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Sometimes when I read an article about reverse mortgages, I just shake my head in wondering, what the heck was this person thinking? They’re totally ignorant on reverse mortgages. Then there’s other times where I read an article and I’m just yelling and I’m pulling my hair out saying, what the heck? You’re just lying about this. Recently, there was an article on MSN.com. And for those of you that might use Microsoft Edge or whatever as your search engine, you may have seen this because I was using MSN and I saw an article pop up. And I do that a lot of times. They come up all the time because I’m always searching for information about reverse mortgages or going to articles about reverse mortgages, what have you. And this article popped up and most of the time I ignore him, but I happened to click on this one because I had a minute or two. And I just glanced at it and I knew, I knew from the first line, this guy had nothing, nothing good to say about reverse mortgages. And when I was reading this article to prepare for the show today, I was, I’m convinced this guy is a liar. He is either a liar or a complete incompetent boob. He just did not want to do any research about reverse mortgages. He went into it biased, and he decided to lie about reverse mortgages. I don’t know who it is. There was no bio on this author. His name is Joel Lim, J-O-E-L, and then last name L-I-M. And there was no bio on him. This is an article that was reposted. It came out a few days ago, I think on November 17th on GoBankingRates.com, I think is the name of the website. And then it was reposted onto MSN. On the 17th. But I’m going to jump into this now. By the way, too, thank you so much for joining me today. I’m going to use this, though. I’m not going to get frustrated. I’m not going to sound like I’m whining. At least I hope not. But I want to use this as a teachable moment. We need to make sure whether, and it doesn’t matter what we’re researching. We need to make sure the sources that we’re getting our information from are knowledgeable about the topic they’re talking about. whether it’s politics or banking or finance or anything else, history, whatever the case may be. They need to be knowledgeable about what they’re talking about. Like I said, I don’t think this guy has the best intentions. I think he thinks reverse mortgages are bad, and he found sources who also believe they’re bad. But let’s dive into it. The article is titled, Thinking of a Reverse Mortgage? 400. quote unquote, expert reasons to think again. And you didn’t see my air quotes, but that’s what it says, for expert reasons to think again. I don’t think they’re expert, but that’s another topic. The article starts out, according to U.S. Department of Housing and Urban Development, almost 100,000 reverse mortgages were issued from 2022 to 2023. That shows reverse mortgages are popular among seniors looking to supplement their income. No, that doesn’t mean they’re popular. In fact, that is a scratch on a scratch of the market potential. As an industry, reverse mortgages have never penetrated more than 2% of the market nationwide. Now, in Colorado, we’re a little better. We’re about 4% of the people eligible who have enough equity to get a reverse mortgage actually get them. Let’s just compare real quick. In 2022… there were 64,521 reverse mortgages originated compared to 8.4 million mortgages, first mortgages. That’s only first mortgages. That doesn’t include HELOCs or anything else. Those are just regular mortgages, conventional FHA, VA, whatever, not counting HELOCs or second mortgages. In other words, Reverse mortgages is less than 1%. We originated less than 1% of the number of regular mortgages. How many of those 8.4 million people who took out a mortgage in 2022 could have qualified for a reverse mortgage and probably would be better off? I venture to say a lot of them. In 2023, our market dropped because interest rates went up. Our market dropped to the number of loans, reverse mortgage loans originated were 32,991 compared to, let’s see, what was it? 4.4 million in regular conventional mortgage or regular mortgages in 2023. That still is less than, that’s three quarters of a percent, the number of loans. So it’s not a lot. The whole intention of this article is to say, all these people are getting reverse mortgages, but they need to think really strongly about it. And I agree with that. They do. People need to do their homework. That’s why you’re listening to this show. By the way, too, my name is Bruce Simmons. I’ve been originating reverse mortgages for over 21 years. Going on 22 now. Since 2003, I’ve been originating reverse mortgages. That’s the only loan that I do. I have a lot of experience in this field. And I know what I’m talking about when I explain about reverse mortgages. So… Anyways, give me a call if