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Reverse Mortgages Can Be Part of Overall Financial Plan
By
Michael A. Piekarz
Staff Writer
As
the boomer generation enters retirement, many seniors, hard pressed
by the economic downturn, are considering reverse mortgages, leading
senior financial experts to recommend increased education for consumers
to allow them to integrate their home equity into their overall financial
strategy.
Today’s economic environment has increased the pressure on older homeowners
to find new sources of retirement income and to stretch their savings. Increasingly,
they are starting to tap into the value of their homes using home-equity loans
or reverse mortgages.
In some cases, the senior homeowners are in dire financial straits when making
decisions about their home equity. According to a recent AARP Public Policy Institute
report, as many as 600,000 seniors nationwide have homes that are delinquent
or in foreclosure.
Many retirees who felt secure in their retirement plans just a few years ago
are now turning to reverse mortgages to stay in their homes.
“Even though the economy as a whole might be seeing the light at the end
of the tunnel, many seniors are still in real danger of losing the home they’ve
likely lived in most of their lives,” said Eric Bachman, founder and CEO
of Golden Gateway Financial, an Oakland company which provides financial services
to seniors.
In many cases, seniors proceed with little guidance and are often unsure about
how to include their most significant asset as an integral part of their financial
strategy rather than as a last resort.
“There is no doubt that Americans should be more strategic about using
home equity,” opined Sandra Timmermann, Ed.D, director of the MetLife Mature
Market Institute (MMI). “Retirees need a new framework for thinking about
how home equity can help assure their financial security and enable them to age
in place without fear of running out of money.”
According to a joint study by MMI and the National Council on Aging (NCOA), entitled “Tapping
Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity
and Reverse Mortgages,” 35 percent of older Americans perceive their homes
as collateral for loans.
Nearly 14 percent of seniors are taking cash out of their homes through a home-equity
loan or reverse mortgage, including affluent households who seek to enhance their
lifestyle as well as middle-income families who see it as their only choice.
The study found indications that older homeowners are using home equity primarily
to increase their income security, enhance financial resilience to deal with
unexpected expenses and to improve debt management.
“Tapping home equity in a timely and appropriate way can keep small budget
shortfalls from becoming overwhelming problems,” stated Barbara R. Stucki,
Ph.D., director of the Reverse Mortgage Initiative for NCOA.
The MMI/NCOA study highlights different options for using home equity and calls
for a more comprehensive approach to ensure that homes are used appropriately
and effectively to deal with the growing uncertainties of retirement.
Many of the study’s options are a departure from conventional discussions
on the use of reverse mortgages, including the use of reverse mortgages to delay
the collection of Social Security benefits and using reverse mortgages as a stopgap
measure to consolidate credit card debt, to cover investment losses or to defer
mortgage payments.
Other potential uses for untapped home equity include periodic distributions
to help people who have outlived their retirement income, combining public benefits
with modest amounts drawn from home equity to help seniors stay at home, and
a line-of-credit option for borrowers to pay out-of-pocket health and home care
expenses.
“Our research on baby boomers indicates that they are more open than previous
generations to tapping home equity and considering reverse mortgages to help
fund their retirement,” Timmermann explained. “With the right guidance
and policy protection, reverse mortgages can be an important financial option
for boomers who do not have adequate savings.”
The report emphasized the importance of consumer education as a part of any new
efforts aimed at increasing the use of reverse mortgages, and it reinforced the
value of consumer counseling mandated by the U.S. Department of Housing and Urban
Development for the popular Home Equity Conversion Mortgage reverse mortgage
program.
“The financial services industry, policymakers and consumer advocates cannot
be complacent about the potential benefits and risks of using home equity to
address the challenges facing older Americans,” said Stucki. “We
need to work together to educate consumers, create cost-effective financial products,
and promote public policies that strengthen consumer protections for older homeowners.”
This page and its contents ©2009
Metropolitan News Company, Inc.
