Reverse Mortgage Radio Show - 05-03-2018
Why doesn’t my financial advisor recommend reverse mortgages? The reason may be that he or she is restricted by the company she works for.
In today’s show, Bruce talks about an article he read where a financial advisor was fined by his company for recommending a reverse mortgage. Listen now for the details.
Why doesn’t my financial advisor recommend reverse mortgages?
KLZ's "Ask the Experts" proudly introduces "Reversed Mortgage Radio", hosted
by local reverse mortgage specialist Bruce Simmons. For 15 years, Bruce
has delivered homeowners from across the front range from costly monthly mortgage payments, relieving financial stress while providing additional income
for retirement. Bruce wants you to learn the truth about reverse mortgages, so you can make an informed decision for your retirement. This is Reverse
Bruce Simmons: Welcome to Reverse Mortgage Radio! I'm so glad you can join me today.
We're gonna be going over a couple of different articles today, that have shown up recently in April, the end of April, and I want to talk to you about
them because one of them involves financial advisors and whether or not they're about to talk about reverse mortgages and the other one is something
we haven't touched on in a while that I really want to go back to is the life expectancy set aside. That's for reverse mortgages, that's the escrow,
if you will, for reverse mortgages where we set aside money for your taxes and insurance. Before we get into all that, though, I want to let you know
my name is Bruce Simmons, I am the Reverse Mortgage Manager with American Liberty Mortgage right here in Denver. Our office is in the LoHi area, the
Lower Highlands area of Denver. North Denver, is what people used to call it.
Speaker: Makes it sound so cool and trendy.
Bruce Simmons: I know, it is, it's like the Rino. All these different names, they have LoDo, and Rino, and LoHi, all these...it's crazy, but anyway, so I've been doing Reverse Mortgages for 15 years, I've been with this company, American Liberty Mortgage, where I'm the Reverse Mortgage Manager now. Like, six and a half years, I think. I started there September of 2011, so we're coming up on...seven years now with this company, and anyways Reverse Mortgage is a loan that's specifically designed for people who are 62 and over, that allows you to convert a portion of the value of your home into tax-free money that you never have to repay as long as you live in your home. Now, it stays here-the home is still yours, so you do have to pay the property taxes and homeowners' insurance, and you have to live there and maintain the home.
Those are the four requirements for maintaining and keeping your Reverse Mortgage in place. If you do any, if you don't do any of those, you could lose
the home. They could foreclose on you, or you might be forced to sell the house.
Speaker: And that would be the case even if you had no reverse mortgage.
Bruce Simmons: That's right. If you didn't pay your taxes, you're gonna be in trouble if you don't have any mortgage at all. The tax person's gonna come and take your house, and they'll sell it for whatever you owe on it. So, it's still your house, you can paint it, you can do whatever you want to it. You can't trash it, obviously, you have to maintain it, that's one of the things. If you need to sell and move, you can do that at any time. Any equity that's remaining in your home is gonna go to you. If you take out a $100,000 loan and your house is worth $300,000 today and ten years from now you have to sell, your loan balance gets larger with reverse mortgages, so let's say you might owe $200,000 ten years down the road, but your house value might be worth four hundred. You sell the house for $400,000, pay off the 200 that are owed, and that equity is still yours.
Or, if you were to pass away, your heirs inherit the house, and I've done whole shows on this before. You can visit me at reversemortgageradio.net. Reversemortgageradio.net
and I explain everything on the website as well as past radio shows, too.
Speaker: As of today's show, Bruce, you've been doing this show for one year.
Bruce Simmons: That's right. Thank you. Yes, it's my anniversary.
Bruce Simmons: With KLZ, yes. I enjoy it, and this has been profitable for me. I mean, I do this show because I educate people about reverse
mortgages, they call me, or go to my website, and learn about if it makes sense for them. If it does, they might choose to use me as their reverse
mortgage loaner originator, and that's how I earn a living, and so it makes sense to do this radio show and I'll continue doing it. In fact, I signed
another year's contract here, so...
