Reverse Mortgage Information – Why Is it Kept So Secret by Friends and Family?

Reverse mortgages are financial products utilized by hundreds of thousands of older Americans. However, it appears that many borrowers are reticent to talk about the loans with their peer group. Boldin recently conducted a small survey of prospective borrowers and found that the majority did not intend to tell friends about the loans and only about half were going to share the information with family. Why the secrecy about reverse mortgage information? There does not appear to be any real research on the subject of reverse mortgages being a taboo topic. However, here are a few hypotheses for why people are not discussing these loans: Reverse mortgages are confusing: Reverse mortgages are products that are somewhat difficult to explain. And, research shows that a majority of people don’t understand how they work. As a result, older couples may feel hesitant to tell their friends they took out a reverse mortgage or are considering getting one. Borrowers Don’t Know How Increasingly Common These Loans Are: Reverse mortgages are growing in popularity. The majority (about 90%) of reverse mortgages are through the Federal Housing Administration-insured Home Equity Conversion Mortgage (HECM) program. Borrowers have taken more than 850,000 reverse mortgage loans since the federal program’s inception in 1989. Through September 2012, there were more than 595,000 active HECM loans, according to Federal Housing Administration data. During that same time frame, from the FHA’s fiscal year 1990 to 2012, nearly 780,000 HECMs were endorsed. Since then, borrowers across the country have taken out more reverse mortgages, including nearly 15,000 new HECM loans through March 2014, according to industry data source Reverse Market Insight. Borrowers Don’t Know How Satisfied Everyone Is with These Loans: In the fall of 2010, research firm Marttila Strategies conducted a series of national surveys and focus groups aimed at obtaining an accurate snapshot of the key financial issues facing seniors and public attitudes towards reverse mortgages, on behalf of industry trade group the National Reverse Mortgage Lenders Association. More than 40% of survey respondents worried they wouldn’t have enough money for a financially secure future, and a large majority wanted to stay in their homes—a sentiment echoed in AARP studies. Older adults in the survey who had a reverse mortgage were “delighted” with the product and gave it exceptionally high ratings, according to the results of NRMLA’s Consumer Experience and Perception Study. “These attitudes belie the negative accounts that have been widely reported in the media,” the report said. Fully three-quarters of respondents with a reverse mortgage expressed some level of satisfaction with their loan, and 43% reported “maximum” satisfaction. What’s more, 52% of seniors with a reverse mortgage said they’d “definitely” recommend one to their friends, based on their experience, while another 28% said they would “probably” recommend the loan. Discussing Money Can Be Awkward: A 2014 survey — Wells Fargo’s Financial Health study — found that discussing money is even more difficult than talking about religion or politics! Nearly half of Americans say the most challenging topic to discuss with others is personal finances (44%), whereas death (38%), politics (35%), religion (32%), taxes (21%), and personal health (20%) rank as less difficult. Furthermore, the Intra Family Generational Finance Study from from Fidelity found that most parents are more comfortable talking about financial issues with financial professionals than with their own adult children. Their research also found that substantial disagreement exists within families over critical topics including inheritance, eldercare and retirement living expenses. Since securing a reverse mortgage is a financial decision, it may explain why borrowers keep the decision to themselves. Reverse mortgage information – the basics For people considering a reverse mortgage, there are a few important things to know. Reverse mortgages allow people age 62 and older to borrow against the equity they’ve built up in their homes in the form of a non-recourse loan. The amount of the loan depends on factors such as the borrower’s age, the home’s value, available equity, and current interest rates. Borrowers can receive their loan proceeds in a few different ways, including monthly payments, as a lump sum, as a line of credit, or some combination of the three. Unlike a “forward” mortgage, borrowers aren’t required to repay reverse mortgages until they die or leave the home. HECM borrowers pay Federal Housing Administration insurance premiums in exchange for a couple of protections:

• Borrowers will always have access to their reverse mortgage proceeds, even if the lender goes out of business.
• Borrowers or heirs will never owe more than the home is worth at the time of sale, even if the loan balance ends up exceeding the home’s value.

Would-be reverse mortgage borrowers must also go through counseling with an FHA-approved, independent reverse mortgage counselor to ensure they know about their options and understand the loan and how it works. Why you it can be a good idea to keep your friends and family in the loop Considering the number of reverse mortgage borrowers across the nation and the high satisfaction expressed in NRMLA-sponsored survey, it’s time for reverse mortgages to stop being taboo and start getting talked about. Tell Your Family: Getting a reverse mortgage is a big decision and one that could potentially impact your heirs. Being upfront with your family about this important decision can alleviate worry about unknowns. Tell Your Friends: Research from the Oklahoma State University Psychology Department found that people are more likely to have a strong retirement plan if they belong to a peer group that is actively planning retirement. The research suggests that friends can positively influence each other by making financial planning a community norm. By telling friends about the loan and your experiences, you could have a positive impact on their financial well being.

• Learn more about reverse mortgages or estimate your reverse mortgage loan amount.