I came across an interesting article from BusinessWeek that discusses how some of the products that AARP pushes may not always be the best deals available. AARP is best known for its advocacy on behalf of those 50+ but Andrew Tignanelli, president of Financial Consulate, says “The majority of people can get a better deal elsewhere.”
Some people, myself included, may not know that AARP has a successful business which licenses financial and health insurance products. The business is run through a for-profit subsidiary of AARP that teams up with companies which in return pay it a royalty on each sale. According to the article, these royalties can be as high as 3.7% and in 2006 these royalties contributed added up to about $400 million.
Could AARP start doing the same sort of thing with reverse mortgages? As far as I know they haven’t teamed up with any lenders but they have definitely voiced their opinion on the product. Last year they released a report on reverse mortgages to the Senate’s Special Committee on Aging which addressed some concerns that they have with reverse mortgages. The report did provide some interesting feedback on the perceptions of seniors when it comes to reverse mortgages but I didn’t find their recommendations of how to improve the product to be anything groundbreaking. Check out recommendation #8 below… I see where they’re trying to go with this but talk about making things complicated…
Recommendation 8: HUD and proprietary reverse mortgage programs should develop “reversible mortgages” that can shift from forward to reverse mortgages as homeowners age and their ability to make mortgage payments decreases.
As this report notes, more homeowners are entering old age with substantial mortgage debts. Retiring such debts was the most frequently mentioned use of reverse mortgages among the borrowers in the AARP Survey. Product innovation that could lower the costs for those homeowners who want to retire their forward mortgages with a reverse mortgage would be a “reversible” mortgage. Marketed to middle-age homebuyers, it would initially finance the purchase of a home like any other “forward” mortgage. But it would also give borrowers the option to suspend making monthly payments to the lender (shifting into “neutral”) or to obtain a reverse mortgage payouts from the lender when the ratio of the loan’s balance to the home’s value reaches a specified percentage. By combining the functions of a forward mortgage, home equity loan, and reverse mortgage into a single product, lenders could realize efficiencies, resulting in lower overall costs to borrowers.
I agree with most of the other recommendations made and it’s definitely worth looking at if you haven’t seen it yet. To read a copy of the BusinessWeek article click the link below.