Reverse Mortgages Can Provide a Retirement Net

Physician's Money Digest, June 2007, Volume 14, Issue 6

Senior Funding Group, a New York State-based leadinglicensed broker originating reverse mortgages forsenior citizens, announced recently that the firm closedmore than 233 loans in 2006, an increase of 61% overthe prior year.

And they're not alone.

The Federal Housing Administration reports that duringthe most recent federal fiscal year, ending September 30,2006, the number of federally insured reverse mortgagesincreased by 77% over the prior year. TheNational Reverse Mortgage LendersAssociation (NRMLA) indicates thatin 2006 overall there were 77,000reverse mortgages originated nationwide,a 66% increase over 2005.

It's a growing trend, and there aremyriad reasons behind this movement.

"When we entered the reversemortgage business 3 years ago, wewere originating loans for seniors inwhat I would call more desperate straits," says Senior Fund Group President and CEO CharlesSeelinger Jr. "Maybe they couldn't pay heating or electricbills, or they needed funds to repair a roof. Today,we are seeing more decisions to get a reverse mortgagedriven by quality-of-life issues, like wanting to help childrenor update a home."

A reverse mortgage is a loan for people 62 years ofage or older. They borrow against the equity in theirhome, without having to sell, give up title, or take on newmonthly mortgage payments. It provides tax-free fundsin a lump sum, fixed monthly payments, line of credit, ora combination. There are no credit, income, or healthrequirements to qualify, and the mortgage is repaid onthe death of the last spouse living in the home. The loanamount and any accrued interest and fees are deductedfrom the price of the home when sold.

Peter Bell, president of the NRMLA, believes thatmore and more seniors are recognizing that traditionalretirement tools, such as IRAs, pensions, and 401(k)plans, are not providing sufficient income to help fundeveryday living expenses. Seelinger agrees."In today's economic climate, property taxes and prescriptiondrugs alone can tap out SocialSecurity payments," Seelinger said."But to compound the financialchallenges, many seniors havesmall or nonexistent pensions,and instead of relying on children tohelp supplement their needs, theyneed to financially help their children." A reverse mortgage enablesthem to do so.

And, with an announcement late lastyear from Ginnie Mae, the reverse mortgage trend isnot only likely to continue—it should accelerate. GinnieMae is creating a Home Equity Conversion MortgageMortgage-backed Security (HECM MBS) that will allowapproved insurers to securitize and sell their FederalHousing Administration-insured home equity conversionmortgage loans in the form of a Ginnie Mae HECM MBS.The move is expected to expand the reverse mortgagebusiness while providing lower rates for senior citizens.

Of course, that doesn't mean that physician-investorsshould stop planning and preparing for their retirement.But for those who were concerned over the prospect ofretirement without adequate savings, this is one safetynet available to them.