Many fellow Americans that have worked their entire lives, weathered several recessions and depressions, put their children through school, helped many in need, and faithfully paid their mortgages for decades are now being taken advantage of once again. Most have followed all the rules necessary to be considered fiscally responsible, yet because of "legal fraud" by the financial sector and policies effected by purchased politicians, their years in retirement will be compromised.
The Plutocracy, the one percent has walked away with a large percentage of their 401Ks, their SEPs, and to some extent their financial security. Because of stagnant or falling real wages, much of the working middle class have maxed out on their credit in the attempt to maintain their standard of living. For a Plutocracy that feeds on perpetual growth, from where will it feed now? An old and well-crafted financial instrument known as the reverse mortgage is being marketed on steroids to a baby boomer population.
Before any reader of this article that may have already taken out a reverse mortgage gets upset, please note that it is understood that for many this is the only option left. That said, every American should be fighting for a system that allows all the ability to build a nest egg that can be transferred to the next generation.
More about reverse mortgages below the fold.
Back in 2010, Sen. Fred Thompson was a spokesman for AAG and was pushing their government back reverse mortgages. I was writing my book when the commercial came on and I wrote the following in a chapter right then.
While taking a short coffee break from writing this book I saw former Republican Senator Fred Thompson, an AAG spokesman hawking reverse mortgages. He says:
“Hi folks, I am Fred Thompson. Now like me you probably heard a lot about reverse mortgages but weren’t quite sure how they worked or whether they would be the right financial solution for you. Well take my word for it and hundreds of thousands of other Americans who have used the Government Insured reverse mortgage as a safe effective financial tool. If you are 62 year or older and own your own home, give AAG a call and find out how a reverse mortgage can help you. I am extremely proud to be associated with AAG, a national reverse mortgage lender that is helping seniors overcome their financial worries and live the lives they’ve dreamed. Why don’t you find out more by calling AAG today? Find out how much call you may qualify for today.”
My first thought was how could a former Senator, a senior, a person who likes to tout morality be so callous to entice the elderly to splurge their wealth away. Most Americans have a large portion of their wealth in their homes. Having some wealth to transfer to one’s offspring helps the next generation to the next financial level.
Unfortunately, yet another financial instrument designed to use the ignorance of the average American citizen’s knowledge of our economic system to donate their money up the wealth tree to the rich. At the end of the reverse mortgage’s term, the elderly is left without an asset to transfer to their offspring at the time of their death.
Ironically as this piece is being written Fred Thompson is back on with the 2013 version of his "working middle class pilfering" commercial.
The most deceptive part of the ad is stating that the owner of the house retains ownership of the home. You cannot own something that you cannot give to someone free and clear. Even more ironic is that Thompson, a professed small government conservative, is pushing a product that depends on the good faith and capital of the United States government.
Most Americans amass most of their wealth within their homes. Each generation in a responsible family is better off when the previous generation wills their assets forward. Reverse mortgages are yet another financial instrument that stunts the growth of the middle class by encouraging home owners to extract the capital out of their homes and use it as a supplement to their retirement or to simply splurge. Inasmuch as most reverse mortgages are federally regulated, their upfront costs are very high. These costs amount to free cash for the bank and mortgage insurance companies, your money transferred to them for a marginal service.
The big dirty secret is that reverse mortgages, like student loans pre-Obama, are nothing but a no-risk gift to the bankers, a wealth transfer engine from the masses to a select few. When the "owner" of the home dies, the government pays the bank any difference between the amount owed (interest plus principal) 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? It is there simply to extract from the government and the homeowner. They have absolutely nothing at risk for the profits they make.
Reverse mortgages mask a systemic problem that affects the American worker, a backward and inhumane retirement system. Every American worker makes a vibrant economy possible by providing 40, 50 or more years of work, taxes, and spending. It is appalling that a worker is incapable of having Social Security capable of providing a decent living. No one should have to deplete all of their assets to survive.
The trajectory in this country has been that the wealth and income of the very few at the top grows faster than the growth of the economy as a whole. This means that some of that growth is directly coming out of 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, commercial student loans, etc. This is an unsustainable path and it is leading to a country where the vast majority of citizens will have no assets. They will be functionally indentured servants. They will be nothing but a commodity, a unit of work and service.
Wake up America. Taking this country back from the Plutocracy will require education, resolve and action. Taking this country back will entail taking back what was stolen through well designed redistribution mechanism that foments a vibrant working middle class.