Dear Bloomberg & Financial Advisors: They can’t get a HELOC & don’t want to sell their homes.
I’m so tired of reading articles about reverse mortgages that appear in supposedly credible publications such as Bloomberg.com, that in general makes it clear that no research whatsoever was done before the author sat down at the keyboard.
It’s always unmistakable that the writers had their opinions about reverse mortgages long before they started writing, and they don’t want any new facts to interfere with their plan.
I am always ready to learn although I do not always like being taught. Winston Churchill
The last example of this confirmation-bias-at-work, appeared on Bloomberg.com, and was written by Ben Steverman, whose Twitter page says he’s a “reporter and deputy personal finance editor” for Bloomberg online.
Now, before I get to the substantive part of my commentary on Ben’s article, “Why Financial Advisers Still Hate Reverse Mortgages,” let me just say that Ben may be a decent guy… I don’t know him one way or the other. What I do know for sure, however, is that from looking at his picture, he’s not old enough to write about reverse mortgages. I’ve got golf clubs and a mountain bike that are at least Ben’s age… maybe even a year or two older.
For the record, Bloomberg-management-people, I don’t give a rat’s petute what some 28 year-old has to say about retirement planning, or prostate cancer, or losing weight in your 50s or 60s. Further, I don’t care what your brightest 30-something has to say about marriage, raising children, paying for college or caring for parents at the end of their lives.
I don’t care what they think about any of those topics because a 4.0 GPA, while majoring in journalism at Northwestern may make someone a bright kid… but that’s as far as it goes.
If I want to find out who performs a hit song on the radio, learn how to use Instagram, or find out what the hot new video game is, I’ll consult with a 20-30 year-old. But, anything beyond that and I’m not interested in their opinions because they haven’t been around long enough to form them. If someone isn’t old enough to remember the Reagan years, learned about Watergate in American History class, and only recently discovered that Paul McCartney was in a band before WINGS… then by definition they are not old enough to understand what it’s like to retire.
At 53, I can say with certainty that there are only two things that foster real learning: AGE and PAIN. Everything else you forget two weeks after taking the test. And at any age under 40 or 45, you haven’t had enough of either.
At anything near 30 years old, you can’t put yourself in the shoes of someone whose 65, because that’s 35 years away for you, and that’s longer than you’ve been alive. At 50, however, you can remember being 30, so you know what 20 years feels like. At 50, you know you’ll be 70 someday, if you’re lucky… and you also know that you might not be so lucky.
I never knew joy, sadness, anger or fear until I had a child. Never felt like I might panic when taking off in a plane until I was responsible for my baby girl back home. And at thirty-four, what have you sacrificed silently and without hesitation for someone else? Not a thing, in fact, you’re capable of sulking like a teenager because your plans for the weekend were unexpectedly quashed.
If you want me to take you seriously as an adult, come see me after you’ve sat silently while watching a decade’s worth of your own plans get thrown by the wayside, without anyone even acknowledging that you were capable of having plans of your own in the first place.
I’m especially fond of youngsters who opine on how much I should have saved for retirement, or how only a moron would carry a balance on a Visa card, without even pausing to consider that it was their braces… their True Religion jeans… their plane tickets to Cancun for Spring Break… followed by the drawers full of iPods, Game Boys and digital cameras… and that’s to say nothing about the remaining contents of my garage… that put that balance on my credit card in the first place.
Bloomberg.com, I have a few words for any of your young journalism majors who enthusiastically write about such topics with the perspective of one who is closer to 9 than 90: “GO TO YOUR ROOMS! The adults are talking.”
When they smugly write about people not having saved enough for their retirement years, as if that they are writing about some character from an Aesop’s fable who failed to plan ahead, I feel like telling them the heartbreaking little secret of the whole thing…
… that parents do their best to make their kid’s lives the absolute best they can be, often disregarding their own health, happiness or future financial security… that life only gets harder and more expensive as the years pass… and that bad things often happen to good people.
Or, if that doesn’t work out, I can always take a bus to Mexico and drink myself to death, while living in a palapa on the beach… before being rolled into the surf for the last time.
What I want to do is stick around long enough to watch Ben turn 45 and then watch him marvel how it only seemed like a month or two before he turned 54. I want to see Ben wince when he’s all alone at his desk writing the largest checks of his life as he funds his offspring’s climbing of Mount College, and then see him wake up the next morning to his wife saying that she’s re-doing his bathroom as he trudges off to the salt mines for another day in paradise.
So, back to the fresh Mr. Ben Steverman, writing about something for which he’s not even eligible for 35 years. Well, sure, why not? I can’t imagine what could possibly go wrong there. Ben opens his article with an axiom…
“A reverse mortgage is a little like a car airbag. It’s nice to know it’s there. But if it ever has to be used, the driver’s already in trouble.”
