Love Them or Loathe Them? It helps to understand them. Ron Lieber on Reverse Mortgages.
On September 24th of this year, Ron Lieber, who writes the “Your Money” column in the New York Times, wrote a piece on reverse mortgages. Why? I haven’t the foggiest idea… it’s clearly not an area of specialization of his, or anything remotely close.
I searched online to see if I could find other reverse mortgage articles of his… I wanted to know whether I was dealing with a serial offender or just someone out for a jaunt, as far as reverse mortgages were concerned, which would have explained a lot, but it wasn’t his first. In fact, I found one he wrote back in June of 2011, titled: “Reverse Mortgages Here to Stay.”
That means that Ron has had at least 3.5 years to learn about reverse mortgages, so unless we’re dealing with some sort of learning disability here… (in which case I would only say: “Great job, Ronny!”), I can only assume he’s either lazy, doesn’t care enough, or thinks he already knows everything he needs to know.
Ron started off serving a backhanded compliment of a headline, “Love Them or Loathe Them, Reverse Mortgages Have a Place,” but he very quickly went directly downhill from there. Referencing reverse mortgage industry executives, his second sentence says…
“… they’re in the business of encouraging older Americans to drain equity now from homes they may pass on to their heirs in the future.”
Wow, that’s almost inconceivably offensive, and it’s only his second sentence. Ron may not know that much, but at least it doesn’t stop him from writing a lot.
Can you imagine if you knew someone who was actually, “… in the business of encouraging older Americans to drain equity now from homes they may pass on to heirs in the future?” Could that ever really be someone’s job in this country?
Hello, is this Mrs. Williams?
Oh, hello… this is Rob Money from First National Infidelity, and I’m calling to see if you have any home equity I can encourage you to drain right now?
Well, I don’t think so, but you might want to check with my husband when he gets home. We may have some equity circling the drain that you can talk to him about.
Okay, I’ll do that. Just as long as you don’t pass any of that equity along to your heirs in the future, that’s the main thing.
No, I’m sure we won’t be doing that… we’re working towards losing the house to foreclosure before we turn 80, so we’ll be living in our daughter’s garage after that. She lives in Minnesota so the plan is to move in by fall, so we can freeze to death before President’s Day.
Good plan… it’s nice to see folks that understand that the best way to make sure they don’t run out of money during their retirement years is to cut those years short.
Yes, well we surely don’t want to be a burden.
That’s nice to hear, you have a great day now and I’ll check back with your husband some other time.
The thing is, quite frankly, Ron Lieber is better than this.
After I read Ron’s “Love Them or Loathe Them” piece, I decided to read some of the articles that Ron’s written in the past.
What I found was that, first of all, Ron has written about many of the same topics that I have covered over the last year or two… saving and paying for college, planning for retirement, investing for your retirement years, et al. And it’s not that our articles offered the same sort of advice or perspective (he’s limited writing for the New York Times, after all), but just like mine, his are unquestionably trying to be helpful.
For example, about a month ago he wrote: “A College Financial Guide for Families Who Have Saved Nothing.” And about a year and two months ago, I wrote: “I don’t Care How Much You’re Saving for College… It’s Not Enough.” Like I said, his is not as interesting (or fun?) to read, in my opinion, but he had the right idea, and I think he should get points for that alone.
Secondly, although some of what he’s written I really liked… other articles of his seemed to flagrantly contradict what he wrote about reverse mortgages in his latest endeavor. Check out this classic Ron Lieber headline…
“Once people hit retirement, they don’t know how long they will live or how long their money will last. Still, most retirees with children cling to an intention to leave something behind, even though many of those offspring have no expectation of receiving an inheritance.
This parental instinct might seem loving and generous, but there is another way to look at it. All of this devotion to the next generation may also be the height of foolishness.”
Okay, so which is it? When the reverse mortgage industry encourages “older Americans to drain equity now from homes they may pass on to their heirs in the future,” are they doing a bad thing… or are they providing a valuable service by preventing older folks from committing an act that might be considered “the height of foolishness?”
