Home Equity Access for Lifestyle and Longevity, with Hank Rhoads of American Senior Lending

0:03 The reason I do this podcast was first to learn more about using the tool of reverse mortgages and it's like a Swiss Army knife. There's so many different tools and ways and cases where it's applicable. One of them is to unlock equity for lifestyle and for longevity. And that's the mantra or the theme of what past guest I already had him before, Hank Rhoads, who today is even demonstrating the value of the lifestyle part as he sits in some sort of lounge chair out in the mountains, the foothills of somewhere in Northern California enjoying the sun and the fresh air while we're doing this podcast. Hank, thanks for joining us today. How does a home equity I'm sorry, reverse mortgage help access the home equity so people can enjoy their lifestyle, maybe sit next to you in a lounge chair and have a beer or something? Yeah. Bill, great to be on your show again. I always get real excited. You do such a great job with these. So,

0:54 You know, I've done this for 21 years and for most of those 21 years it was reverse And it's still reverse mortgages, but there are these new, innovative, remarkably new, innovative home equity access programs where they're not necessarily a reverse mortgage. And people are taking advantage of the remarkable housing wealth. You know, I work primarily in California and California has incredibly home values. And

1:26 You know, use responsibly, the responsible use Excuse me, of your home equity. It is particularly if you're in California, particularly if you have a lot of equity, it could really set you up for success because you know, the entire asset, your entire asset portfolio should be considered. And most people don't consider the home as an asset when they need to support expensive things like lifestyle and longevity. Well, I've seen this where wealth advisors will meet with a family and the family may have, you know, an IRA or 401k or a pension. They might have, you know, 100,000, 500,000, million dollars of investable assets on top of that. And they consider using all that to generate income because they want to stay in the house. And what they don't think about is unlocking the equity which is there and there's ways to do that other than traditional refinancing, other than traditional lines of credit. So, talk a little bit about how these new tools compare to Obviously, anybody can refinance, pull equity out if you qualify and if you want to make that higher payment. And you also get a line of credit, a home equity line if, you know, you qualify, if you want to make the payment in most cases. And more importantly, until the bank decides to cancel it without advanced notice cuz it's not, you know, an insured program. So, talk a little bit about these new products and how they offer advantages to families looking to unlock the equity in their house. Yeah. Well, you know, probably most people don't want a reverse mortgage.

2:59 They don't know anything about it. They just know they don't want one of those. And it's honestly, it's probably a mistake for them to have that mindset and that attitude. They should at least find out. But for many people that they rule it out in recent years because of need, lenders have developed different types of home equity access. The things you're talking about, qualifying and then wanting to make a payment. So, when you're when you're 60 or even 55, 60, 65, approaching retirement age, and you have a lot of equity in your house, lenders are comfortable to loan you money with no payment or minimal payment. And so, some of these programs when they have a minimal payment, that's no longer a reverse mortgage. And so, one of our one of my favorite products is called equity edge and it will allow you equity access to your home value. And it has small payments. It's easy to qualify for because those payments are so small. And so, people take advantage of that. I was on a meeting with executive from my firm and he was talking about all the turn downs that people in our age demographic experience when they apply for a loan. They can't qualify. Like a like a significant percentage. I was really surprised. And Most of those people that can't probably qualify with some recent product innovation, major lenders have created an opportunity for homeowners to have more choices.

4:46 So, let's talk about the mechanics of some of these programs. When you say a small payment, I believe the product you're talking about has what we call a negative amortization. Just to add to the stress and add to the reputation of the past, the payment does not equal all the interest being added to the loan, therefore the loan balance goes up even with a payment, which is called negative amortization. And that has a whole 'nother level of stink to it on top of reverse mortgage. Talk a little bit about how that works, but why in the right circumstances that can be the right choice. Sure. So, yeah, you know, it's like a it's like a credit card, right? Everybody most people understand how credit card works. You can make a full payment, you make a partial payment, or you make a minimal payment. And so, they have loan programs geared for older, retired homeowners that would allow them that opportunity. Now, if you're in California in your neighborhood, you know, you have homes that are well over a million dollars. In my neighborhood, they're, you know, a little under a million dollars. And you know, if that's going to be a resource for you so you could have a comfortable, secure lifestyle, and you know, one of the things I want to do, too, is I want to leave a generous inheritance for my heirs, but not at a significant expense to my wife and I, right? And so, if I choose to utilize a reverse mortgage or one of these home equity access products, and my heirs get less, maybe they don't get a two million dollar inheritance from my future home value, maybe they only get a million dollars.