See, that’s exactly what they mean when they say: “Kids say the darndest things.”
Reading his opening line it’s obvious that Ben has no appreciation for airbags, which I’d wager means he’s never been in a real car accident. He’s never totaled a car, so he’s never learned how the insurance worked or didn’t, which means he never had to deal with a body shop, or discover what GAP insurance is all about.
And that’s just a short list off the top of my head of what Ben doesn’t know as a result of not yet having been in a car accident. It’s live and learn… there’s just no other way. They don’t teach classes in “life sucking” at college.
Ben, it’s not “nice to know” about an airbag… it’s a life saving device. If it ever has to be used, then you thank God you already had one.
Next, as to your punch line about, “if it ever has to be used, the driver’s already in trouble,” makes me think of saying something like, “Boy, what in the world do you know of making decisions having to do with money at 65 years old?”
How do you know I wouldn’t use my own reverse mortgage way before I was in any sort of financial trouble, let’s say, to buy a retirement home without having any monthly payments.
We’d sell our place and take the $300,000 in equity and put it down using a HECM-for-Purchase, so we’d be able to buy a $600,000 home, and then have no payments if we don’t want them, in which case the loan would be repaid by the proceeds from the sale of the house after both mine and my wife’s death. Would that be okay with you, young Benjamin?
Or, maybe I want to use my reverse mortgage line of credit to finance my new business, or to pay for someone’s tuition, or to buy the motorhome of which we always dreamed. Why do I have to be “in trouble” to see value in accessing a credit line that’s available at a low interest rate, that doesn’t need to be repaid on any set schedule, including not making payments for life? Who wouldn’t want one of those?
Ben, there are an unlimited number of legitimate uses for money available under that sort of arrangement. There’s no requirement that I wait until I’m “in trouble” to access my equity via a reverse mortgage. And in fact, I can think of a lot more reasons and ways to use it when I’m not in trouble than when I am.
Ben, my boy, you’re not looking at reverse mortgages correctly. You need to let your obvious bias go, free yourself of the misinformation that’s polluted your mind… you’re a journalist, gosh darn it. Be a journalist, not a typing service. You know that you don’t know enough about reverse mortgages, because you know that you wouldn’t want to be forced to take any sort of exam on the subject, because you recognize that what you actually know about them could fit into 5-6 bullet points on the back panel of a trifold rack brochure.
Here’s another gem from Ben’s article…
“… reverse mortgages put people in irreversible situations. Michael Smith’s grandmother-in-law is finding homeownership a burden.”
Oh my Lord, Ben, it just sounds horrible. But, don’t you think Michael Smith’s grandmother-in-law was already in an irreversible situation before she took out the reverse mortgage on her home. It’s called… LIFE. It’s about as irreversible as it gets.
Then Ben continues…
“But, with much of her home equity tapped by a reverse mortgage, selling the home will no longer get her the cash needed to move to a smaller place or an assisted-living home.”
Okay, Ben… her equity wasn’t “tapped,” it was accessed by her, paid to her, presumably spent by her… it was hers, after all. And what if she hadn’t “tapped” that equity all those years? Are you saying that she didn’t need the money but took it anyway and blew it playing roulette in Las Vegas?
Stop it, Ben… you have no idea what her situation was back when she took out the reverse mortgage, and you never even thought to ask. Besides, it’s none of your business.
You don’t get to decide what 65 year olds should or shouldn’t do with their money or their equity, or their credit line, whatever’s involved… you shouldn’t even opine because it looks ridiculous. You’re probably still borrowing from mom and dad on occasion, am I right? And if not then, who bought your first car?
I like to listen. I have learned a great deal from listening carefully. Most people never listen. Ernest Hemingway
Okay, so it’s time for our lesson for today. Today, we’re going to learn about two key reverse mortgage issues… two points that are brought up and discussed inappropriately by you and many others of your journalistic ilk. And it all stops today, before you embarrass yourselves any further.
Get a HELOC instead.
Move out of the house.
1. Get a HELOC instead – To begin with, HELOCs are very difficult to qualify for, and by that I mean that they’re comparatively non-existent today… their volume is down by something like 90 percent when compared with 2005. But, regardless, they’re just not available to 75 year-olds whose income just dropped in half when they had to stop working.
Without sufficient income, a 75 year-old is NOT getting approved for a HELOC, unless maybe he “breaks bad,” sells crack cocaine and puts it on his income tax return. So, stop saying that they can when they can’t, okay?
And if you don’t believe me, go try it for yourself, or interview a banker. Do something to learn something, and I’m confident you’ll figure it out for yourself.