And when he refers to “all this devotion to the next generation” being extreme foolishness isn’t HE the one who’s encouraging older folks to “drain” their equity now? I mean, if people shouldn’t worry about leaving anything in particular to their heirs, as he’s saying, then shouldn’t they be using whatever they could have left while they’re still here?
I’m so confused.
And here’s what he said while attempting to explain reverse mortgages back in 2011…
“… the house and its equity stand behind the loan, and borrowers can’t tap all or even most of the equity in many instances anyway.”
If they can’t “tap all or even most of their equity,” anyway… was “drain” really the right word to use in the beginning of his latest article? I don’t know what others would say, but to me “drain” implies that “all or even most” of the equity in question is being somehow siphoned from the property.
Next up… a few years ago, he wrote an article about people taking early withdrawals from 401(k) plans. Inexplicably, Ron found this behavior inexplicable… and potentially dangerous. Check out this one from Ron Lieber’s archives…
In 2010, 9.3 percent of households who save in this way paid a penalty to take money out. They pulled out $60 billion in the process; a significant chunk of the $294 billion in employee contributions and employer matches that went into the accounts.
Millions of people are clearly not using 401(k) plans as retirement accounts at all, and it’s a threat to their financial health.
The big question is why, and the answer is that leading plan administrators like Fidelity and Vanguard don’t know for sure. They don’t do formal polls when people withdraw the money. In fact, it was obvious talking to people in the industry this week and reading the complaints from academics in the field that the lack of good data on these breaches is a real problem.
That’s the BIG QUESTION? Why were people in this country pulling money from 401(k) accounts back in 2010? And neither Fidelity nor Vanguard know why either? Because they didn’t do any formal polling?
(These are the sorts of statements that make me think that when presidential candidate John Edwards referenced “two Americas,” he was being literal, as opposed to metaphorical. And whichever America Fidelity, Vanguard and Ron live in… I live in the other.)
Additionally, Ron found it obvious that “the lack of good data on these breaches is a REAL PROBLEM?” He spent a week reading complaints written by academics and that’s what he realized? It only became OBVIOUS to Ron AFTER a week of talking to industry executives?
Where do you suppose Ron was in 2009 or 2010? Incarcerated, perhaps? Busy home schooling the kids? He’s writes the PERSONAL FINANCE column in the NEW YORK TIMES, right? It’s called “Your Money,” right? Doesn’t that position traditionally require someone to know something about the MONEY of others? Or, can the food critic step in and substitute whenever needed?
Look, if Ron doesn’t know the answer to the question of why people took money out of their retirement plans in 2010, then I’m sure as heck not going to give him the answer now. I’m already tired after hours spent writing this waste-of-time-article about someone who doesn’t seem to even know about the 8 million homes we’ve lost to foreclosure since 2008.
(So, now all I want to do is chug a glass of bourbon to wash down an entire bottle of Ativan.)
Memo to Ron: Don’t believe everything you think.
I guess I’m not supposed to feel too badly about Ron’s pejorative views on reverse mortgages because of his willingness to concede that they do “have a place?”
Well, thank you Ron, for that magnanimous concession. I’m sure you have a place too, by the way. It’s just not writing about reverse mortgages… at least until you’ve learned something about them, and by that I mean something more than you can find out in under an hour.
I researched reverse mortgages for about six months before I wrote anything about them, for example, and I’ve written something like 40 articles about them over the last 18 months, so you’ll forgive me if I sound a little put off by your uneducated phrasing, inappropriate tone, and reckless hyperbole.
The Antidote for Portfolio Exhaustion…
Ron’s article meanders its way around, landing on the idea of using a reverse mortgage as a way to extend the useful life of a retirement portfolio comprised of equities, an idea pioneered by ERISA attorney Barry Sacks. (You can listen to Barry and I discuss the origins of the idea and more on this Mandelman Matters Podcast.)