6:28 I'm okay with that. You know, the story I like to tell, you get on an airline, what do they tell you to do when the face mask drops down? Put on yourself first. Right. So, shouldn't it be the same in terms of taking care of your income, your lifestyle, your longevity? Like And a lot of people are really good at that, but a lot of people have their heirs in mind at their own at their own at their own peril. So, Take care of Take care of yourself and your home should be part of that wealth calculation. And you can create income stream. You can pay off debt. I have a woman.

7:11 She's younger. She just retired. And she has a nice home. She's got a complex roof. It's got solar. There's a lot of angles. Her roof job, her roof's 35 years old. Her roof job's going to cost her $45,000. And two months ago, she was going to take it out of her investment account. Two weeks ago, I met her and she's nervous about her stock portfolio because of recent declines. And so, her investment advisor said, "Why don't you talk to Hank about a reverse mortgage?" And so, we get together and what we've created is we wiped out her small mortgage and we created this enormous nest egg and now she's going to pay for her roof out of a reverse mortgage so that she doesn't have to invade her declining investment portfolio. The problem with invading your investment portfolio is particularly in a down market is you'll never get that back. You don't want to sell in a declining market. Suddenly, we have a declining market. You don't want to pay taxes. She would pay taxes. So, this was an amazing solution for her. Now, she has no mortgage payment and she has a remarkable nest egg and she just paid for her roof without selling declining assets and creating a tax bill. And so, that's supporting both her lifestyle and her longevity in a way that is just a much better result.

8:30 You know, I think the thesis when I launched this podcast about a year and a half ago, as a real estate professional, I consider myself pretty smart, pretty well read and knowledgeable. I was shocked at how little I knew about the reverse mortgage and how it changed. I had been in a loan originator you know, 20 years ago and it had done some reverse mortgages and the product was totally different. Well, even longer than that, maybe it was 25 years ago. Totally different and what I noticed as a real estate professional was that we should be doing 10 times the amount I set information the number of reverse mortgages we are given the number of people who have a house free and clear and people who are buying houses in their senior years for cash. And I tell people, "I'm not as sure that you should get a reverse mortgage, but I'm 100% sure you should evaluate the tool amongst the other options to see what works best for you." It's not about the right tool for everybody. It's about you finding the right solution. So, talk a bit about the discovery process. I know that when you talk to people and you say, you know, "I do reverse mortgages." There's a Like you said, "I don't want one of those." What? You don't want a loan where you make no payments? You don't want a loan where maybe the unused portion credit line goes up every year as your house goes up in value? Who wouldn't want that? And in this case, you wouldn't want a loan perhaps because the payment doesn't cover all the interest, but meanwhile the house is appreciating in value. It might be the right choice. So, talk a little bit about how do you approach people without being salesy? You know, I think that I would say you know they should consider the option and if they have all the information they can make the right decision for them. How do you approach that without coming across too pushy or you know, having them push back on you just to resist?

10:15 Yeah, so I agree with you 100%. I've often said a little differently than you, if I could magically educate everybody with a snap of my fingers about the reverse mortgage program, we would be doing 50x of the industry-wide volume that we are currently doing, right? But nobody knows. And then most people don't even bother to find out, but people who do find out, like I would say 99% of my 2,000 clients I've helped in the last 21 years have a high satisfaction rate with their choice to do the program. Now, they're well informed. I meet with people face-to-face almost every single time, multiple times, and so they understand all the ins and outs of the program and they're in great shape to make a really good decision. So we end up with a really good result for them, you know, 5, 10, 15 years long later because they knew what to expect based on our work together. But these people that don't bother to find out well, they're missing out. And education is a big part of it. If people are open-minded to it, the financial planning community, the academic types, they I was at a presentation at a conference where one of these guys is saying, "I'm not telling you should contemplate getting a reverse mortgage if you're worth 4 million, 5 million, 6 million, 7 million. If you're worth less than 10 million, I'm telling you need to find out about a reverse mortgage." So the amount of wealth he thought you needed to have in order to rule out a reverse mortgage was 10 million or more, right? We don't know what's going to happen to us late in life.