Speaker: Hooray! We're glad to have you.
Bruce Simmons: I'll be around for a while. But what happens with the reverse mortgages...you're still charged interest every month that you have the loan. You're charged interest on whatever the loan balance is, just like you would on any other loan. The difference with the reverse mortgage is you don't pay it back, or you don't have to, okay? As long as you're living in the home, paying the property taxes, the homeowner's insurance, in maintaining it, you never have to make a payment. Interest is still going to accrue on the loan balance, so the loan balance gets larger every month. You get a statement when you got a reverse mortgage, and it's gonna show your loan balance getting larger and larger, even if you didn't take any money out.
So many people still stay, "well, a reverse mortgage is where the bank pays you instead of you paying the bank," and yes, that's correct, that's one option. In fact, one of the things I do; I volunteer with a prison out in Golding, and I was talking to these guys, we were waiting to get checked in and these guys were there for another program. I do Toastmasters.
It's called the Gavel Club, and it's Toastmasters for prisoners. These guys are some fantastic speakers, but that's another topic. But we were waiting to get checked in; I was talking to them, and they say, "so what do you do?" And I explained to them, and these guys were probably in their sixties, they were qualified that way. They said, "yeah, reverse mortgage..." One of them said, "no, that's a bad deal." Another one said, "well, I don't know, that's where the bank pays you, right?" And I say, "yeah, but there are other options too, so you don't have to take a payment every month. You can set up what's called a line of credit, or you can take money as a lump sum, or you could do it as a monthly income, or any combination."
And I've done whole shows on that in the past; the options, and all the flexibility. One of them said, "yeah, that's a really flexible loan program." It is, it's incredibly flexible, and we can suit it to your needs, whatever they are. Hopefully, we can loan you enough to pay off an existing mortgage if you have a mortgage on your house. We typically loan between 40 to 60 percent of the value. The older you are, the more money you can tap into, but just having a line of credit set up for people is such a peace...it gives them such a peace of mind to know that money's available if something were to happen down the road. But that's one of the things that I wanna talk about, because financial advisors...I've received a number of referrals from financial advisors who say their clients really need to talk to me to learn about reverse mortgages, or I'll get a call from a homeowner who says, "I want you to talk to my financial advisor and educate him about this." And, the problem is, there's this article that came out just recently and I'm just gonna read some of it.
This came out in a reverse mortgage blog that I get every day that has about three or four stories about reverse mortgages, and it says recently a LinkedIn
post relayed a story about a financial advisor who was actually fined by his company's compliance department for recommending a reverse mortgage. Believe
Speaker: That's rotten!
Bruce Simmons: I know, isn't that wrong? And that's the thing is a lot of people I know back probably five, six years ago, the reverse mortgage industry had a push to try to educate financial advisors. For a long time, this program has had the reputation of-it's a loan of last resort. It's for the little old lady who's trying to decide between dog food and medicine and she's house-rich and cash-poor. Well, that's not the case, and we, as an industry, we want to get away from that mindset, so we started trying to educate financial advisors.
I know, I called a number of them, and they say, "yeah, my compliance department doesn't let us talk about reverse mortgages." I honestly thought it was
a lot of lazy financial advisors. In some cases, it probably was, they just didn't want to talk to me, they didn't want to learn something new, they
had in their mind what a reverse mortgage was, and it was for last resort, where you're out of money; you tap into a reverse mortgage. But now, there's
been so many studies about it, about how using a reverse mortgage in conjunction with your other assets, can really help extend the life of your portfolio,
your 401k and IRAs and things of that nature.
Speaker: Well, a good financial advisor would want their customer to know all the options.