The basic idea is simple. If you had a reverse mortgage line of credit standing by during your retirement years, you could draw from it during market downturns, and avoid exacerbating your losses in that year. In other words, if the S&P is down 15 percent one year, you can take the money you need to live on from your reverse mortgage line of credit instead of making that year’s loss 19 percent after your planned 4 percent annual withdrawal.
It’s a concept I wrote about on August 5, 2014, under the headline: “Even with $2 million in the bank, you should still have a reverse mortgage.” It has to do with something financial planners would call “sequence risk,” which just means that the sequence or order in which you take money out of your portfolio can have a dramatic impact on your portfolio’s life expectancy. (Or, in a nutshell… losses in the early years of retirement are a real bitch.)
The reverse mortgage industry is enamored by this concept, mostly because it’s viewed as a way into the hearts and minds of financial planners, who in turn are viewed as holding the keys to the city of higher income retirees that should be using reverse mortgages… the thinking goes.
There’s certainly nothing wrong with using a reverse mortgage that way… any port in a proverbial storm, you might say. And that Barry Sacks went through the effort of doing a Monte Carlo analysis to prove the concept is terrific. (Monte Carlo is a methodology for assessing the probable outcomes of a given investment strategy by considering a variety of potential market scenarios. And if that sentence didn’t do much for you, then think of it as a coin-flipping machine.)
A Marvelous Economy with Facts…
The beginning of Ron’s article also includes several negative comments that he says came from his readers, none of which were anywhere close to being accurate, because all were sentences that could only come from the minds of the wildly uninformed, including…
“I can’t even imagine a scenario where a reverse mortgage should be considered anything but radioactive.”
That’s not really negative, it’s more a STUPID thing to say, and an even dumber thing to re-print. There’s no question that the person who made that comment knows almost NOTHING about a reverse mortgage, which is why he or she is experiencing an imagination deficiency. (I can only say that the person who wrote that sentence needs to pray to the God of Readafrigginbook.)
It’s exactly like me saying that I can’t imagine a scenario where a Home Equity Line of Credit or HELOC should be considered anything but radioactive… although whatever radioactivity has to do with this, I couldn’t even begin to explain.
HELOCs are absolutely terrible loans for retirees because they start out being interest only and after 10 years start requiring fully amortized payments, which means the monthly payment jumps up quite a bit at that point… when a retiree would be 10 years older. Does that make them “radioactive?” No, it just makes them a really bad idea for retirees.
A reverse mortgage line of credit, however, doesn’t require the borrower to make any payments whatsoever during his or her lifetimes, so even if rates rise, there’s no risk of the loan becoming a burden to someone’s income.
In addition, a reverse mortgage line of credit increases each year by the amount of that year’s interest rate, and unlike the HELOC, it can’t be cancelled for any reason as long as the reverse mortgage is in place.
Did Ron know any of that? I’m guessing not. But, after re-printing that unintelligible nonsense about radioactivity, if you’re someone who fancies himself a journalist who writes to help people… well, not knowing is just plain lazy.
And that wasn’t enough Ron. He also re-printed this comment:
“They’re nothing but a scam that nobody with any common sense should fall for.”
FACT: In 2008, the HECM reverse mortgage program was passed into law by Congress, and today they are regulated by the U.S. Department of Housing & Urban Development, otherwise known as HUD, and they are insured by the FHA, which I believe has been around since 1938 or ’37, I can’t recall.
Does that sound like there’s any possibility at all that HECM reverse mortgages are a “scam” in any conceivable sense of the word? Does Congress ever create “scams” for seniors? Besides that, the irony of realizing that the only person involved that’s entirely devoid of common sense is the author of that comment is so rich as to be worthy of a Monty Python sketch.
Apparently, re-printing those two examples of how our public school system is failing wasn’t enough for Master Lieber. He added one more, I suppose, just in case there were any retirees still not irrationally scared of reverse mortgages, while knowing essentially nothing about them.
“These vehicles are the province of the most unscrupulous of lenders and would be outlawed in a more civilized society.”
