Shal­iza Has­sanali

Re­verse mort­gages may not be pop­u­lar in T&T, but they are on the rise. Di­rec­tor for the Di­vi­sion of Age­ing Dr Jen­nifer Rouse has con­firmed that more of the coun­try's se­niors are latch­ing on to the re­verse mort­gage. How­ev­er, econ­o­mist Dr Dhanayshar Ma­habir in­sists that the re­verse mort­gage is heav­i­ly skewed in favour of mort­gage com­pa­nies and banks.

His ad­vice to the el­der­ly-sell your house and avoid get­ting roped in­to pit­falls. Af­ter a per­son has built-up eq­ui­ty in their home over the years, a re­verse mort­gage al­lows you to con­vert that eq­ui­ty in­to cash or a line of cred­it from a fi­nan­cial in­sti­tu­tion.

The lender pays the home­own­er, and the re­verse mort­gage bal­ance ris­es as a re­sult, ac­cru­ing in­ter­est and fees. The lenders get re­paid when the own­er ei­ther moves or dies, and the home is sold. The amount some­one bor­rows de­pends on their age and the amount of eq­ui­ty in their home.

Three pay­ments op­tions are of­fered, a fixed month­ly pay­ment, lump sum or a com­bi­na­tion of both. The re­verse mort­gage was first in­tro­duced in Trinidad and To­ba­go in 2002 by Home Mort­gage Bank (HMB), the on­ly in­sti­tu­tion lo­cal­ly that of­fers this pro­gramme.

A gi­ant pig­gy bank

How­ev­er, re­verse mort­gages have gone main­stream across the world, main­ly in the US, and is no longer sold as some­thing for se­niors who are house rich and cash poor and need mon­ey to make ends meet. To­day, they are mar­ket­ed as a way for home­own­ers 62 or old­er to crack open a gi­ant pig­gy bank.

A 2010 re­port from mn­bc.com head­lined Re­verse Mort­gage Can Lead To Trou­ble stat­ed that the mar­ket for re­verse mort­gages had more than dou­bled from 2005 to 2008. In 2009, more than 100,000 se­niors took out these loans. Like­wise in T&T, Rouse ad­mit­ted that the re­verse mort­gage "is catch­ing on."

Rouse said the re­verse mort­gage has been gain­ing mo­men­tum as more se­nior cit­i­zens, in par­tic­u­lar women, are grav­i­tat­ing to­ward the ser­vice. "It is the el­der­ly's fun­da­men­tal right. It is not to say that the bank has a gun to your head. It is you who called or ap­proached them." What has been at­tract­ing the in­ter­est of se­nior cit­i­zens was the wide­spread ad­ver­tis­ing on ca­ble tele­vi­sion, Rouse said.

"The ad­ver­tise­ments tell you let your home pay for your care." Rouse ex­plained that the re­verse mort­gage first tar­get­ed sin­gle home­own­ers who had no de­pen­dents, but now el­der­ly cou­ples are get­ting roped in­to the trend. Any bank that of­fers a re­verse mort­gage, Ma­habir said, should have some links with the in­sur­ance in­dus­try to cal­cu­late the ex­pect­ed life of the home­own­er.

The gov­ern­ment, Ma­habir said, was du­ty-bound to look at the prac­tice in or­der to reg­u­late how in­sti­tu­tions op­er­ate. "They must have the in­sur­ance com­pa­nies fair ac­cru­al val­ues. They must be able to have claus­es where some­one can re­vise the val­ue of their house on a pe­ri­od­ic ba­sis."

Ma­habir said while the banks re­vise their in­ter­est rates at which they lend, peo­ple should be able to re­vise the house val­ues pe­ri­od­i­cal­ly al­so for eq­ui­ty and fair­ness. The best thing for the home­own­er to do was sell their prop­er­ty on the open mar­ket, Ma­habir said.

The mon­ey col­lect­ed should be in­vest­ed in an in­sti­tu­tion. "When an in­di­vid­ual has no one to leave his/her home to, they do not have to wor­ry about cap­i­tal preser­va­tion, so they can live off the in­ter­est earn­ing, to­geth­er with some of the earn­ings they got from their home."

At the end of his life, Ma­habir said, the home­own­er would stand a bet­ter chance of hav­ing a sur­plus if he dies a year af­ter he gets in­to an agree­ment. "With re­verse mort­gage, once you are locked in on the day of re­tire­ment you are locked for life. The peo­ple who are giv­ing you the cash for your house ben­e­fits not the prop­er­ty own­er." Ma­habir said while some of the month­ly pay­ments might look at­trac­tive, the bet­ter thing to do was sell your prop­er­ty.

If the mar­ket is de­pressed, he sug­gest­ed that the home­own­er rent out a por­tion of his house, keep their ti­tle and wait un­til the mar­ket im­proves. "I don't like the re­verse mort­gage at all. I think they are un­fair." Ma­habir said when the pen­sion­er dies, the banks ends up hold­ing a stock of homes in their port­fo­lio, which they will sell. "So they are able to get $3 mil­lion for a $1 mil­lion house. So they make prof­its on the house and the fi­nanc­ing."

Benn-It's at­trac­tive to the un­sus­pect­ing

For­mer UTT chair­man Clar­ry Benn, who is now a pri­vate fi­nan­cial ad­vis­er, said peo­ple ap­ply for a re­verse mort­gage be­cause of cir­cum­stances. He said while it has been rec­om­mend­ed to par­tic­i­pate in such a ser­vice, in oth­er in­stances, it was not nec­es­sary. "Each case will be judged on its own mer­it." Benn said a re­verse mort­gage ap­pears to be par­tic­u­lar­ly at­trac­tive to the un­sus­pect­ing.

"It would be at­trac­tive due to the huge amount of in­stant cash avail­able." Benn said if some­one owns a prop­er­ty and was in ur­gent need of cash, a re­verse mort­gage can be use­ful. "But by and large, who­ev­er is pro­vid­ing the fa­cil­i­ty will con­di­tion it typ­i­cal­ly in such a way, that what­ev­er the even­tu­al­i­ty that may oc­cur in the fu­ture, they cer­tain­ly will not lose." Benn said any­one who en­gages in a re­verse mort­gage ought to be care­ful be­cause the per­son can lose their prop­er­ty.

Ali-A fi­nan­cial in­stru­ment

Man­ag­ing di­rec­tor of Bankers In­sur­ance Bil­ly Ali said any bank of­fer­ing re­verse mort­gage must have fi­nan­cial, tax, le­gal and ac­tu­ar­i­al in­puts. Ali said the on­ly way one can cal­cu­late the life ex­pectan­cy of some­one was based on a ac­tu­ar­i­al life ex­pectan­cy ta­ble.

Ali agreed with Ma­habir that gov­ern­ment should look at the prac­tice of in­sti­tu­tions to reg­u­late how they op­er­ate. "It should be reg­u­lat­ed by the Cen­tral Bank." A re­verse mort­gage, Ali said, is just an­oth­er fi­nan­cial in­stru­ment that any­one can ac­cess based on one's per­son­al sit­u­a­tion.

"Not all fi­nan­cial in­stru­ments will fit the needs of every­body. A re­verse mort­gage will be good for the per­son who finds them­selves in a fi­nan­cial bind and has no oth­er op­tion but to go for that." Sev­er­al at­tempts for an in­ter­view with act­ing CEO of HMB Rawle Ram­lo­gan proved fu­tile.