NEW YORK (TheStreet) -- As retirees' scramble to ensure they don't outlive their savings leads many to consider reverse mortgages, sellers of those products continue to scrub away at their lingering taint of controversy and criticism.
The needs of the so-called "sandwich generation" are driving increased awareness and use of reverse mortgages, says Jeffrey Lewis, a senior managing director at Guggenheim Partners in New York and chairman of the board of Generation Mortgage, the largest privately owned reverse mortgage retailer and wholesaler in the United States and among the top five providers in the nation.
In a recent survey of baby boomers who are financially supporting aging parents and children at the same time, 78% of respondents fear that they will not be able to retire "comfortably" and 52% said they would need to work part time during retirement. Sixty-one percent described their parents' financial situation as "negative" -- the same description 64% applied to themselves.
The survey underscores the difficulty faced by children supporting parents whose savings are falling short of the mark."If the children don't have their own financial house in order, that just created more financial and psychological stress within the family," Lewis says.
Lewis is clearly agitated when he addresses complaints some consumer groups have with reverse mortgages, including claims that they are not a cost-effective alternative and that sales tactics can offer seniors a bad deal. There is, and always have been, federally backed guarantees, he says, dismissing one recent, critical piece by a consumer-focused organization as "absurd" and sounding like a "report written by a seventh-grader using an encyclopedia."
He asks: Is credit card debt with double-digit interest rates a better alternative? And he balks at suggested alternatives that boil down to cashing in liquid assets or borrowing from other sources, including family members.
"Fifteen years ago, it was very common for the children to be objectors. They had this view we know, 'Mom's house is paid for or mostly paid for,' so that's something they can split up somewhere down the road," Lewis says. "Now, in a lot of ways, we think the kids are the customer base for this product. The reduction in the financial stress on the kids that is accomplished by having the parents use their own money is tremendous. To the extent that a reverse mortgage makes it possible for parents to handle their own finances, at least for a period of time, is a major win for the kids."Lewis says the hand-in-hand combination of the recession and real estate market bubble burst was rough on the industry and its potential customers.
"There is no doubt that a lot of people who wanted reverse mortgages could not get them because of values," he says. "If the home value is down $20,000 to $50,000 from what they expected it to be or, more importantly, what they needed it to be to get enough proceeds to pay other debts, in many cases a reverse mortgage did not work out for them. Now that we have some stabilization of the home values, even if there is not a lot of appreciation yet, it will be useful, because people will have a much more realistic sense of what their home is worth. A lot of people were disappointed when they applied, got their appraisal back and there just wasn't the value that they needed."