Posted tagged ‘retirement’

Cash is King for Seniors

June 24, 2009

j0433118I love the phrase “Cash is King.” Who won’t accept cash? I suppose some would prefer us to use credit so they can increase profits, but the bottom line is, having cash puts us in a position of power. It holds much value, especially in an economy that we are in today. Cash is King!

When you think about it, reverse mortgages are simply a tool that will allow those 62 or older to receive cash by simply leveraging ones home. No risks, no losing your home to the bank, no payments, just plain “risk free” cash (Yes, Cash is King)! In fact, it can provide a guaranteed source of income for as long as you live in your home. How many of us prefer cash over credit? But when cash flow is limited, sometimes we make do with credit. This can be a short term solution, but a long term disaster!

Leveraging one’s home in order to access cash is the primary purpose of reverse mortgages. It simply is choosing to use the equity to secure interest payments so that you can use the available equity for life’s needs or desires. This is cash flow at your fingertips! No hassle, no worry, no fear . . . . just freedom!

Edu-selling . . Reverse Mortgages

May 20, 2009

j0438494Looking back over the past four years in selling this product, Reverse Mortgages, it has been an interesting ride. Fulfilling . .  absolutely . . . Easy . . . “NOT”. This is a product that over the years has received much criticism. There are several reasons for this:

1. The Name: I am sorry, but I wish they would have come up with a different name for this product.  Anything dealing with finance that has the name “reverse” in it subconciously for all of us, doesn’t seem right. Going backwards isn’t where most people want to go.

2. Home Equity as a Source of Cash Flow: One of the reasons many financial professionals have not come on to the reverse mortgage is due to the fact that they have always been trained to not use home equity as a source. A few years ago there was an idea out there that many took advantage of with their home equity . . .  cashing it out and using the funds for iinvestments. Ouch . . . though in the roaring ’90’s this made some sense for many, the current financial crisis has shown the reality of what happens when we do this. Foreclosures are at an all time high. Reverse Mortgages are different . . . very different.

3. Misunderstood: Certainly the name, as mentioned on #1 has made reverse mortgages misunderstood, but the original reverse mortgages (back in the 50’s & 60’s) did not have the protections in place as the Home Equity Conversion Mortgages (HECM’s). Areas of misunderstanding include ownership, default scenarios, depletion of equity, and others. Today’s product has many protections for the homeowner as well as their estate.

4. Audience/Market: Because this product is solely for seniors, it has been difficult getting in front of the masses of seniors. We all know that seniors are often taken advantage of and they know it. Anything that sounds too good to be true, well, is often too good to be true. As a group, it is difficult to develop the trust needed with this audience to truly educate and build the relationship. It simply takes time!

5. Lastly, but there is probably more to add, is the SALES PROCESS. The foundation of this product is that it is much different than many other products. I call it EDU-SELLING. That is, educating the client so that they can make the best decision for themselves in their current situation. The educational process is the sales process. Once the product is understood, then if it accomplishes the goals of the client, they make the decision. This is too important of a transaction for the typical sales process (I call it hard selling) to be used. Today, many brokers use this method since it is what they know.  I believe that when the hard sell is used, it is felt by the client, and they turn and run the other direction.

In the end, the client wants to know that the sales associate is one who can be trusted and who gives the clients room and time to process. Edu-selling provides the clients with information that they need to make the right decision for them. Sometimes it is quick, but often times it takes months for this process to occur. But in the end, these are clients that are happy with their decision.

Reverse Mortgage Industry – Current Implications

May 14, 2009

j0440988The reverse mortgage industry continues to grow nationwide. The numbers Year to Date have increased both in applications and in total endorsements (closings). But this is just a small picture of the overall industry. Over the past two years we have seen an industry get hit hard by a drop in home values, economic uncertanties, and interest rate adjustments. In addition, there has been a huge increase in the number of people who are originating reverse mortgages. Though this is good news from the standpoint that this product has become more of a standard product within the financial industry, it has impacted the total number of loans that any one individual can do. So we have a small increase in the total number of endorsements, coupled by more people doing them. This leaves many unable to close enough loans to make any kind of a marginal living. Many originators are finding business very difficult as competition has impacted the overall market.

This scenario is not surprising to me. Four years ago when I started in the industry it was an inevitable consequence to the financial condition of many of our seniors. I predicted the fact that banks and credit unions, as well as mortgage brokers would find this tool as one they need to add to their product mix. It was my attempt to make an impact in the industry at that time to position myself to be the local expert. And I have done just that!

What I did not see coming was the huge reduction in home values. At that time values were going, let me just say “bazerko” (sorry, probably not a word). Values are often much lower than the homeowners realize. Recently I had a home appraised that the homeowner was expecting $600-$700k in value. It is a phenomenal home! It was appraised at $485k. Now this is somewhat of an anomoly because of the lack of similar comparisons available, but more times than not, values are underestimated because there was a lack of understanding. The conversation of value is a critical one to have with the homeowners. Managing expectations provides open communication, and in the end, good relationships with clients (whether or not they were able to do the loan).

The other thing that was not expected was the increase in interest rate margins that we have seen with Fannie Mae. Fannie Mae, who purchases 90% of all reverse mortgages, has moved into a live pricing environment where the interest rates could fluctuate during the processing of the loan. For some, this reduces the expected benefit or all out takes them out of their ability to attain a reverse mortgage. Though I have been able to work around most of these situations to this point, it remains an unsettling reality in today’s market.