Bruce Simmons: That's what this guy said, because the guy that got fined, his name is Zack Alkhamis. I'm not sure I'm pronouncing that right. A-L-K-H-A-M-S. Alkhamis...Alkhamis? And he said he was willing to be interviewed for this story, he said, "I always like to talk to my clients about reverse mortgages because I'm a fiduciary, and a financial advisor. A fiduciary is someone who has your client's interests first." And he says, "if I know of a product that helps my clients to have a better retirement, I will talk to my clients about it. I answer to my clients and it's the right thing to do." That's what he said, and that's the way financial advisors should approach this, but compliance departments...
I'm not big on compliance myself, just ask my wife. I don't comply real easy to anything. You can ask any underwriter, I'll get these conditions because
an underwriter is the person who has the final say on a loan, I'll get conditions from an underwriter that I don't agree with, that I'll go battle,
that I'll go toe-to-toe with these guys and say, "no, you don't need that! There's no reason for us to have this." And every now and again, they'll
educate me, but sometimes, they'll change it and say, "okay, you're right. We don't need that." And so, I'm not a compliant person, I would have a
hard time in this industry, and I have a hard enough time in the mortgage industry, because of all the stuff we have.
Basically, he said he received a letter from his compliance department, and it was basically a slap on the hand. Disciplinary action for discussing reverse
mortgage with a client. He said it was a $350 fine. He challenged it, but it was to no avail. The way they found out is, I guess, financial advisor
companies; they'll scan these guys' emails, and they look for keywords, and reverse mortgage is one of the keywords and this guy called a reverse mortgage
person, I'm sorry, gotta use my words correctly. He called the reverse mortgage guy and said, "hey, can you call my client about this, and see if the
reverse mortgage makes sense for them?"
Well, the reverse mortgage guy copied the financial advisor on an email, and that's how his company found out that he had recommended this reverse mortgage,
and the thing is, every time I received a referral from a financial advisor, they always leave it to the client, they say, "you know what? If you're
not comfortable doing it, don't do it." It's not a mandatory thing, and I've told a number of people that, so and then they go through in this story,
they talk to other people in the reverse mortgage industry, and they say, 'weekly, we hear...' and this is from a trainer.
She said, "weekly, we hear that a company, compliance officer, forbids discussion on using any housing wealth. They don't want them talking about getting
home equity, a line of credit, even in retirement planning. Instead of formulating policies and procedures to ensure clients use their housing asset
prudently, many of these financial advisors companies and their compliance officers routinely insist on a total blackout of the issue." That's what
she said here.
Speaker: Isn't that the case for a lot of people their house is their biggest asset?
Bruce Simmons: Yeah, it is.
Speaker: So why would you want to ignore it when you're planning?
Bruce Simmons: Exactly.
Speaker: What a strange policy.
Bruce Simmons: Well, they're worried about, it says later in this article too, that compliance officers are not worried about what's best
for their clients. They're worried about protecting the company. They don't want somebody to take out a loan, blow the money or maybe not get the best
deal or something, and be upset, and sue, come back on the financial advisor's company. That's what it boils down to, and that's why these guys are...compliance
is kind of hesitant. They're always the last ones to say, "okay, this makes sense" or this doesn't. So, actually, this was written by a person who
works at a blog called "Reverse Mortgage Daily", and they reached out to five different companies for clarification on their policies. Four of them
still won't, they didn't even get a response. One of them got back to him and said it was Edward Jones, and they said that they don't have an official
policy just yet, although it's something that they've been researching and following as a firm, they haven't decided on a policy.
But, then they added it's up to each of our financial advisors to discuss the options that are in the best interest of our clients, and I can tell you
that for a fact because I've done a number of loans from some financial advisors that worked for Edward Jones. One of them, he had me come in, and
he was a trainer, and he had me come in and actually do hour-long classes to new financial advisors about reverse mortgages, and it just makes sense
that they should understand a little bit of it.
Speaker: Yeah, that's a great idea.
