LTC Bullet:  LTC Embed:  Reverse Mortgage First Impressions 

Thursday, February 22, 2007 

Los Angeles, CA-- 

LTC Comment:  Reverse mortgages as a funding source for long-term care, first impressions from an industry conference, after the ***news.*** 

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LTC Comment:  Next to long-term care insurance, the biggest potential source of private financing for LTC is reverse mortgages.  Ironically, LTCi won't achieve its potential until reverse mortgages realize theirs.  That's because Medicaid currently chills the market for both products by exempting most home equity.  

Even after the Deficit Reduction Act, Medicaid protects home equity up to a minimum of $500,000.  The average home equity of seniors in the U.S. is only $86,000.  Thus, with the vast majority of home equity not at risk for long-term care, few people use RMs to pay for LTC and few people buy LTCi to protect their biggest asset. 

To learn more about the reverse mortgage industry and gauge its potential as a long-term care funding source, I attended the National Reverse Mortgage Lenders Association (NRMLA) 2007 Western Regional Conference in Newport Beach, California yesterday.  

What I found is a fledging industry, coming out of a long period of gestation, into a brave new world of growth and diversification.  But with very little awareness of its potential as a financial savior for Medicaid and a major funder of LTC.  Here are some first impressions.  I'll write more on this subject later. 

Bart Johnson, President of Financial Freedom, a major player in the "jumbo" market said:  "There is an explosion of new products.  We've come out of 16 years of education and little change into four years of growth and creativity." 

Reverse mortgages have only penetrated two percent of their potential market; to date only 300,000 RMs have been underwritten out of a potential of 15,000,000. 

Specialists and companies are finally jumping into the reverse mortgage industry in large numbers. 

The plain vanilla product that represents 90 percent of the current market, the so-called HECM or home equity conversion mortgage backed by HUD, is finally being modified and expanded.  The transition is from one size fits all to a more customized product with many options.  

New proprietary products, especially "jumbo" loans, are gaining sway.  

The market is changing fast.  Commoditization may be just around the corner.  Compare what's happened with home equity loans and term life insurance on the internet. 

Pressure from consumers, Congress, and especially AARP is compelling the industry to look creatively for ways to bring down the high entry costs to consumers. 

The industry fights against ignorance and misunderstanding that usually stem from confusing the reverse mortgage product with "forward mortgages," i.e., traditional home mortgages and home equity lines of credit, with which most people are more familiar. 

The conference has a major focus on ethics and responsibility to older clients.  Integrity is the watch word.  Confidence in the product and its value to consumers is prevalent.  "Don't sell, tell," advised one speaker. 

Like most industry conferences, much of what's discussed at this meeting is "inside baseball," narrow product and regulatory issues laden with technical jargon that make the eyes of newbies like me glaze over. 

The bottom line was expressed by one speaker.  Setting aside all other issues about consumers and the reverse mortgage product, it all boils down to this:  Can you give yourself permission to use your home equity?  Traditionally seniors have wanted to burn their mortgages, not create new ones.  But that's all changing as the World War II generation recedes and the baby boomer generation approaches.  More and more, the question for consumers is becoming:  how best can I mobilize all of my resources, including home equity, to improve my life? 

Like long-term care insurance producers, reverse mortgage lenders emphasize the importance of working with other financial planning professions:   Certified Financial Planners, lawyers, accountants, bankers, insurance agents, mortgage brokers, estate planners, conservators, LTC agents, credit unions, elder law attorneys, life insurance agents among others. 

Yet in a whole day of sitting through sessions, I only heard funding LTC insurance with a reverse mortgage mentioned once.  Using RMs to fund health care and aging in place were discussed several times but were not a major focus. 

Most RMs are taken out by people who need cash flow to maintain their lifestyles.  A much smaller but growing proportion come from people interested in having special things they could not otherwise afford. 

There is hope.  I finished the day with an excellent interview.  Peter Bell, executive director of NRMLA, wants to encourage a conversation between the reverse mortgage industry and LTC insurers and providers.  He'd like to see creative new products that help people use home equity to get what might be called LTC Concierge or LifeLong Concierge services:  help with IADLs, ADLs, home repairs and adaptations, and all levels of long-term care. 

Time prevents me to say more today.  Another half day of conference awaits.  More later.