you have any questions about reverse mortgages, 303-467-7821. You can also visit me online at reversemortgageradio.net, reversemortgageradio.net. Now, I’m going to skim through this article. I’m not going to study it the whole time because I also want to get a little wonky on you on interest rates. We’re going to talk about… why the Federal Reserve lowering interest rates actually is causing long-term rates to increase. Yeah. Long-term rates are increasing, even with the Federal Reserve lowering interest rates. But let’s finish this up real quick. Okay. He talks about a reverse mortgage or a home equity conversion mortgage. That’s just the name of the FHA-insured reverse mortgage loan, and it is the most regulated loan that I’ve ever done. I think it’s probably the most regulated loan of any loan that’s available. But it allows homeowners aged 62 and older to convert… He says, convert their equity into cash without selling the property. And that’s not an accurate way to describe it because they’re actually converting a portion of the value of their home into money that they can spend without ever having to make a payment on the loan. I say that because a lot of people will call me and say, hey, I’ve got $400,000 equity and I want to borrow against it with a reverse mortgage. I say, well, it depends. They say, well, I’ve got an $800,000 home and I only owe $400,000 on it. So I want to tap into some of that equity. And I say, well, if you’re only 62 years old, we can only loan you about 30% or 32%, 33% of the value of the home, which isn’t enough to pay off the existing $400,000 mortgage. We have to pay off any existing loan on the home. So then he goes on here. He says, sounds like a great idea. Unlike a traditional mortgage, the loan balance grows over time due to accumulating interest and fees, significantly reducing the home’s equity. And that’s not the case. It depends. It could reduce the amount of equity you have. It certainly will be you’ll have less equity if you get a reverse mortgage 10 years down the road than you would if you continued making your mortgage payment for 10 years. But there’s also the fact that you’ve got 10 years worth of payments that you’re putting out of your pocket and you don’t have that with a reverse mortgage. Now, you do have to pay your own property taxes and homeowners insurance. You have to just continue to maintain the home and live there as your primary residence like you would whether you had a mortgage or not. But it’s your responsibility because it’s still your house. You still have to pay your taxes and insurance. Then he goes on here to say, while the reverse mortgages can provide much-needed financial aid, they have notable downsides such as disqualification from government assistance and potential inheritance complications. I disagree with that. But, I mean, it could disqualify you from certain means-tested government programs like Medicaid and SSI, because you can only have a certain amount in your bank account for those programs. But then he says, if you want to take a reverse mortgage, you need to be very cautious. It’s best to be informed before doing reverse mortgages. I agree with that. That’s the one thing in this whole article that I agree with. And then he goes on to say here, The initial cash from your lender might seem like a drop in the ocean compared to your home’s equity. But in time, once you’re used to taking the loan, your property loses value. That’s an incoherent sentence. It makes no sense completely. It just makes no sense. Your property is not going to lose value because you have a reverse mortgage. But even the whole way he structured that sentence, I don’t think this article was edited. He says, then he goes on to say, when your home loses value, it forces a deed in lieu of foreclosure. This is agreement between you and the lender to transfer the house to the lender. It’s a common thing when homeowners take a reverse mortgage. That’s a flat out lie. That is a lie. And this is, I’m sorry, I’m not going to get upset, okay? But it just irritates me when people lie like that. And then he lies again. Very next line. Realtors are always advising homeowners against reverse mortgage loans. That is a false statement. 