Could New Research Change Financial Planners’ Views of Reverse Mortgages?

While financial planners have not traditionally been major proponents of reverse mortgages in their planning advice, an effort rising among investment advisers in Texas could change all that. The HECM Saver, they say, is the bridge to the gap between reverse mortgages and long-term financial planning.

“Before the HECM Saver came out, financial advisors had a negative view of reverse mortgages,” says John Salter, Texas Tech professor and wealth manager for Evensky & Katz Wealth Management. “They treated them as a last resort.” Now, however, financial planners should consider the benefits of the HECM Saver and the reverse mortgage generally in retirement planning, Salter says.

“It’s money sitting on the table.”

The Saver presents an opportunity for retirees to draw cash when their other investment sources are not performing as well, without the upfront costs that a HECM Standard includes. Because of the low fees associated with the Saver, the cost is now worth looking at as a mainstream recommendation, Salter says.

“it’s not rocket science,” he says. “It’s going to result in a better scenario. This shouldn’t be a surprise to anybody. If you can tap into the value of a home, you’re going to be better off.

While Salter is still mum on the research findings, he says the research—when published in the coming weeks—should have widespread implications for the use of reverse mortgages.

“The takeaway is that for advisors, anybody should think seriously about utilizing the value of the reverse mortgage.” The research coming from Texas Tech’s division of personal financial planning will be put into the advisors community, he says, and should get a lot of press for it. Until then, the anticipation grows.

“It’s like hearing about a drug that hasn’t made it through FHA testing yet,” Salter says.

Harold Evensky, co-founder and president of Evensky & Katz, has also been active in the education and research process.

“It looks like this is going to be an immensely powerful tool,” Evensky said of reverse mortgages in a July edition of Advisor Perspectives Newsletter. The article noted that Evensky is advocating the use of standby reverse mortgages as a way for clients to create additional “standby” liquidity, analogous to a home equity loan.

The impact of a change in financial planners’ attitudes could be significant for reverse mortgage providers.

As a fee-only investment advisor, those like Evensky & Katz must refer clients to others for reverse mortgages, since they don’t take part in the sale of any products. That means referrals for lenders. And with the support of Evensky, a well-known fiduciary financial planner, Salter says, others are bound to listen.

“For him to say this is something we should look at, it’s going to make an impact,” Salter said.

Written by Elizabeth Ecker

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