12:02 I have an idea because of the work I've done and I've seen people want to stay at home and spend 25 or 30,000 dollars a month in expensive communities in order to bring in-home care for years and years and years. And so depending on what people need, you could need a lot of money those last couple years of your life and for some people they use a reverse mortgage at the end of their life in order to do that, but there's some advantages to putting a reverse mortgage in place much sooner. And these financial planning academics I think you've had some on your show, the papers that are written, stories, reports. They're big advocates for this and there's a reason. There's a lot that you can do with accessing your home equity to create a secure safe, comfortable retirement. I think there's two places where the product breaks down. Obviously, one is the pre-loan meaning people get into this rushed into it, pushed into it,

13:04 Don't understand it and then are surprised when something happens or their family members are surprised to find out they got a reverse mortgage and their inheritance is being eaten up by the parents living lifestyle. And so I think that, you know, originators like you that take a high touch on the front end have a chance to help people avoid that, right? Because one of the discussions should be listen, you're not going to live forever. This loan gets paid off when you're gone. Who needs to know about this? And I actually developed a little information sheet that I've created and shared with originators that they should give to the customer and say, "Listen, whoever has your trust and ministers it, they should have this information. Here's the loan number, here's the contact information, here's my here's my phone number because we're not here just to sell you something and leave you in a problem." And then the second phase is when the borrowers pass and again, oftentimes it's a problem, right? Somebody's passed, there's a lot of work to do, there's a house to clean up, there's assets to marshal, there's financial considerations and it can be overwhelming and now you have this mortgage that's a ticking time bomb that's going to close, you know, get paid off maybe in 6 months. But I know you're involved with that cuz literally before we started recording today you said, "Oh by the way, I have a client I need to talk to you about who, you know, mom passed and they need to some help on getting through the process." I think that this is the difference between originators like you that are professional and do this as a business versus big businesses that do this as a corporate conglomerate and have 800 phone numbers with fancy actors and call centers and I know that you're committed to this business on a personal because I've worked with you and I've talked to you about this. Talk a little bit about how you set out to approach your customers and educate them and keep them in sync with you know, after the loan's been originated and unfortunately after the loan's been let's say terminated or needs to be terminated.

14:59 Yeah, you know the product is complex, unfortunately. I wish it was more simple. But the complexity requires you know, more hand-holding, a lot of explanation, a lot of education. And then, you know, being done with your house for any reason, particularly when you're in your 80s or 90s, is also complicated. Yeah. And most people don't have a estate plan that includes a trust. So my work, you know, it took me most of 21 years to understand where how I can be, you know, the best person for my clients. And on the front end it's the understanding the product. Getting your trusted advisors involved if it's appropriate. You know, it may not be appropriate. You know, you and I, Bill, and hopefully this isn't offensive, we're at an age where we're old enough or almost old enough to do a reverse mortgage, right? Or some other home equity access. I am for sure. For sure. I am now, too. And you know I don't need my kids' help. I don't need my trusted advisors' help, but I'm I mean I have the background, I have the experience, so do you, right? And You know, you say that, not true. Let me share with you. One of the I'll be honest with you, one of the reasons I launched this podcast was my I we live in California. And I used to live in Florida, love Florida, love the weather, and for a lot of reasons I have a lot of friends who've moved there. And so I said, you know, it'd be also tax-wise I could move my business and my real estate, I could move where I'm doing part of it.