Here’s another genius and this one, along with being completely uninformed about reverse mortgages, is educated enough to use large words when smaller ones will do. They’d be outlawed in a more civilized society? Well, gosh… they have reverse mortgages in Canada, England, France, Australia, South Korea and Japan… at least… I stopped looking after finding those. (My piece titled: “Views on Reverse Mortgages from Around the World,” might be worth a quick read if you have questions on that topic.)
After he allows this baseless slandering of the reverse mortgage, Ron points out that the negative comments he has received from readers are, “easy things to say when you have enough savings or pension and Social Security income to get by.”
By making that statement Ron thinks that he’s being… well… fair and balanced, to use a familiar phrase. But, his attempt at objectivity only proves that his knowledge of reverse mortgages is rudimentary at best. I can tell that almost all of what he knows he learned from the myriad of other journalists that have inappropriately maligned and misreported facts about reverse mortgages in the past.
When the going gets weird, the weird turn pro.
This is not the first time that this sort of “journalism” has been brought to my attention, and many of my readers know that I’m likely to go after the offending parties and quite aggressively at times. (The young Ben Steverman over at Bloomberg comes immediately to mind, but there have been others as well.)
Just so we’re all clear, I do so because these sorts of articles are inaccurate, inflammatory and ultimately harmful to older Americans. And if you’re going to write something potentially harmful to older homeowners, then I’m going to step in and make sure they know that your facts are wrong.
I’ve been protecting homeowners from misinformation as related to the financial and foreclosure crises for six years now. I’ve written close to 1100 articles and produced over 100 podcasts covering the political, economic, social and legal aspects of the crises… and please understand, I’m not proud… or tired.
The reverse mortgage is simply too important a topic for amateurs or saboteurs to be playing around with, and far too much of that sort of thing has been allowed to go unanswered already.
The fact is that the Home Equity Conversion Mortgage (or HECM for short) is a fantastic program for those 62 and up. I’m only 53, and it’s the only thing I’ve ever seen that makes me want to be nine years older… now.
On the other hand, I’d guess Ron is maybe 42, and just as I said about Ben Steverman from Bloomberg, that’s just not old enough to be judging what people should or shouldn’t do to make it through their retirement years… especially when his judgments are based on a cursory examination of what reverse mortgages are all about.
I’ve heard that there were problems with the reverse mortgages of years gone by, and frankly, I don’t care. For one thing, it should come as no surprise that there have been problems with all sorts of mortgages in past years. That’s what happens when you fail to regulate an industry overflowing with predatory shitheads.
Without giving it much thought, there’s the Option Arm, the Neg-Am, the teaser and the balloon… and under the premise that poor people need loan sharks, we’ve still got the precious Pay Day Loans that I read somewhere charge between 500 and 3,000 percent interest.
The point is that whatever reverse mortgages were, they aren’t anymore. And making people think otherwise is flat out irresponsible. I honestly believe that if Ron knew more about them, he’d feel badly for leading people astray, but I also wonder if he’s happier fitting in with the rest of the sycophants who write first and ask questions later, if at all.
Caution: Whiplash Ahead…
The thing about Ron’s article is that it’s not just trying to be “fair and balanced,” it’s closer to something along the lines of bipolar. Ron’s very last sentence reads…
“… people who refuse even to consider a reverse mortgage in the coming years may do themselves a disservice.”
Okay, so here’s the thing…
That last sentence is true… it’s a fact. But, if you believed that to be a fact, then the piece you published is… I don’t even know what to say to you about this… I’m actually at a loss for words.
First of all, Ron, what is a reverse mortgage? Have you ever considered this question?
A reverse mortgage is simply a source of funds, available at a low rate, that does not have to be repaid by the borrower on any pre-set schedule, or at all.
Another way you could define a reverse mortgage is that it’s a mortgage that doesn’t require the borrower to make monthly payments… ever.
Or you could describe a reverse mortgage as an “equity release” product that’s insured by the government in order to make it possible for people at or near retirement age to convert some of their illiquid assets, in this case home equity, into cash for whatever purpose they choose.
