The time is now for credit unions to gear up for the last wave of Baby Boomers who will soon reach (gasp) age 60 and may be house-rich and cash poor. Especially the ones strapped by financing their kids' college education, their parents' elder care and their own retirement.
"There's $2 trillion in home equity in the United States," said Patricia McGill, president of Frederick, Maryland, based Money Marketing, Inc, and a reverse mortgage specialist.
"Seniors are learning about reverse mortgages on TV and on the Internet," said McGill, adding that CUs might benefit from the product because many seniors still like face-to-face contact, a service option at most credit unions. "They may get information from the Net and send for that free video, but they want to deal with someone they trust, and isn't that the hallmark of credit unions?"
Reverse mortgages are a lot like HELOCs, but with an exception: there are no payments as long as the borrower lives in the home. Upon the death of the borrower, the homeowner still owns the home, but the lender has a lien on it.
The benefits are many, McGill said, including tax-free cash usable for any purpose (must be 62) without any impact on social security benefits. A lump sum is available, but most borrowers use a line of credit and draw as needed. A borrower can also receive a monthly payment of a fixed amount or a combination of options. The line of credit is recommended because the principal increases by 1/2% more than the interest rate taken out on the money.
The typical reverse client really isn't typical, either, McGill said. "Rich people do it so they can make better use of their other investments." Some retirees don't want to work so hard to manage their money in retirement, so it depends on what they want out of life at their vantage point.
The sticky part always involves greedy dependents, however. "I've heard it too often, 'You're spending my inheritance!' noted McGill. "It's very sad. That's why I recommend a session that includes the children; so they know what's involved and accept it." Otherwise, the risk is that they try to poison the well. Depending on how long the borrower lives (and the amount of the loan) there may be equity left for inheritance, said McGill. An insurance policy can be bought to cover a gap, too (but it will be pricey).
Beware lenders who strong-arm borrowers into buying long-term care packages at the same time as they are pitched for reverse mortgages, said McGill. "I object to that. The whole purpose of this product is for the homeowner to age in place. I've done a lot of them and seen the joy on their faces when they realize they needn't worry about getting by any longer. They have peace of mind."
CUs would do well to make the reverse mortgage option a standard offering, she said. "If you won't, someone else will, and they will cross sell your members. Credit unions are trusted, it's a natural fit."
