A comment on reverse mortgages

My review of the book on reverse mortgages was syndicated on Seeking Alpha (as are most of my reviews). In response, I got the following comment which I thought I should share.

Brenda,

Some valid points but some issues have been or are being addressed. In today's market probably all reverse mortgages are government loans--the private market has dried up.

Many lenders have eliminated the origination fee and a new product, the HECM Saver, has almost no mortgage insurance charge at closing. The combined effect is to reduce closing costs by about 60% from what they were when the book was researched.

Reverse mortgages are not comparable to "risky" zero coupon bonds because today all of them are FHA insured. The mortgage buyer knows they will receive their principal and accrued interest, although they admittedly don't know when. Also, the borrower continues to own their home--the lender doesn't buy the home from the borrower any more than a traditional lender does.

This product can be a very good one for persons of low, medium or high incomes depending on their circumstances. High net worth borrowers can sometimes be far better off drawing money tax free from home equity via a reverse mortgage than selling financial assets in a down market and incurring capital gains taxes.

Best regards,
Dick Poole