The Compelling Research that Helped Change FINRA’s Position
In 2008 FINRA issued an investor alert cautioning borrowers against reverse mortgages and suggesting they only be used as a last resort. In 2013, one notable research paper, “Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income” (Barry H. Sacks, J.D., Ph.D. and Stephen R. Sacks, Ph.D.), took to task the seminal notion that using reverse mortgages as a last resort was best. The writers discovered that the prevailing position–HECMs should only be established after the portfolio was nearly exhausted–was not correct. What the math and science showed was:
“If you use the reverse mortgage credit line in a coordinated fashion—meaning timing it so that it just fills in the down parts of the volatility cycle of the securities portfolio, the portfolio lasts much longer, and most important for any retiree, the cash flow survives much longer. It survives so much longer that in many cases, it doubles the probability that the cash flow will last as long as the retiree does.” – Dr. Barry Sacks
The research-based argument and Dr. Sacks’ subsequent conversation with FINRA was so powerful that in October 2013 it led them to change their “reverse mortgage as a last resort” position and remove the language from their investor alert.
{Video} Dr. Barry Sacks – Why Reverse Mortgages Are Not a Last Resort
{Video} Dr. Wade Pfau – What Is FINRA’s Position?
2019 – FINRA on Reverse Mortgages
Below is the revised FINRA investor alert; you’ll notice the “last resort” language has been removed. Now the tone and verbiage of the new one is measured, reasonable and re-assuring. It’s clear that FINRA has no opposition to reverse mortgages, but quite the contrary. They see value in having the consumer “weigh all the options.”
However, if a financial advisor doesn’t know how the reverse mortgage fits in retirement income planning, they can’t help their clients do the very thing for which FINRA is advocating. Reverse mortgage education for advisors seems not only to be a wise course of action, but a fiduciary and/or suitability responsibility (at minimum).
