Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions Is Subject of Feb 28 Luncheon

The February 28, 2012 luncheon presentation at the Bethesda Country Club, MD is based on a paper titled, “Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions” that was authored by John Salter, Ph.D., CFP^®, AIFA^®; Shaun Pfeiffer; and Harold Evensky, CFP^®, AIF^® and published in the Journal of Financial Planning.

The presentation discusses the use of reverse mortgages as a cash and investment management tool. Based on academic research conducted by the presenter, the use of a HECM Saver reverse mortgage line of credit to supplement income needs, taking into consideration deviations of a client’s expected retirement wealth glide-path, were analyzed in terms of increasing portfolio longevity and the ability to meet goals. The presentation will discuss the HECM Saver reverse mortgage product, this investment and cash management strategy using the product, and results of the research.

The idea behind the study was to investigate how to mitigating the risk of reverse dollar cost averaging in retirement distributions by borrowing from a reverse mortgage line of credit when the portfolio is down relative to a capital needs analysis to meet goals, then paying the line of credit off when the portfolio rises.  With the projections of low returns with high volatility, these issues are important in today’s market. 

The presentation illustrates the use of reverse mortgages in mainstream financial planning and investment management, as well as other potential uses of the HECM Saver product.  This idea challenges the view of reverse mortgages as a tool of last resort.

PRESENTER PROFILE

John R. Salter, PhD, CFP®, AIFA®, is an Associate Professor of Personal Financial Planning at Texas Tech University.  He teaches in the areas of retirement planning, investment management, and financial planning capstone, and his research interest is in the area of retirement planning and income management.  John is also a Vice-President and Wealth Manager at Evensky & Katz Wealth Management in Coral Gables, Florida and Lubbock, Texas.  He is a Certified Financial PlannerTM practitioner and an Accredited Investment Fiduciary Analyst.

BACKGROUND

On September 22, 2010 HUD announced a new reverse mortgage product called the Home Equity Conversion Mortgage (HECM) Saver product. According to FHA Commissioner David Stevens, “Despite the popularity of our HECM loan product, we have noted concerns that some senior citizens find that our fees are too high for them”. In response, HECM saver was created to “provide seniors with a reverse mortgage option that significantly lowers costs by almost eliminating the upfront mortgage insurance premium (MIP) that is required under the standard HECM option.”

As of September 22, 2010, the HECM Saver had an upfront premium of only .01 percent of the property’s value. Under the HECM Standard option, the upfront premium was 2.0 percent. The mortgage insurance premium (MIP) for both options was 1.25 percent of the outstanding loan balance. For more information on FHA HECM Saver option, read FHA's mortgage letter 2010-34.

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Attend this Luncheon and Receive CE Credit