Exploring Home Equity Amid Stock Market Uncertainty

The recent volatility in the stock market has brought stress and uncertainly to many retirees and investors. So far, the roller coaster ride has yet to significantly impact the reverse mortgage industry, loan originators said, but that could change if stocks continue to lose value.

As companies were releasing first quarter earnings in late April, the leading stock market indicators have fluctuated from bullish to bearish and back again. The interest in reverse mortgages, though, has remained steady, and seniors have largely resisted any temptations to use those loans as essentially a safe financial harbor, originators report.

For one, the move may not work for everyone, Ed O’Connor, marketing manager with the Home Equity Conversion Mortgage division of New York-based FirstBank said.

“And the 2% MIP [mortgage insurance premium] has made this expensive for an option,” he said.

The recent stock market uncertainty comes as a new marketing pitch emerges in the reverse mortgage industry: Use your home equity when your 401(k) takes a tumble so you can give it time to recover. O’Connor and other originators are casting a skeptical eye at that marketing message.

“While it sounds good, it’s just a pitch,” he said.  It’s “no different than using a celebrity spokesperson. It helps to get the word out, but at the end of the day the product either fits and makes sense, or it doesn’t. We are not selling used cars here.”

That reaction mirrors the industry mood from earlier this year, when the once-mighty stock market took its first significant tumble after steady impressive gains. Laurie MacNaughton, of Atlantic Coast Mortgage in Virginia, cautioned that plugging the reverse mortgage as a cure-all for stock headaches could backfire on the industry in the long term.

“It’s tempting to use something like this as a ‘make hay’ moment, but opportunistic pitches erode trust placed in us by professionals of other sectors — at least in my market,” MacNaughton told RMD in February.

She also emphasized that borrowers should look at the decision to take out a reverse mortgage in the context of their own personal situations.

“If a reverse mortgage was a good fit before a market plunge, it’s a good fit following a market plunge,” she said. “If it was a poor fit before a drop, it may well continue to be a poor fit.”

Originators are still urging their clients to remain calm and avoid panic as investors and retirees wonder what’s next.

“Using a reverse mortgage line of credit as a portfolio protection product is smart whether the portfolio is full of stocks, bonds, mutual funds, etc., or things such as real estate,” said Parker Turk of Sun American Mortgage Co.

“The bottom line is that you never know where the values of these assets will be when the time comes for a retiree to liquidate,” Turk said. “That is why the line of credit simply provides flexibility for someone to buy time and sell a specific asset on their timeline and not out of panic.”

Written by Thad Rueter

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