of most laughable, some of the most sensationalistic, and also some of the rudest and most elder-demeaning statements made by Motley Fool reporter Peter Bennett.
Bennett lists 10 reasons not to consider a reverse mortgage, and nearly each point becomes more fantastical. I have picked out his first couple points and last couple points, and analysed them sentence by sentence.
Point 1. High fees
Statement: Closing costs for a typical 30-year mortgage might run $3,000.
Reply: True. But they might not run $3,000. Closing costs are contingent upon many factors, and to pull a number from thin air is presumptuous and subject-matter ignorant.
Statement: For a reverse mortgage, they could run as much as $15,000.
Reply: True, but they might not run $15,000. There are many, many factors that determine closing costs, and in some cases closing costs could be, well, the $3,000 Bennett seems fond of.
Statement: That’s a lot of money just to access the equity in your own house.
Reply: Says who? If closing costs are this high it typically means there is a “forward” mortgage being paid off. A monthly mortgage payment is the single biggest monthly expenditure for most seniors, and a refinance that reduces their payment $70 a month just isn’t going to do the trick as far as putting them on solid financial footing. What they need is NO monthly mortgage payment, and a financial buffer. A reverse mortgage is the only main-stream refinance product available that can provide both, and that creates a solution to the cash flow problem so common during retirement.
Statement: Reverse mortgages come with more regulations than a regular mortgage so that accounts for some of the additional fees.
Reply: Baloney. Check your facts, Mr. Bennett.
Statement: Lenders also charge more because they claim they take on unique risks, in that reverse mortgages aren’t based on your income or credit score.
Reply: Again I say baloney and check your facts. Or, better yet, cite your references.
Point 2. Property taxes and homeowners insurance to pay
Statement: With a reverse mortgage, the property remains in your name.
Reply: Score one for the “B” – he got this one right.
Statement: And because the property is in your name, you are responsible for paying all property taxes.
Reply: Um, do you know how this works, Mr. Bennett? They’re already paying property taxes themselves if they have no mortgage, and if they do have a mortgage, they’re escrowing for them. They’re already paying. This is not a new concept for a homeowner aged 62 or older. AND, many older homeowners qualify for a property tax reduction or for a property tax waiver. Their reverse mortgage does not impact their eligibility for this.
Statement: The lender also requires that you continue to carry homeowners insurance.
Reply: This is also not a new concept for a homeowner. And it is really rather demeaning to suggest the mature, experienced homeowner is not aware of homeowners insurance.
I’m going to skip several points here, each of which contain line after remarkable line of trash talk. But the last two points are so bad I can’t skip them.
Point 9. Stringent repayment rules
Statement: Typically, when the last remaining borrower living in a reverse mortgage property dies, the FHA requires loan servicers to send a letter showing the balance of the loan due.
Reply: No “typically” here: the servicer is required to send a statement of the balance due.
Statement: Upon receipt, the heir or estate administrator has 30 days to declare whether the loan will be repaid or the home sold.
Reply: By federal mandate there is an automatic 6-month period to sell or refinance the home, with two additional, six-month extensions possible.
Statement: If no decision is made, the lender can initiate foreclosure proceedings.
Reply: If no decision is made on any financed home, the lender can initiate foreclosure proceedings – and no 6-month grace period is tendered in the case of a “forward” mortgage. It’s just plain rude to imply homeowners and their families are unaware that homes with financing have to be dealt with.
Point 10. Heirs get less
Statement: As every month passes, the homeowner with a reverse mortgage sees debt increase and equity home equity (sic) decrease.
Reply: This is an appalling presentation of half the story. The amount the lender has lent collects interest, which will be repaid along with the loan, once the last person on the mortgage has permanently left the home. However, if homeowners have a line of credit, that line accrues a compounding growth month over month – imagine it’s a lump of bread dough sitting on the counter, getting bigger over time. The line of credit will grow even if the home goes down in value.
Statement: That equation doesn’t benefit heirs, so if you planned on leaving your heirs a little something, it will probably be very “little.”
Reply: Want to know what really doesn’t benefit heirs, Mr. Bennett? Adult children of aging parents burning through their own retirement funds at a double pace as they struggle to help finance their elderly parent’s longevity. If that older parent, however, can be self-pay through the end of life, his/her adult children stand a much greater chance of enjoying financial survival in their own retirement.
So to the armchair critics of reverse mortgage I say this: check your facts. Do your research. And don’t sit in judgment on those striving to maintain their own independence and dignity during retirement.
If you have questions regarding reverse mortgage, or would like to receive published research on the contribution reverse mortgage can make toward financial survivability in retirement, give me a call. I always love hearing from you.
Laurie MacNaughton  is a freelance writer and Reverse Mortgage Consultant with Southern Trust Mortgage.
She can be reached at 703-477-1183 Direct or Laurie@MiddleburgReverse.com