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 BULLET: LTC
EMBED: REVERSE MORTGAGE
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
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
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.