100% false. Anyways, so you get the gist of the article. They go on to say these four things. It says, you’re not relieved of financial obligations. And they say you have to pay your taxes and insurance, as you would if you own the home free and clear. That’s obvious. And any lender is going to require you that you have to sign papers stating that you know that you have to pay your own property taxes and insurance. But then he says here, failing to pay these requirements will result in a deed in lieu of foreclosure. No, it won’t. No, it won’t. It could eventually, but no, that’s not an accurate statement. He says, while the cash loan is handy, the extra payments must come out of your pocket. By that, he means the taxes and insurance and HOA fees, which is obvious. You still have to pay those out of your pocket. But compare you’re making a $1,500 principal and interest payment along with the mortgage, the taxes and insurance. So that’s coming out of your pocket. If you pay off a $1,500 mortgage and you save yourself $1,000 in principal and interest because that’s no longer required, you still have to pay $500. Which is better to come out of your pocket, $500 or $1,500? Anyways, then he says, and if you’re using a HECM loan to pay the property tax or hazard insurance, which we can set aside money to pay the taxes and insurance on your behalf, he says, what’s the point? What do you mean, what’s the point? as compared to paying a mortgage payment of $1,500, you don’t have to pay anything if we pay your taxes and insurance on your behalf. Now, it’s coming out of your equity because you’re charged interest on the loan. Anyways, the whole article, he talks about this too. He has a guy that Somebody, the founder of Sold Fast, must be some kind of shady agent or some real estate agent, says, in the event that the property values decline and the home becomes underwater, the heirs would have to pay more for it than it’s worth to keep it. That is not true. That’s a false statement. You can, with reverse mortgages… They all have a non-recourse feature, meaning you will never pass a debt beyond the value of the home to your estate or your heirs. But what happens is when you pass away, let’s say that the property value drops, you now owe $500,000 and the home is only worth $400,000. In that scenario, you pass away. If that happens where you owe more on the home than it’s worth, your heirs still inherit the home. They actually have a choice. They can sign the house over to the lender and walk away. There’s no recourse. The lender can never, ever, ever come back on you, your estate, or your heirs. However, if they want to keep the house, as all listeners of this show have heard me say it before, they can keep the house and only pay 95% of whatever the value is. of the home is. They don’t have to pay the whole balance off. If 500 is owed and the house is only worth 400, they can go get a new loan for 95% of the current value at 400,000. So they go get a new $380,000 loan and the lender has to accept it even though 500 is owed against the home. So let’s use this as a teachable moment. Like I said, Don’t believe everything you read about reverse mortgages. All right. By the way, too, if you just tuned in, you are listening to Reverse Mortgage Radio. My name is Bruce Simmons. I’m the reverse mortgage manager with American Liberty Mortgage. And I’ve been specializing exclusively in reverse mortgages for decades. 21 years going on 22 years now. And you can reach me at 303-467-7821 with any questions about reverse mortgages. I’ll give you the facts. I’ll tell you, yes, you do have to pay your taxes and insurance. Yes, there are closing costs. Yes, the value of your home is going to go up. Your loan balance will also go up with a reverse mortgage if you don’t pay the loan, make payments, which you can do. It’s an optional payment loan. So I’ll give you the pros as well as the cons when we talk. I’ll explain everything. But feel free to visit me online as well at reversemortgageradio.net. You can download my free consumer guide. You can also get a quote, a free quote on my website up in the upper right-hand corner. Click on reverse mortgage quote or free quote. I don’t remember the exact verbiage of it. All right. Let’s jump in now to talk about interest rates. Interest rates are going down, right? The Federal Reserve is lowering rates. Why are long-term rates going up? A lot of people question that. They call me up and they say, hey, interest rates are coming down. How does that affect reverse mortgages? Well, the interest rates aren’t really coming down for mortgages. If you talk to any mortgage lender, they’ll tell you since the middle of September, when the Federal Reserve lowered the rates by a half a percent, Interest rates started climbing. Mortgage rates started climbing. Actually, the interest rates on reverse mortgages that you’re actually charged have been pretty stable. They’ve been holding steady. They haven’t gone down. They haven’t gone up tremendously. What has gone up is the long-term rate, the 10-year Treasury index. Reverse mortgages have two interest rates. I know, I know, it’s confusing. But basically, there’s one rate Based on the one-year treasury index for an adjustable rate reverse mortgage, it’s the one-year treasury index. And that rate is what we use to determine the interest rate. You’re actually charged on whatever money you borrow. There’s another interest rate though called the expected interest rate. That’s the rate we use to determine how much money