16:38 And so I started shopping for houses in Florida of what I could afford to pay for cash cuz I had a certain amount of cash. And I didn't need much. I wasn't going to move my fam my wife and buy a condo like by the beach or something and it was like 500,000 dollars. I just couldn't find anything I liked. And I was talking to a friend, I don't think it was you, but somebody else, another a reverse a reverse mortgage originator friend who said, "Well, why don't you get a reverse mortgage instead of 500, you can get 800 for the same down payment?" I thought well, that's obvious. Why didn't why didn't I think of that? I'm a real estate agent, I do this all the time. Why do I not know that I'm not limited to what cash I have, the opposite because I'm old enough, I'm over 65 now, that I could qualify for a reverse mortgage and get more house for the same money and doesn't mean I have to, but it means it's an option that's just sitting there waiting for me. So when you say we know this you know, I think that business all business got so much more complicated now that, you know, I stay in my lane. I know a lot about lending, I know a lot as a real estate agent and a listing agent, I'm an expert on lending as a Realtor®. I'm not an expert to do loans for customers. And so I think, you know, you say that and I don't mean to be argumentative, but

17:46 Let me let me let me let me clarify. I meant I don't need to get my kids involved with the financial decisions that I'm making. I need that I need trusted advisors that are experts, right?

17:57 Yes. Yeah, I bought a whole life insurance plan 10 years ago. I didn't know how that worked. It wasn't necessarily for life insurance in case I died, it was for long-term tax-free income in the future. I didn't know what I was doing. I needed help. I didn't need my kids' help, right?

18:12 Right. And so you know, these things are private matters and sometimes they're even private from your own family, right? Depending on who you are. If when I'm 90 and I'm contemplating a financial product I might want the help of my younger whippersnapper 50, 60-year-old kids, right?

18:31 Yeah, for sure. Currently at 60 or almost 60 and because I work in this field, I don't need that kind of trusted advisor help. I do need in that case I wanted my the guy I was buying the life insurance, I needed his expertise and help, right?

18:47 Correct. Correct. So some of the some of these older homeowners that might be listening to your podcast, they might have mixed feelings about involving their adult children, right? Right. That's either it's either private for them and they don't need to know or they're like, "No, I want my kids involved." Neither one of those is the wrong decision, but that needs to be up to up to them, right?

19:06 Right. Right. And it does hurt the program's reputation like you know, for example, if I wasn't in the industry and if my parents had a reverse mortgage, they do, and I didn't know anything about it and I'm thinking I'm inheriting a 500,000 dollar free and clear home and instead I'm inheriting a 500,000 dollar home with a 200,000 dollar reverse mortgage, I'm not going to be a fan of the reverse mortgage, right? Correct. That's one of the points yeah, that's one of the points you were making. So there's no doubt about it. From that perspective, it certainly would be helpful if your heirs might know ahead of time so they don't have that big gotcha surprise maybe at the end of your reverse mortgage at the end of your time in your home. And the flip side, the people who get a reverse mortgage, you know, with a large balance, maybe a million dollar house and they get a half-million dollar loan, but they've drawn nothing on it. And so, the kids are first saying, "Oh, there's only half a million dollars less expenses." In reality, there's a full million dollars of equity because it was just there to protect them. So, again, I know that I've been giving a lot of attorneys my other podcast, Estate Planning Weekly, and almost all of the ones that I would work with say, "Unless there's a some extreme circumstances, try to involve the children and let them know what the plan is and know what's available." Because if they're going to fight over it, better to fight over it while you're alive than after you've passed. It's just it can work be it can be worked out better. Doesn't mean that's the right answer. That's just the most common one I get. And I kind of I kind of side with that one, which is I'd rather let them know what it is and I think more probably how to resolve it cuz if you know, so many times I get a phone call from a family and they'll say, "Oh, you know, I know that it has to be half in 6 months, but I know also that we can get automatically one or two extensions." And I say, "Well, it's true the deed says you can get an extension. The lender can give you an extension, but pigs can't fly. They just don't normally fly. And the lender is not going to give you an extension at least in California. They're going to race to foreclose. And so, trying to get people kind of on board with what's the program look like, you don't need to rush, but you have 6 months, you don't have forever. And you can't make payments and the lender is not

21:10 Interested and like other lenders. So, these are things that get under the realm of discussing with families. Let me ask you this other question that also complicates it sometimes, which is how often are you the sole person discussing this product with your client versus how often are you involved with, say, an estate planning attorney and or a wealth advisor and now you have two or an accountant, you have two or three opinions that you have to kind of coordinate together. How often is it just you or is it more often that you have a private team? You know, it's a pretty good mix. Some sometimes people got this on their own and they're making the decision with no outside help. You know, and sometimes it's that simple. It's a no-brainer. I'm working with a woman now where her income just isn't enough. Luckily, she owes nothing on her home. She's 75. And when we put this in place, it pays off some debt. She's being generous to a family member and she's being generous to her church. And then she's going to have this remarkable nest egg that if she takes it out, spreads it out over time, it's a it's a big game-changer for her. Now, she all of a sudden she feels financially secure. She's not getting any help. It's so obvious and so easy for her that this is a good decision. And then there's other cases, the woman I just told you about where her advisor can't imagine her withdrawing almost $50,000 from her stock portfolio right now because of the taxes and because her portfolio is down recently. So, he introduces us and what great advice.

