Are Reverse Mortgages Legit? With Laura Phillips

Key Takeaways:

• Modern protections: Today's reverse mortgages include safeguards that address historical problems like spouse displacement and over-lending

• Strategic applications: Often used for eliminating mortgage payments or protecting retirement savings from market downturns

• Professional guidance essential: Work only with licensed professionals and complete mandatory counseling for informed decision-making

After three decades in the mortgage industry, Laura Phillips become one of Colorado's most trusted reverse mortgage specialists. And she's on a mission to dispel the myths that keep seniors from accessing a potentially life-changing financial tool.

The problem is real and growing. Millions of seniors face what Phillips calls being "income insecure", where fixed incomes simply can't cover rising costs. Property taxes skyrocket while Social Security increases don't always keep up. Market volatility can hurt retirement savings just when people need them most. Yet many seniors avoid reverse mortgages because of outdated horror stories and persistent misinformation.

This comprehensive guide reveals how modern reverse mortgages have transformed from their problematic early days into a regulated, protective financial strategy that can provide crucial breathing room for seniors.

The Dark History That Earned a Bad Reputation

Understanding why reverse mortgages developed a negative reputation requires looking at their troubled past. "They are not what I say, your grandmother's reverse mortgage," Phillips explains.

The original programs, which began in 1961 and became a full HUD program in 1988, had serious design flaws that hurt real families:

Major Historical Problems

Surviving Spouse Displacement: "They didn't think about putting both spouses on the loan. They always put the oldest one on the loan, which surprisingly enough might have passed away earlier, thus leaving the younger spouse literally on the street."

No Financial Qualification: Early programs failed to verify whether borrowers could afford ongoing property taxes and insurance, a requirement that remains with reverse mortgages. This oversight led to foreclosures when seniors couldn't maintain basic homeownership obligations.

Excessive Lending: "When they first started out... they used to give you 75 or 80% of the value of your home. Well, my goodness, if you gave people that and you did double check to make sure that they could pay their property taxes, you could see where problems would compound one on top of another."

How Modern Reverse Mortgages Protect Borrowers

Today's reverse mortgage landscape includes multiple safeguards that address past problems:

Conservative Lending Limits

"Now about the highest you can get is 55, 60%, and you need to be about 92 or 93 to get that. So somebody in their seventies probably wouldn't be able to tap more than about 35 percent of their home value."

This dramatic reduction in available equity ensures substantial protection remains in the home.

Mandatory Education Requirements

Every borrower must complete a one-hour course with a certified HUD counselor. "All reverse mortgage with the department of HUD... have to have a class, and that's a one hour course with a certified HUD counselor, they wanna be sure that you understand that the way you can lose the house is the property taxes, the upkeep, the homeowner's insurance, or that you are not able to live in it."

Non-Borrowing Spouse Protections

Modern programs include specific guidelines protecting younger spouses who may not qualify for the loan due to age requirements. "We have guidelines now for non borrowing spouses. So again, if the older spouse passes away, they still have access to the house, they can live in it."

Strategic Uses for Financial Security

Phillips identifies two primary strategic applications for reverse mortgages in retirement planning:

Immediate Cash Flow Relief

For seniors struggling with monthly expenses, eliminating mortgage payments provides instant relief. "It's surprising how many people up until their mid eighties are still paying mortgage payments. If you just got rid of that one payment, it's giving yourself a raise of at least a thousand dollars of income coming back into your own pocket."

Market Protection Strategy

"A lot of people who are on fixed incomes have saw... they would lost several hundred thousand dollars in their retirement savings because the market dropped. They went into a panic and sold on the downside, and now they don't have enough to make ends meet."

A reverse mortgage line of credit provides an alternative to selling investments during market downturns, protecting long-term wealth.

The Professional Process: What to Expect

Phillips emphasizes education over sales pressure in her six-week process:

Initial Consultation and Education

"I'll take some basic information, find out what their needs and wants are and what triggered them to call and ask me about a reverse mortgage to start out with, I can kind of customize a plan for them based on their needs."

Comprehensive Review Period

Clients receive detailed proposals and educational materials, followed by thorough discussion sessions. This approach ensures understanding before commitment.

Mandatory Counseling and Processing

The HUD-required counseling provides independent verification that borrowers understand their obligations and options.

When Reverse Mortgages Don't Make Sense

Responsible practitioners acknowledge limitations. Phillips identifies clear situations where reverse mortgages aren't appropriate:

Short-term residency: "If you think you're gonna move in the next five years, these are not cheap loans... and it doesn't make sense to be honest with you."

Estate planning priorities: For families prioritizing leaving homes free and clear to heirs, the loan structure conflicts with those goals.

Adequate cash flow: Seniors with sufficient income shouldn't add debt unnecessarily.

Protecting Yourself from Bad Actors

While regulation has improved the industry, Phillips warns about potential scams and provides protection strategies:

Verify Professional Licensing

"Make sure that the person you're talking to is truly a licensed loan officer. We all have to be licensed. Now, that's part of the NMLS. If that person isn't licensed or isn't licensed in your state, then I think I'd walk away."

Beware of Renovation Scams

Some unscrupulous contractors target seniors with "free" renovation offers that secretly involve reverse mortgages. Always verify the financing source and terms before signing any agreements.

Estate Planning Considerations

Understanding how reverse mortgages affect inheritance helps families plan appropriately:

"If the house has value in it, which means that there's still equity in the home and the loan is less than the equity in the home, then the heirs have an opportunity to sell it and recoup, pay off the mortgage... and have that as additional funds coming to them."

For underwater situations, "the estate can hand the keys back to the home... and not have any recourses coming back to themselves or the heirs in that estate to pay the difference."

The Growing Need and Market Response

Phillips observes increasing interest as seniors face mounting financial pressures: "I get a lot of calls. I call them tire kickers... they're thinking about it. They're concerned. They look at their budget and they just don't know."

Integration with Professional Financial Planning

Progressive financial advisors increasingly recognize reverse mortgages as valuable tools. Phillips works directly with financial planners and estate attorneys to ensure comprehensive planning: "Those numbers always go back to the financial advisor with the permission of the client... so that advisor can look them over and say, yeah, this makes sense to me."

Conclusion: A Tool, Not a Universal Solution

Modern reverse mortgages represent a dramatic improvement over their troubled predecessors. With conservative lending limits, mandatory education, and comprehensive protections, they offer a legitimate option for seniors facing cash flow challenges or seeking to protect retirement assets from market volatility.

However, they remain a specialized financial tool requiring careful consideration. The key lies in education, working with licensed professionals, and ensuring the product aligns with individual circumstances and goals.

Work with Laura Phillips at www.lauraphillips.com if you'd like to talk about reverse mortgages in Colorado and 3 othe states!

Ken Connolly is a licensed life and health broker with NJ Life and Health and host of the Talking Retirement Podcast.