you can borrow to begin with. So, for example, it’s the 10-year Treasury Index is the rate we use to determine or the index we use to determine the rate that we use in the formula for determining how much we can loan you. I’m going to try not to confuse you too much. But if your head starts spinning and you want to know a little more or you want to see an example for you, give me a call. Just reach me at 303-467-7821. Now, I relied on a lot of this information I’m going to give you from a YouTube guy that said, oh, my goodness. Yeah, I got to monitor my sources, right? Be aware of who I’m getting the information from. Well, this is a guy I’ve been following for years. I’ve actually talked about him on my radio show two or three, four years ago. I don’t remember when. I think I started following him during the pandemic. But his name is Joe Browne. And he is a former stockbroker who teaches people about different investment-type things. But his YouTube sites are very, very, very informative about monetary policy, interest rates, debt, how interest and debt are formed, and things of that nature. It’s called Heresy Financial is the name of his site. So you can Google or go to YouTube, click Joe Brown Heresy Financial, and you’ll see all his stuff. YouTube pages. Well, he had a YouTube episode. I think it came out last Monday on the 17th or something. And it was called Trump versus Powell, the fight over monetary policy. And basically, the interest rates, long-term rates have been going up. But as everyone knows, the Fed is cutting rates. They began cutting rates in September when they cut it by a half a percent. They cut again in November by a quarter percent. And most people expect them to cut it again another quarter percent in December, as well as even cutting throughout 2025. The Federal Reserve controls the money supply a couple of different ways. One is through interest rates. By increasing interest rates, it reduces people’s incentive to borrow money and spend. So that’s going to have more of a… drain on the money supply because less people are borrowing money, there’s going to be less money circulating through the economy. The other way is by buying or selling assets. They purchase usually treasuries, U.S. treasury or T-bills or long-term notes, whatever the case may be, from the government. They also purchase mortgage-backed securities. This is where the mortgages are bundled together and then they get sold on the market. And the Federal Reserve will purchase those. Or they sell them. They don’t necessarily even have to sell them. They could just let their balance sheet bleed off because these are constantly getting paid off every day. So much treasuries or so many mortgages are getting paid off or down. So their balance sheet which was in late 2022, I think, as high as $9 trillion. In other words, that’s money that the Federal Reserve has pumped into the economy over the course of the years. Now, they’ve let that bleed off. In other words, they let it pay down to about $7 trillion today, this month. It’s at roughly $7 trillion. A lot of people are saying that a lot of the Federal Reserve people are saying that they’re probably going to let that reach a certain point and then keep it the same. So they’ll buy and let things pay off, and then they’ll buy more. So they’ll keep it at a certain amount. We don’t know what, but they’re going to balance it out sometime in 2025. With the Federal Reserve lowering interest rates and letting their balance sheet bleed off, they’re doing two counteractive things that’s actually resulting in higher long-term interest rates. Now, before I get into the details of why that’s happening, I do want to explain why the 10-year Treasury is important to reverse mortgages. I want to reiterate it real quick because that’s the rate we use to determine how much we can loan you. The higher the 10-year Treasury index is, the less money we can loan you as a percentage of the value of your home. So when the rates were down in the threes, the 10 year treasury index was in the threes and fours, we were loaning 15, 20% more of the value of your home than we are today with rates being in the sixes, okay? So why is it that adding liquidity is causing long-term rates to rise? Normally, when you increase a supply of something, prices drop, right? The Federal Reserve is increasing liquidity the supply of money by lowering interest rates and then slowing the runoff of their balance sheet. So their balance sheet is slowly slowing down the runoff of it. So they’re taking in less money, if you will. Both of these have the effect of increasing the supply And remember that the cost of money is interest rates. So that’s the interest rate is the cost of money. And most people don’t realize this, but the Federal Reserve controls the very, very short end of the interest rate curve. It’s called the federal funds