The Psychology Behind the Recovery

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Th e M Rep o RT | 21 Feature R everse mortgages are gaining a lot of buzz in the marketplace and will likely get more attention as more baby boomers pass the products minimum age of 62 and seek alternative sources of income after retirement. Baby boomers don't have the pensions of the previous genera- tion, and any retirement nest egg they once had likely shrank significantly during the financial crisis at the end of the last decade. Reverse mortgages enable these seniors to tap into the equity in their homes to augment any Social Security, retire- ment, annuity, or other funds they have. If used correctly, reverse mortgages can provide some financial relief for seniors while enabling them to stay in their homes. However, if a homeowner does not understand all the continuing expenses and financial requirements, reverse mort- gages can leave the homeowner or heirs with fewer funds than expected when the home is sold, and in a worst-case scenario, can result in foreclosure for an American who should be enjoy- ing his or her golden years. Large Potential Market M any seniors are "house rich, cash poor," according to Atlanta-based Generation Mortgage, which reports more than half of Americans age 62 and older have more than half of their net worth in the equity in their homes. Reverse mort- gages, which the Federal Housing Administration (FHA) refers to as home equity conversion mortgages (HECM), can enable homeowners to stay in their properties while taking advan- tage of the equity in their homes. Yet, according to a June 2012 Consumer Financial Protection Bureau (CFPB) report, less than 3 percent of eligible homeowners had the product as of the report's release. The CFPB bases its percentage on figures from the FHA, which insures an estimated 99 percent of reverse mortgages. Private lenders offering reverse mortgages without FHA insurance left the market during the last real estate downturn. The popular television commercials with Henry Winkler (Quicken Loans) and Fred Thompson (American Advisors Group, more commonly known as AAG) tout the benefits of the loans, stressing the ability to use the equity in the home without fear of losing the property title to the lender in the future, even if Reversing the Reverse Mo rtgage Myth once a scary notion for seniors, now a viable tool to fund retirements, if used correctly. By Phil Britt Feature

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