Bruce Simmons: Yeah, and they don't have to know in effect, just like me; I don't know everything there is to know about a regular mortgage
or a home equity line of credit. If that's what you want and you were to call me, in fact, I've had people say, "well, maybe I should get a regular
mortgage." I said, "well, I don't even know what the interest rate is." I don't follow normal conventional mortgages because I don't do them. The last
one I did, I did by accident, just because it was in 2012, everybody else was busy, and somebody wanted to refinance their mortgage, and I happen to
have some time at that time, and the office manager was like, "hey, can you talk to this person about just a streamline FHA refinance?", and I say,
okay, I'll do it, and I didn't know what I was doing, and I was sucky at it, and I said no more, I'm not gonna do another forward loan as long as I
Speaker: You'd rather refer them to someone who's an expert in it?
Bruce Simmons: Yes, I can tell you how they work, a little bit, but they've had a lot of changes, so I'm not really up to speed on them, and that's a way that a financial advisor has to look at; they need to know the basics, but they refer it to someone who understands a lot more, and the problem is, there's a guy by the name of Jamie Hopkins, who's actually a professor at a place called American College of Financial Services.
This is where financial advisors get a lot of their continuing education, and their initial training, and there's a whole curriculum at this college on a reverse mortgage and Jamie Hopkins, he's a retirement income certified professional or something, I forget. RICP is the initials, but he understands how to best maximize whatever assets you have to create an income for the rest of your life, and he's written extensively on reverse mortgage and he teaches classes to some of these guys, and he said the problem with a lot of these companies is they...he said some of this negativity is driven by misconception, old information, and a general compliance mentality.
Some of these concerns are based on the fear of being unable to monitor churning or cross-selling issues, and that's where...this used to happen more often,
but let's say I give you a reverse mortgage loan. You take out $100,000, you give it to your financial advisors, now they have $100,000 more than they
can manage and it helps their income, and that's frowned upon on both sides of the industry, and in fact, Edward Jones, the guy that refers me a lot
of business there, he told me, specifically, they have to know where your money comes from.
If you're gonna give them $100,000, they need to know, "Did you borrow this money? Because that's not allowed." And if it's a reverse mortgage, you borrowed
it, and they're gonna wanna see, just like we do when you're buying a house or something, that this money is seasoned, that you've had it for a number
of months to make sure that you're not, it's not from some illegal source, they're worried about that, because financial advisors also go through the
same thing that banks do to make sure you aren't trying to launder money and things of that nature.
Speaker: So don't take out a reverse mortgage if you want to invest that money.
Bruce Simmons: No, because the reason is to because if you lose an investment, well that's a loss. That stinks, but if you borrowed the
money based on the equity of your home, now you've lost equity and the money, and that just doesn't make any sense to do that and take that risk. Plus,
given the return that people have-not return, I should say, the growth rate of a line of credit. A reverse mortgage is if you leave money in a line
of credit because you don't need it, okay? I always tell people, unless you need the money, don't take it out. Set it aside in this line of credit
that's available with this reverse mortgage. And there's a growth rate on that, and right now it's like five, five and a half percent, and so, in other
words, if you had a $100,000 and you didn't touch it for a year, next year it's gonna be $105,000, and that's not a bad return in today's market guaranteed.
That's one of the benefits of reverse mortgages; you can never, ever lose that line of credit as long as you're paying your taxes and insurance and living
in the home and maintaining it, okay, with a reverse mortgage. And if you have any questions about any of this stuff that I'm talking about, you can
call me or better give my number to your financial advisor. It's 303-467-7821. 303-467-7821 is my direct line, and you can also reach me online at
reversemortgageradio.net. Reversemortgageradio.net. If you missed part of the show, you can hear it on the show starting Monday. I have it uploaded
every Monday morning to my website, and so you've got all the broadcast for the past 12 months on there.