rate. And it’s the overnight rate. They don’t control anything else. The federal funds rate controls has the most impact on T-bills. And these are government debt, so government loans that mature in less than a year. This is the debt that the US government borrows the most of. That’s what they’re borrowing most of right now, which means that the Federal Reserve is lowering interest rates. And the number one beneficiary of this lower interest rate policy that they have is the US government itself. But when the Fed lowers rates, it means cheaper money, more deficit spending, and more government spending. So the government ends up spending more because they’re getting these really low rates. But by the government spending, since all dollars are loaned into existence, when you deposit money in the bank, the bank doesn’t just hang on to that money. It’s called fractional reserve banking, and that’s a whole other topic. But basically, they turn around and loan that money out. They loan $950 of that money to your neighbor to go buy a washing machine or something. And that money gets loaned into existence because it didn’t exist before. You can still go draw that $1,000 out of the bank, right? Even though your neighbor took $950 of it. So it expands the money supply. And in fact, the money supply has been increasing for about the last 12 months. And that causes… prices to go higher because you’ve got more dollars chasing the same amount of goods or even fewer goods in some cases. As more money chases the same amount of goods, it causes prices to rise. So that means that lenders need to compensate themselves for their loss of purchasing power along the way. In a nutshell, basically think of it this way. The Fed lowering rates means cheaper government borrowing, which means more government spending, which means more inflation, i.e. higher prices for all of us, which also means higher rates. Because if you’re going to loan your money out to somebody for 10 years and you think interest rates are going to be going up, you need to charge a higher interest rate, even though interest rates are low right now. you think interest rates are going to be going up, which apparently a lot of people do. Okay. And I’m sorry to get so wonky on you on this, but that’s just the topic here. And hopefully you’re still listening. But anyways, so the Federal Reserve, they’re basically between a… a rock and a very hard place, okay? They have a bloated balance sheet. Remember, they still owe $7 trillion on their debt. And the short-term interest rates they have are too low and it’s causing inflation. But they have to keep them there to keep the government from going bankrupt because if they raise those short-term rates too high, it causes the government to be charged too much interest, as we’ve seen, and it could bankrupt the government. But then long-term rates are too high as well right now, and it’s suppressing economic activity. Our only hope, really, and I doubt that this is going to happen, I’m hopeful, but if Trump, along with Elon Musk and Vivek Ramaswamy, are able to drastically cut spending and regulations and all that stuff to reduce inflation, burden on all of us and businesses so that we can create more economic activity. And that will create more revenue for the government in the form of taxes. If there’s more economic activity, people are paying more taxes. Even if we end up with a lower tax rate, then it could, to a point, obviously, it could increase the overall government income. Hopefully, that would be the ideal situation. I’m not big on government taking more of our taxes, but if there’s more activity, we could pay a lower rate and still the government gets their share. I don’t want to say their fair share. I thought of it, but I’m not going to say that because I don’t think the government, I think government takes more than their fair share from most of us hardworking citizens. That’s a topic for another day. I’m sorry I got so wonky on you on this. So to wrap this up, I’m very, very hesitant to say that plan on lower interest rates. I don’t think we’re going to see those lower rates. We might. And if you get a reverse mortgage today and interest rates drop, a year from now, you can refinance a reverse mortgage for much, much, much lower closing costs than you can from the first reverse mortgage you get. Feel free to call me with any questions. You can reach me directly. My name is Bruce Simmons. I’m the reverse mortgage manager for American Liberty Mortgage in Denver. My number is 303-467-7000. 303-467-7821. 303-467-7821. Or visit me online at reversemortgageradio.net. That’s reversemortgageradio.net. Thank you so much. And by the way, too, I hope you have a fantastic Thanksgiving because we won’t be talking until after Thanksgiving. Hope you enjoy it. Eat lots of food and enjoy your family. And don’t get in fights over politics.