As ERISA attorney Barry Sacks said recently about reverse mortgages on a Mandelman Matters Podcast… (click to play)
“It’s creating liquidity from otherwise illiquid personal assets. That’s no worse than saying I’m going to sell some of my stock that I bought and watched grow over time because I’ve retired and I’ve earned that. And that to me is economically identical to taking a reverse mortgage.”
Remember… it is THEIR EQUITY. I understand that you can characterize it as a loan, but it’s not just debt, like a credit card is just debt. In most cases, it is a homeowner with significant equity borrowing what is already theirs.
I just can’t believe that in your mind what you wrote was in any way okay. And after reading about you… and since I’d venture to guess that we have similar backgrounds… it’s just disappointing, that’s all. I expect it from those that would say anything for money, but not from someone who said the sentences that follow while delivering the keynote at an awards ceremony in 2009, held by the International Center for Journalists…
“Being a personal finance reporter is something like being a preacher, a minister, a rabbi.”
“I really wanted to make my career in service journalism. I really wanted to make my living – living in service to the reader.”
“Journalists should be of service.”
“There’s never been a better time to be a personal finance journalist.”
“There’s no shame in actually trying to help someone directly.”
The Last Word…
So, a few months ago I had a conversation with a 77 year-old from Northern California. Like millions of other retirees, he’s still paying a mortgage… his balance is roughly $275,000 and he pays a little more than two grand a month. He thinks his house is worth over $700,000, and he’s still working part-time to pay that mortgage payment… he makes about $1200 a month on top of his Social Security.
He had read an article I’d written about reverse mortgages. He said that if he had one he could retire, but his daughter told him not to do it. Apparently, she had read stories about them.
Then a month ago he lost his job.
This afternoon, he sent me an email saying that he’s trying to get Wells Fargo to modify his loan, and the chances are almost overwhelming that he’ll end up in foreclosure as a result of his daughter telling him not to get a reverse mortgage… an opinion she based on what the press was okay with getting wrong, as long as it got enough clicks.
Have you ever seen what it’s like for someone that age to lose a home to foreclosure? Have you even heard a man that age weep over the stress that losing a home causes? Have you sat on the phone with someone in that position at 1:00 AM as he tells you his story over and over.
I have… hundreds of times.
A reverse mortgage. A source of funds available at a low rate that does not have to be repaid by the borrower. It can be used for any purpose and its applications are literally limitless. And yet you would presume to tell others who should and shouldn’t use it for what?
For example, in 2011, you said…
“… as ever-higher percentages of retirees enter old age without a pension and as housing values recover — more people will need to draw on their home equity to pay their living expenses.”
Fair enough, that’s true.
“All of this is not to say that reverse mortgages are the best income-generating product for retirees. Far from it.”
What does this even mean? This is the sort of sentence that is not helpful and at the same time, means nothing. It implies something, but no one knows exactly what… except that reverse mortgages are far from being the best at generating income. Of course, you don’t actually know whether they’re not the best, because you have no knowledge of anyone’s situation. As sentences go, that one should get redlined.
“But it will almost certainly become a necessary last resort for a nation full of increasingly strapped older people.”
There’s so much wrong with this sentence, I’m not sure where to begin. Is this what they teach journalism majors? Because it seems more like the sentence structure that one might learn in a Public Relations class.
Why write sentences like that when you know that they have the potential to influence a senior citizen… like your mom or dad, for example?
Above you said: “… more people will need to draw on their home equity to pay their living expenses.” What if someone you scared away was in the group that you just acknowledged NEEDED to get a reverse mortgages to pay living expenses?
Are you thinking that’s helpful? It’s not. It is, however, callous and detached.
Why, Ron… why? You are better than all this, right? You have to be smarter than this, because that bar’s just not that high.
So, what’s next? Are you going to try to learn something about this subject, or are we going to have to do this again and again? I’d certainly prefer not to… what do you say? I’ll certainly volunteer to help… be a mensch and email me: Mandelman@mac.com.
And if not, then not. See you in the funny pages!