There's also other videos and things that help to explain it, but this Jamie Hopkins goes on, he says, "some also worry about some companies' compliance
people, worry about their employees are not properly trained or educated on a reverse mortgage, and should therefore be wary about allowing them to
move forward with any serious discussions." And this is what we were talking about. Financial advisors shouldn't be having serious discussions about
the details of reverse mortgages with you. And so, keep that in mind, just know that if you ask your advisor, your financial advisor about this or
if you're a financial advisor and you're listening to me, please call me. But, if you're talking to your financial advisor and they say, "you know,
a reverse mortgage isn't a good idea, or we don't recommend those, or we don't anything", it's probably because of their compliance department. Just
keep that in mind, okay?
The other article that I wanted to talk to you about that I'm kind of rushing through, is something that I really haven't touched on in a while, in years,
is last April, I shouldn't say last April, of 2015, three years ago. We started underwriting loans based on income and credit, and if you didn't have
enough income or good credit, then we'd have to do what we call a life expectancy set aside. L-E-S-A. LESA is what we call it. Some people call it
LESA. Heh, I think it needs two S's for LESA, but I like LESA better.
So, the life expectancy set aside is money that we have to set aside that normally we would make available to you to cover your taxes and insurance for
however long we think you're gonna be living in the home, and this is a report on kind of the underwriting and what people think of this program now,
at three years later. This one underwriting manager says, "LESA was truly a gift." I don't know about that, but that's what she says. She says we're
giving the borrower a relief by paying their taxes and insurance. Less for a senior borrower to worry about, and that's a very good point because I
forget about that. Honestly, in the last three years, I'll bet I've done five loans over the last years, that we had to set aside.
Now, you can choose to do it by yourself. So, let's say you got a lot of equity in your house and you're just setting up a line of credit and you don't
want to be bothered with having to pay your taxes and insurance. You could get a reverse mortgage and we would pay your taxes and insurance for you
if you chose to do it that way. Well, the way it works is we have to estimate how long you think you're gonna live in the home. Then we look at how
much your taxes and insurance are on an annual basis today, and we multiply that times one point two, because we know they're going to be going up,
and then we have to set that amount of money aside for however many years we think you're gonna live in the home. The younger you are, the more it's
I did a loan for a lady with, I think her taxes were $4500 because she had bought an $850,000 home. Beautiful home in Castle Pines and she owned it for
Aunt Claire[???], and we're having trouble with her income. She didn't quite make it, and so they required that we do a life expectancy set aside.
I think she was 63 at the time. We had to set aside, I want to say $108,000 to cover her taxes and insurance for that time period.
Speaker: It's a good thing her home was worth a lot because you had that money to set aside.
Bruce Simmons: Yeah, exactly. Yeah, now, in the situation, let's say she had a mortgage. I think, in her case, this is where we can loan
a little more money, too. This was two or three years ago. And we could, in her case, she owned it for [inaudible 00:21:15], so there was no mortgage,
and I think we loaned her $350,000, and I think we had set aside actually $130,000. It was more than a hundred. 130. So that left her with 220 roughly
if we could loan her 350. She still had 220 left in a line of credit, but if she had a mortgage of $250,000, and we could loan her only 350, well,
then, she wouldn't have had enough money to put aside, because we have to set aside $130,000 in her case, but that's an extreme case. Most people are
somewhere honestly, though, depending on their age...the older you are, the less money we have to set aside because you're gonna be living in your
house a shorter time period, most likely. What happens is most people are somewhere between ten and $30,000 we have to set aside.
Speaker: So, when tax day arrives, how does that work? Who pays the taxes?
Bruce Simmons: The mortgage company does.
Bruce Simmons: And then what happens is when they add that amount of taxes to your loan balance. They have this money set aside, you're
not charged interest on it, there's $30,000. Now you have to pay $1500 in taxes, so they take $1500 from that 30,000, pay your taxes, and then that
$1500 will show up on your monthly statement and they'll show an advance. So, they advance you $1500 to pay your taxes and insurances so now you're
being charged interest and mortgage insurance on that $1500.
