Author Archives: Collin J Smith

Researchers Say Reverse Mortgages Deserve A Second Look

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by Jamie Hopkins

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What’s the deal with reverse mortgages? This question was addressed in a recent Housing Wealth in Retirement Symposium held on March 23, 2018, in Washington, DC. The event was co-hosted by The American College of Financial Services and the Bipartisan Policy Center. While the symposium took a broader look at housing wealth and retirement security, a constant theme was the role of reverse mortgages under the Home Equity Conversion Mortgage (HECM) program sponsored by the federal government. A key takeaway from the researchers and policymaker presentations at the event was that reverse mortgages are underutilized by seniors today and can help provide added retirement funding security to Americans when used appropriately.

https://www.forbes.com/sites/jamiehopkins/2018/03/30/researchers-say-reverse-mortgages-deserve-a-second-look/#6d9df9ca56b2

Financial advisers should avoid error by omission and consider reverse mortgages

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by Jamie Hopkins

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Over the past few years, I have been very outspoken about the need for financial advisers to incorporate reverse mortgages into their practices, especially those acting under a fiduciary duty of care or doing retirement income planning.

As a professor at The American College of Financial Services, I have woven material about reverse mortgages into the coursework for the CFP, CLU, ChFC and RICP. Of these, the RICP, which focuses specifically on retirement income planning, has had the greatest impact on advisers with regard to reverse mortgages. I have seen eyes open, policies change, and financial planning practices include reverse mortgage conversation in their process.

https://www.investmentnews.com/article/20180122/BLOG09/180129987/financial-advisers-should-avoid-error-by-omission-and-consider

Retirement Income Summit

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InvestmentNews is pleased to celebrate 13 years of the Retirement Income Summit. Much has changed – and much remains to be learned. Join us on May 14th, to discuss how the future is full of opportunity for the financial advice industry, and listen to leading experts debate what’s in store for our economy, markets and the state of retirement income.

WHEN: Tuesday, May 14, 2019 – Wednesday, May 15, 2019
7:45 AM – 4:30 PM Central Time

WHERE: Westin Chicago River North
320 North Dearborn Street
Chicago, Illinois 60654
(888) 627-8359

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Increasing the Sustainable Withdrawal Rate Using the Standby Reverse Mortgage

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by Shaun Pfeiffer, Ph.D.; John Salter, Ph.D., CFP®, AIFA®; and Harold Evensky, CFP®, AIF®

This study investigates maximum real sustainable withdrawal rates (SWRs) for retirement plans that incorporate the use of standby reverse mortgages (SRMs). The SWR is defined as the maximum real withdrawal rate with a minimum 90 percent plan survival rate for a 30-year retirement horizon.

The SRM evaluated in this study is a Home Equity Conversion Mortgage (HECM) reverse mortgage line of credit that is established at the beginning of retirement and is used for retirement income during bear markets. Outstanding loan balances are repaid from the Investment Portfolio (IP) in bull markets.

Monte Carlo simulations were used to estimate the success of the SRM strategy at various real withdrawal rates for a client who has a $500,000 investment nest egg and $250,000/$500,000 in home equity at the beginning of retirement. The $500,000 nest egg is split into a 60 percent stocks and 40 percent bonds IP and a six-month cash reserve.

Retirees who begin retirement in a low interest rate environment (2.3 percent yield on 10-year U.S. Treasury bond) with competitive lending terms and significant home equity relative to the IP stand to benefit the most from an SRM strategy. Interest rates and the size of the initial line of credit relative to the IP are the two factors that are shown to have a significant impact on the SWR for the SRM distribution strategy.

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The 6.0 Percent Rule

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The 4 percent rule has come under scrutiny because of lower expectations about future security returns. Monte Carlo simulations using expected asset class risks and returns that reflect the current economy show that the first-year withdrawal can be 3.75 percent and increased for inflation each year. At 3.75 percent, portfolios with a 60 percent or higher equity exposure give a 90 percent chance of “spending success” over 30 years.

The cash proceeds from various reverse mortgage plans can be taken in different ways. Scheduled monthly tax-free advances reduce the need for portfolio withdrawals and can give better “spending success” levels than line-of-credit draws.

The increase in spending success levels depends on the relative value of the home and the portfolio. Given a portfolio value, higher home values raise success rates.

With a 30-year spending horizon and first-year withdrawal of 6.0 percent, reverse mortgage scheduled advances as a portfolio supplement give “spending success” levels of 88 to 92 percent. Even with a first-year withdrawal of 6.5 percent, success levels are still 83 to 86 percent. This paper provides financial planners with a review of the relative merits of using a reverse mortgage as a retirement spending supplement.
https://www.onefpa.org/journal/Pages/The%206.0%20Percent%20Rule.aspx

The Most Critical Reverse Mortgage Research: 2017 Edition

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Tracking down vital research on reverse mortgages can be challenging. So rather than spending a good chunk of valuable time sifting through countless Google search results, Reverse Mortgage Daily (RMD) has made the hunt easier by compiling the most critical reverse mortgage research in recent years.

For reverse mortgage professionals who are looking to communicate with financial planners in a meaningful way, consider reading these key research items to aid you in conversations with advisers, their clients and other financial service professionals.

Full story at https://reversemortgagedaily.com/2017/01/03/the-most-critical-reverse-mortgage-research-2017-edition/

Spring Brings a Rise in Reverse Mortgage Endorsements

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by Chris Clow

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Home Equity Conversion Mortgage (HECM) endorsements rose by a figure of 12.7 percent to 2,901 loans for the month of April 2019. This figure is the first in several months not to be accompanied by the disruptive statistical noise generated by the 2018-19 partial federal government shutdown, according to the April HECM Lenders report compiled by Reverse Market Insight (RMI).

Full story at https://reversemortgagedaily.com/2019/05/05/spring-brings-a-rise-in-reverse-mortgage-endorsements/

D.C. housing agency launches program to help delinquent reverse mortgage borrowers

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by Jessica Guerin

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A D.C.-based housing agency recently launched a program to help reverse mortgage borrowers facing foreclosure because of their failure to pay property taxes and homeowners insurance.

Full story at https://www.housingwire.com/articles/48976-dc-housing-agency-launches-program-to-help-delinquent-reverse-mortgage-borrowers