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Reverse is
always backwards
By Jim Surber
For the last five or six years, network television viewers have been
enticed to investigate a financial instrument called a “reverse
mortgage.” As Fred Thompson strolls along a busy street or garden path,
he tells of a great new option for Americans which offers “options for
retirement and security for your family.”
Thompson, an actor and former conservative GOP Senator, certainly has
the reputation, voice, and demeanor to earn the trust of many older
viewers, if he doesn’t already have it.
His pitch is very promising. “You can turn your home into tax-free cash
while you continue to retain full ownership of your home.” He reminds
us that in 1988 President Reagan signed a bill into law providing
reverse-mortgage insurance by the US government. (He fails to mention
that this law and insurance does far more to protect the lender than
the homeowner.)
This sounds fantastic if you don’t remember commercials of past years
that told homeowners they were rich and should take advantage of the
greatly increased equity in their homes by refinancing.
Another interesting part of the Thompson ad is his statement that the
owner of the house retains ownership of the home. I fail to see how one
can own something that he cannot transfer to someone else free and
clear.
The most glaring irony is that Thompson, a professed small government
conservative and former GOP presidential candidate, is pushing a
product that is subject to the good faith and credit of the United
States government.
Is this another financial instrument designed to coax the average
American to donate their money up the path to the rich? At the end of
the reverse mortgage’s term, an elderly person is certainly left
without an asset to transfer to his or her children at the time of
death.
Another secret is that reverse mortgages are nothing but a no-risk gift
to bankers, or a wealth transfer engine from the masses to a select
few. When the "owner" of the home dies, the government will pay the
bank any difference between the money owed (principal plus interest)
less the sale price of the home.
If the heirs want to keep the home, they must pay the loan off in full.
If the amount owed is more than the value of the home, the heirs must
pay 95 percent of what is owed to the bank with the government paying
the rest. What is the reason for the bank being in the transaction,
other than to extract from the government and the homeowner? There is
absolutely no risk for the profits they will make.
The popularity of the reverse mortgage masks a systemic problem
affecting the American middle class. Workers make an economy possible
by providing years of work, taxes and spending. When retirements are
incapable of providing retired workers with what they feel is an
adequate living, a vehicle is created for them to totally deplete their
assets to survive.
It is well known that the wealth and income of the very few at the top
grows much faster than the growth of the economy as a whole. This would
suggest that some of that growth is directly coming from the pockets of
the working middle class in the form of lower wages, extractions from
the government (tax dollars, interest payments, etc.), reverse
mortgages, higher tuitions as states lower taxes, and commercial
student loans.
This is an unsustainable path.
Will it lead to a society where the vast majority of citizens will have
no assets? Those without assets are functionally indentured servants
and are little more than a commodity of work and service.
It is a winning combination indeed to create a need, and then to fill
it.
Our nation already has an alternative economy, based on payday loan
institutions, in neighborhoods where the old economy has died. A
payday loan is something with which you are either intimately familiar,
or completely oblivious to.
These stores supply small loans (usually under $500) at exorbitant
interest rates to be paid off, ideally, with one’s next paycheck. The
storefronts are cheerful, decorated with pictures of flowers, gold or
the American flag. In the state of Missouri, there are 958 more payday
lenders than there are McDonald’s restaurants, a ratio reflected in
most US states.
Are many Americans who have worked their entire lives, put their
children through school, helped many in need, and faithfully paid their
mortgages for decades, now being taken advantage of once again? While
they may have followed all the rules necessary to be considered
fiscally responsible, another form of legal fraud put forth by the
financial sector with the help of purchased politicians may well
compromise their retirement years and the financial well-being of their
children.
In past years, the highest one percent has walked away with a large
percentage of Americans’ 401Ks, SEPs, and to varying degrees with their
financial security. With stagnant or falling real wages, much of the
working middle class have maxed out their credit in an attempt to
maintain a standard of living. If a country governed by the wealthy
must feed on perpetual growth, where will it feed now? Could it be this
well-crafted financial instrument, known as the reverse mortgage, which
is now being marketed on steroids to a baby boomer population?
Most Americans’ wealth is in their homes. Having some wealth to
transfer has always helped the next generation to gain financial
security. Isn’t this the reason always given by conservative
politicians for their elimination of estate or “death” taxes at both
state and federal levels?
Apparently, this reasoning only applies to huge amounts of wealth.
Mr. Thompson’s cleverly-crafted reverse mortgage pitch has the full
faith of an actor and the credit of a former conservative national
political figure (or maybe two); but what will be its result?
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