22:51 She is so glad that we met, that he introduced us, and we're getting her a whole different result. She now has access to hundreds of thousands of dollars of tax-free money that she didn't have a month ago. Right. So, it's a it's a it's a mix. I bet it's almost like 50/50 when other people get involved. And a lot of times it's families. I've walked into one of my favorite meetings. I never I never know, you know, I don't Well, sometimes I know, but a lot of times I don't know what I'm walking into. And I go to people's homes. They come to my office. But I remember walking into one home and I'm not kidding, there was 12 people there, right? Wow. Kids, grandkids, siblings, neighbors, I don't know. But that was awesome, you know, that was that was really good for me. And everybody was everybody was agreeable enough, you know, I there was so many heirs, you know, like, "Okay, so if we do have in the future if we do have a $500,000 housing wealth and we're going to split it up 12 ways, why don't we just forget that and let Mom and Dad spend most or all of that housing wealth if they can, right? Well, certainly if they can do it and improve the lifestyle. You know, I think I think there's a difference between taking $50,000 and blowing it, going to Vegas, versus $50,000 over 10, 20-year period could be money where they donate to their church or whatever cause they're involved with. They go on a vacation or two with the entire family.

24:13 They buy their, you know, funeral plots if they wanted to do that ahead of time so they know where they're going to be. They can give gifts to kids along the way annually. Like they have access to money while they're alive to enjoy their life like you mentioned like longevity and lifestyle, rather than die with all that equity. And again, with 12 heirs, it's all going to split up anyhow. It's not going to be life-changing anybody. Right. The thank you for making that point. That is critical, right? And you know, we've been doing this for maybe 25 minutes. I should have mentioned and need to mention many times, it requires to be effective, to be remarkably effective, it's the responsible use of your home's equity. Right. You know, I tell a lot of stories that are happy endings and good results, but I could tell other stories, too. 20 years ago, brand new in the industry, I had a family get a reverse mortgage. They bought a remarkable motor home, right? I'm next to my RV. That's lifestyle longevity, but it's responsible. It's not a brand new. It's It was an inexpensive It was a great value for us to buy this RV that's we're sitting here, you know, 100 days of the year out of. So, we were careful, responsible, practical. This family decided $100,000 RV was appropriate for them. And they also spent $100,000 on their daughter's wedding. The husband predeceased the wife. He's the one that drove the RV. He died suddenly, unexpectedly. And now she had very little equity, a loss of income. I'll never forget it. It's a story I don't like to tell, but it makes the point. You It has to continue to be, like most of us all of our life, the responsible use of your resources, including your home equity with a reverse mortgage. So, I counsel that without exception in every Yeah, I used to see people

26:12 My own family [cough] Sorry, my own family I've gotten this is my dad's in a reverse mortgage that he loves. My sister's in a reverse mortgage that saved her butt. And my stepmom got a great result from her reverse mortgage. Her husband predeceased her and she would have been

26:34 Ruined financially. Wouldn't have had enough money, but now she takes an income stream that replaces the income she lost when he predeceased her. So, my own family

26:43 I see so many people who I see so many people even with, you know, nice-sized estates. One comes to mind where you know, probably about, you know, at the end of the day, $70 million estate, he lived in a modest house that was about a million dollars that was free and clear, but he lived like he was impoverished. And, you know, I think to myself, you know, for an extra $50,000 or $100,000 out of this estate that nobody would miss, it'd be a rounding error, nobody would notice it, he could have had somebody come in to clean the house up. He could have somebody come in and maybe drive him to medical appointments that he didn't do and deferred off. Maybe he could have, you know, paid actually have a doctor come visit him at the house and make some decisions. Could have spent more time with his kids. I think that you know, I definitely see families in their 20s through 50s abuse their home equity on lifestyle choices that don't make sense, right? The guy who buys the Winnebago and he's on a lease, he's got two leased cars, and that's something we've all seen. But on the flip side, I don't think I see that in people 65 or older. They opposite. I see so many who live very small, narrow, painful lives where just a small portion of their equity would make their life better and life of their family better and then their legacy better, I think, at the end of the day. Yeah, way more common what you're talking about. People are