2. Move out of the house – Ben, here are a couple of tips that you might want to hang onto… one is don’t ask an older woman her age unless you’re her physician… and two… never try to tell older people when they should move out of homes that they’ve lived in for the last 42 years or whatever. Again, it’s best if you don’t even have an opinion on either matter.
Here’s the piece of the puzzle it appears you and your fellow journalists are missing. Pay close attention, okay? We don’t want to have to go over everything twice, now do we? No, we don’t. Okay, here it is…
THEY DON’T WANT TO MOVE.
IF THEY WANTED TO MOVE, WE WOULDN’T BE HAVING THIS CONVERSATION, BENJI. IN FACT, THE ENTIRE PURPOSE FOR TALKING ABOUT ANY OF THIS IS SPECIFICALLY BECAUSE THEY DON’T WANT TO MOVE. IN OTHER WORDS, THEY’RE ONLY TALKING ABOUT A REVERSE MORTGAGE BECAUSE THEY WANT TO AVOID MOVING.
ONE MORE TIME… THEY DO NOT WANT TO MOVE! So, please make sure your commentary going forward is offered in that context, and not influenced by your parochial little view that somehow makes it okay in your mind to tell people age 65 plus to move out of their homes, when you haven’t got the foggiest idea about the nature of the decision from their perspective.
You’d move, right? Of course you’d move. You’re 30, give or take. It wouldn’t surprise me to learn that you’ve moved five times in the last 5 years. You’d move for better cable. The grandmother you’re writing about, on the other hand, probably hasn’t moved in 20 years or more. She knows it’s an option, but it’s not one she wants to take and that’s all you need to know.
So, say it with me… “Moving is not an alternative to a reverse mortgage, because it means… well, moving.” One more time… “Moving is not an alternative to a reverse mortgage, because it means… well, moving.” Very good, young man, very good.
And what was the first thing we learned? That you can’t get a HELOC, right? That’s very good too.
HELOCs are never an alternative to a reverse mortgage, damn it.
While I’ve got your attention, HELOCS are not alternatives to a reverse mortgage for several other reasons as well, not the least of which is that they require the borrower to make regular monthly payments and offer no flexibility if that borrower wants to skip a few payments or stop paying all together.
Also, HELOCs are interest only loans for 10 years, after which they fully amortize and therefore the payment jumps up by hundreds of dollars per month. Now, Ben… ask yourself… do people make more or less money as they get older. Not between age 30 and 60, but after age 65.
Right… the answer is people make less money as they age, and sometimes retirees get hit with higher expenses too. Yes, getting older sucks, Ben. No one wants to do it, but it’s better than the alternative.
So, since the answer is “less money as they get older,” why would you possibly suggest that someone 65 years of age, take out a loan whose payments are going to spike by hundreds of dollars a month when they’re 75 years of age?
Because it might save them a few grand in origination fees? That’s kind of nuts, right Ben? You’s save them a couple grand so that at 78, they could lose their home to foreclosure? Maybe you should do everyone a favor and stop trying to help them.
And not only that, but HELOCs can be cancelled by the bank at any time and for any reason… countless Americans learned that the hard way from this last meltdown, so HELOCs can’t be depended upon for retirement. Older people need certainty, they don’t need a disappearing credit line that may or may not be there when they need it.
The reverse mortgage, on the other hand, is guaranteed by the federal government… it can never be taken away or cancelled by a bank… it’s yours for life. That’s better isn’t it, Benny… can I call you Benny?
You can also choose to make principal and interest payments and pay off a reverse mortgage. It’s all up to you, but the important thing is that with a reverse mortgage, along the way you can skip payments whenever you want or need to. Like if you travel all summer, and want a little extra cash for the trip, go ahead… skip your payments over the summer. No one will call… no one will care.
Or, if you don’t like the amount of interest that’s accruing on your reverse mortgage, then make some interest only payments, and that problem’s solved. Of course, with rates so low now that’s hardly a concern. (And, Ben… if you think LIBOR’s going up significantly any time soon, you’re also wrong about that, but I don’t have time to explain it all to you right now.)
I don’t think much of a man who is not wiser today than he was yesterday.
President Abraham Lincoln
So, they can’t get a HELOC, and even if they could, it’s a very poor alternative for a reverse mortgage, so stop comparing its cost or utility to that of a reverse mortgage in article after article because… it’s just dumb. It’s a dumb thing to say. A dumb thing to compare. You’re not dumb, are you Ben? I don’t think you are.
And number two? THEY DON’T WANT TO MOVE! You remembered that one, right? I’m sure you did. I’m sorry for all the yelling, I just wanted to make sure that the information would pierce that testosterone veil that covers you the same way it covers the rest of your pals in your fraternity. I understand how hard it is to hear things when you’re still thinking about the sex you had, or hope to have.