Balancing the Cost of Reverse Mortgages

May 12, 2009

CB068300It seems that every so often the issue about the cost of reverse mortgages flashes across my computer screen. In every industry there are skeptics about a solid financial product, but the reality remains, users of the product are much better people to ask. For example, if I was to find out if a particular brand of lawn mower is worth the cost, I wouldn’t ask the person who sells the lawn mower. I would ask the people who have had the lawn mower for an extended period of time. Neither would I ask manufacturers of a different lawn mower. Both groups of people would have a potential bias towards that particular lawn mower. I also wouldn’t ask a company that specializes mowing lawns as a service for they may play down lawn mowers as better sell their service.

However, the people that would provide good, unbiased information are the users of that particular lawn mower. Preferably they would be people who have used the lawn mower for a few different seasons. They would know if the lawn mower stands up to the reputation that is out there.

The same has to be said about reverse mortgages. Though it is always a good idea to get information from non-users, it is important to not judge the product by people who have not used the product, or don’t know many people who use the product. It sounds silly, but this is what happens with albeit “professionals.” They have a judgement about reverse mortgages, but they often have not known many people who have taken them out. They sort of clump everybody into one big group as having the same needs and needing the same solution to a problem.

And so, we get input from various levels of professionals who are not in the industry and don’t have a working knowledge of how the product has been used. The overriding issue is the cost. It is funny to hear this because from the many clients who have taken out a reverse mortgage from me over the past 4 years have never come back and said that it was too expensive. The overwhelming majority is that it changed their life. You see, the value of the benefit far exceeded the cost. The cost was a non-issue after they realized the overwhelming benefits.

Lastly, in dealing with the cost, one needs to look at what the costs are for. In this case, a huge part of the cost is what is the driving force behind the program, the FHA Insurance Premium (2% of the appraised value). This protects the lender as well as the borrower from any future liability in the event the balance exceeds the value at the time of sale of the home. This is called “Peace of Mind”. Peace-of-mind is a beautiful thing! What is it worth? You might just want to ask an independent senior who no longer needs to rely on others to make ends meet. It really is a beautiful thing!

So, for everybody who falls into the mode of “Reverse Mortgages are just too expensive,” my suggestion is to ask around to seniors who have benefited from a reverse mortgage. I think you’ll find that most will tell you that the benefits far outweigh the cost.

For another perspective on Reverse Mortgage costs, visit this link.

Cash Flow Squeeze

April 24, 2009

j0341897We all seem to be impacted by the current financial crisis, whether it is our income, investment portfolio, interest rate hikes, increased taxes, or whatever, most of us have seen our financial situation negatively impacted. For retirees, it is even more of an issue as they have depended upon their financial portfolio’s to ride them into the sunset. But have you ever looked at the opportunities that exist?

Etan Ewing, president of Bills.com, a free online portal, tells of the opportunities that lie in front of us that can help us during this time. One of my colleagues describes 8 Ways to Squeeze the Most from Retirement Planning.

Reverse Mortgages: Tool to Create Leverage

April 13, 2009

j0303028For such a long time reverse mortgages have been used as a tool to unlock the equity in the home of seniors in order for them to supplement their cash flow when they find themselves asset rich and cash poor. It is a great solution for many who find themselves wanting to stay in their home, yet find themselves unable to meet the demands of their lifestyle, or simply pay for the unexpected events that life gives. FHA has created a very low risk option by insuring the loans so that the heirs will not be at risk if the loan exceeds the value of the home. However, recently reverse mortgages have been used for more than this. Home equity is cash that is locked up. Is that the best place for it to be? Maybe for some. But what if seniors find themselves paying more income tax than they would like? What if seniors would like to pass on something greater than their home by transferring the cash in the home to an asset that can be used for generations upon generations. When we begin to look at the opportunities that allow seniors to leverage their equity in order to reduce taxes, and/or increase the quality of retirement, then that is where the power of this simple tool can be used.

If You Had a Friend . . . .

April 7, 2009

j04030581What an amazing experience I had today! I often will drop into local professional shops of planners, tax advisors, attorneys, etc., introduce myself and try to get to know someone in the company so that I can develop a professional relationship. Who knows where those contacts go. If I really connect with them, it is great. But most of the time I just leave some information behind for them to read, then reconnect with sometime in the future.

Today I walked into a tax advisors small business. It looked like the kind of place that many local seniors in the community might go to. Just like a small town shop. Tax advisors work with seniors and know about their financial situations. It is my hope that they see a need and pass on my information so that I can help improve their financial situation.

But this place was amazing . . . I walked in and introduced myself and the company that I represent. So far, so good right? Then the man said, “I hate reverse mortgages.” Taken back, I asked, “Oh really . . . what do you know about them?” You know what he said . . . . .  ” I don’t know a thing about them, and I don’t want to  . . .  but God Bless You!” Wow . . .

Now sometimes I’ll ask more questions, but I didn’t want to be a nuissance anymore than I already was (to them). So I just said, “And God Bless You,” and walked out.  I couldn’t help but think . . .  “what if I had the solution to his problem?” What if I held the answer in my hand that would make his life less stressful, and at peace. Financially speaking, when we are stressed, our whole life is a challenge . . . right? And this was a tax advisor.

It is amazing how some people simply don’t want to know the truth. Whether what I have is anything they need is not really the question . . . but to say that you don’t want to know about it when it may be the solution you are looking for is downright amazing. What if he had a close friend that could be helped? What if a neighbor relies on his expertise to help him? We close the door to helping anybody when we refuse to know the truth.