28:05 People particularly when it comes to accessing their housing wealth, there we started talking about this. There's not enough of that going on, right? You know, you we work, right? We try to build with our income and our investments and our savings, we try to build this mountain of assets, right? Hopefully a Mount Everest of assets that then we get to a certain age and we need to spend we spend that down because we need it, right? Well,

28:35 Should the house be a part of that mountain of assets that we use? Well, for longevity and for lifestyle, in a lot of cases, it should be. It should be considered. But often times, most often, it isn't. Right. And then and then how irrational is it if you if you're not having the lifestyle that you need, right? If you're if you're running out of money every month or if you have all this wealth and you're and you're and you're not enjoying yourself because you Oh, I went into a woman's home and it's freezing cold because she's afraid to run up her bill. She's in a million dollar home that's that's free and clear, right? Well, Right. Live a little, right? And she has friends that she'd like to go to lunch with, but she feels like she can't afford it. It's okay, you know, maybe for you and I, it's okay to spend a couple hundred thousand dollars of your housing wealth over the next 10 or 15 or 20 years and have a life and enjoy yourself. Heat your house. Go to lunch with your friends. Right. And but some people don't make that choice. And what they're doing is they're preserving all that wealth for their heirs. Bill, I think you have an idea what happens to that wealth when the heirs get it. The heirs don't spend it as well as the parents did. I think that's not to say that all of them waste it or abuse it, cuz I do know heirs who, you know, use money to send their kids to college or private school who otherwise wouldn't. But, at the same time, I think the parents would use it more effectively, at least a portion of it, at least a portion of it while they're still alive.

30:06 It's heartbreaking sometimes. Like you say, you go in the house and the house is cold. Why is it cold? She's saving money on the heating. How much is heating a month in California? It's not I mean, my gas bill is not that much, so it's not it's not even I couldn't tell you. I don't think it's $100 a month, even in the winter. Maybe it's a couple hundred or something, but okay. Bill, where you live, yes. And I would love to live there, but you know, where I'm at, we have days that, you know, my our little water feature in the backyard will get a thin layer of ice once in a while, right? So, it'll get down in parts of California, it'll get down into the 30s, you know. Really? I know my refrigerator is in the 30s, but I didn't really know a house could be in the 30s. Yeah, you know, people you know, there you are in Southern California, perfect weather, and people assume in the rest of the country, oh, you must be near the beach, and you must be near all the famous celebrities. Like, well, up here for me, Bay Area, Sacramento, it gets cold, particularly in the valley. Not a lot of celebrities, and, you know, the beaches are a little ways away. Well, it got cold here this winter one day. I actually thought about wearing a coat. It was really cold. I don't own a coat, but I thought about it, if it'd be nice to have a coat, so Yeah, I know. That's how cold it was. It was like, woo, freezing cold. Okay, hey, we're kind of over time. Hank, it's always fun to talk to you. I feel like I learn so much, but more importantly about you really focusing me on being a service to customers and having relationships with them.

31:29 If for those of you who want to get more involved with Hank and talk to him about perhaps for you or for your professional needs to work with an originator who can help you. He is at American Senior Lending. Down below is his website, his email, his phone number. Hank, thank you so much for joining us today, and thank you so much for raising the standard I think of the of the performance of people in our industry, and continuing to be of service to people. Yeah, a great pleasure for me, Bill. You do a great job with these podcasts. So glad to be on. Thanks so much. And thanks for this Reverse Mortgage Podcast. We have a new episode out every week, usually with originators, sometimes with management or vendors to help us be more professional and be better at our craft. Let me know your comments. Put comments in the down below where you're watching this, or send me a text or an email. You can find me on social media at Bill Gross Probate. As always, make today your best day ever. Thank you so much.