You see, my young friend who types like the wind, but often doesn’t know what to say… I too was once consumed by testosterone. I know exactly what that’s like, and it’s hard to generate sincere interest in something that sounds as boring as a reverse mortgage… something your grandparents should be considering. I get it and I don’t blame you for it.
The Costs of a Reverse Mortgage…
I feel like I better just touch on the costs of a reverse mortgage compared with the costs of the other kind of loan that I don’t have to repay. Let’s compare them to see how they stack up against each other when viewed side by side.
Oh, wait a minute… there are no other loans that I don’t have to repay. So, to which other loans are we going to compare reverse mortgages? All the other loans require regular monthly payments… it’s only reverse mortgages that don’t.
What you don’t seem to know, however, is that reverse mortgages, if they are more expensive, aren’t that much more expensive than a traditional loan (and in some cases they cost less than a traditional loan.) HUD puts a cap on the origination fees of $6,000, and you don’t even have to pay the origination fees out of pocket. In fact, all you have to pay out of pocket to get a reverse mortgage is $110 for the HUD counseling session.
Yes, there are FHA insurance premiums with a reverse mortgage, just like there are with an FHA loan, but paying them is what provides the borrower with a loan that doesn’t need to be repaid until after the death of the last surviving spouse, and also makes it so neither you or your heirs can never owe more than the home is worth. Do you have any idea how many people would have gladly paid many thousands to have that feature during this last meltdown in home prices?
As a matter of fact, with a reverse mortgage your heirs can buy the home out of your estate for 95 percent of market value, or the amount of the loan… WHICHEVER IS LESS. There’s no other mortgage that offers that little afterlife perk.
It is not hard to learn more. What is hard is to unlearn when you discover yourself wrong. Martin H. Fischer
Okay, Ben you blew it on this one, but I feel certain that you’ll try very hard not to let it happen again.
So, whose opinions are you going to stop listening to? Yours… that’s right Ben, because your opinions on this subject don’t matter, and that’s doubly true when they’re based on incorrect or incomplete information. And what kind of people are you going to talk to before you write about reverse mortgages again? Older people… yes, right again…. and preferably some who have reverse mortgages and some who don’t.
It’s important Ben, because if you get it wrong, you might end up writing something that ends up scaring someone away from a reverse mortgage that would benefit from having one. And misinforming older folks is a bad thing to do, right Ben? Would you want me misinforming your grandmother about something involving a lot of money? I sure wouldn’t think so.
Okay, Ben… I guess we can leave it there. You might want to keep a copy of this article around in case your mind starts forming baseless opinions on this subject again. And if you do write about reverse mortgages again, while still at your impressionable age, try to only report on the opinions of other elders, and keep yours to yourself… unless someone asks you to review a video game that you’ve played 10,000 times… in which case, go ahead… editorialize to your heart’s content.
And one last thought…
Ben, maybe next time you could write a few sentences in your article that relate to your headline. That’s how it’s done, traditionally, by the way. Yep, the words in the article are supposed to somehow relate to the article’s headline.
For example, your headline was about how financial advisors still hate reverse mortgages, but unless there’s a page two or three that I can’t seem to find, it seems you forgot to put that part in… the financial advisors hate reverse mortgages part.
Well, to be fair, you did have one sentence in there.
“Many advisers say the loans remain a last resort and can handcuff homeowners who have better options.”
You now know that’s a dumb sentence, right? For one thing, telling older people to wait until they need a last resort anything I find to be exceptionally bad advice no matter what the subject is, because once in crisis no one thinks clearly. In fact, I actually think that’s how people end up getting ripped off… they wait until there’s a crisis before seeking a solution.
Also, I can’t help but wonder… how “many” advisers were “many” to you? Did you talk to 10 advisers? Fewer than 10… more than 20? And did they all say the exact same thing? That would seem odd, wouldn’t it? Maybe you need new sources for information, ya’ think? It’s also a little weird how the financial advisers opinions and yours were perfectly aligned. Crazy coincidence, wouldn’t you say?
So, I’m just thinking out loud here, but if I were you, I’d Google, “confirmation bias” and see if it may have played a role in how your research was conducted, and why whenever you research a subject, it always seems to come out exactly the way you thought it would.
I sure do hope that I’ve been helpful, Ben Steverman, Deputy Personal Finance Editor of Bloomberg.com. Feel free to call on me anytime you need someone to tell you the truth… via emil it’s firstname.lastname@example.org. And let’s hope we don’t have to go through something like this again… ever.
Anyone who stops learning is old, whether at twenty or eighty.