Speaker: That could be kind of nice, though, for someone who just doesn't want to worry about paying their taxes.
Bruce Simmons: Well, yeah, and especially people who are used to the mortgage company paying it. A lot of people, if they have an existing
mortgage, the mortgage company holds out part of your payment for taxes and insurance, and if you're used to and you've had that your whole life, well
now suddenly you've got to remember to pay your taxes and insurance. Oh my gosh, I had a $1500 bill coming out. You know, and some people have money
set aside in their line of credit, their home equity line of credit for that purpose, so it's good, and then they just remember to draw it out in time,
and they'll use that money. Other people would set up-I always recommend to people before we had this, I'd say, "okay, now, we're not setting aside
for taxes and insurance. Your taxes and insurances are combined $3000 a year.
That means you have to set aside $250 a month to cover those costs, and typically when you pay off an existing mortgage, they're gonna refund whatever
is in your escrow account. I tell people, "take that money, the $500,000, whatever that is, open up a separate savings account specifically only for
your taxes and insurance. You don't touch it otherwise. And then you set up an automatic payment plan, or an automatic draw from your taxes or from
your social security after you get your social security, you have the bank automatically take out $250 and put it in that savings account." And that
way, you've always got a bit of a slush too, because taxes typically aren't gonna become due for six, seven, eight months or more, depending on when
they were paid last, and that way you always have the money to pay it. That's what I would tell people, but not everybody did that.
Speaker: It's just good planning, right? Plan ahead!
Bruce Simmons: Yeah, but there's a lot of people that used to take reverse mortgages that weren't the best planners, and part of the reason
they had to do a reverse mortgage is because they didn't plan very well, and they didn't budget very well, they liked spending a lot, and that's part
of what happened with reverse mortgages is that people would take out this money, take out a big lump sum and blow it all, and I know, because I'm
in the process of remodeling my home, and I've got this big line of credit, a home equity line of credit to cover the cost, and my wife and I are thinking,
"oh, boy, what's this gonna cost to that?", and I'm thinking, "...you know what? It doesn't matter, let's just go out and let's just get the top of
the line product, because hey, we have it."
But no, I shouldn't do that, I'm more of a spender, my wife's the saver, and so I know that if she wasn't around and I got a reverse mortgage, I would
be much better off taking a monthly income, as compared to having a big lump sum or the line of credit, too, I guess, but still you gotta be careful.
Just be careful with it. But, the way LESA is set up, is so that it covers that for you. If, with a reverse mortgage, we can do it even if you've got
bad credit or you don't have quite enough income, but what we have to do is we have to do this LESA; set aside.
Now, if you have bad credit, and we have to do this, and you don't have enough equity to do it, that's where I can't help you, or you might have to bring
money to closing. If you're like that, if you have a big mortgage and we can only loan you so much, but we have to take money and set it aside in this
LESA, and you're $10,000 short now to pay off your mortgage, we can still do that, if you have an extra $10,000 that you can bring to closing to cover
all the coast. But, and the benefit to that would be, no mortgage payment! No insurance payment either or taxes! So you're basically just having to
live in the home and maintain it. You don't have to worry about all these extra things, and there's a lot of benefit to that. Reverse mortgages are
great, but you have to know what you're doing with them, and I can help you, guide you through that process.
My name is Bruce Simmons, I'm the Reverse Mortgage manager with American Liberty Mortgage right here in Denver. Call me directly at 303-467-7821, or visit
me online at reversemortgageradio.net. Reversemortgageradio.net. Have a great day, thank you for joining me!
Call Reverse Mortgage Specialist Bruce Simmons at American Liberty Mortgage directly at 303-467-7821 to begin drawing equity from your home. Bruce will come to you anywhere in the front range for an in-person, no-obligation consultation. Learn more about reverse mortgages and watch testimonial videos on reversemortgageradio.net. MLS#409-914, regulated by the Division of Real Estate.