Business Innovators Radio - Interview with Don Graves, President of the Housing Wealth Institute Discussing Serving Financial Advisors with Reverse Mortgages

Episode Date: January 18, 2024

Don Graves is the president of the Housing Wealth Institute and an Adjunct Instructor at the American College of Financial Services. He is one of the nation’s leading educators on incorporating reverse mortgages into retirement income planning. Don has been quoted in Forbes Magazine, featured on PBS, and is a sought-after professional speaker whose workshops are helping advisors and their clients determine if a reverse mortgage is right for them.Learn more:http://www.housingwealth.net/ and http://www.dongraves.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-don-graves-president-of-the-housing-wealth-institute-discussing-serving-financial-advisors-with-reverse-mortgages

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. And today we have with us, Don Graves, who's the president of the Housing Wealth Institute. Don, welcome to the program. Thank you, Mike. It's great to be here.

Hey, I'm excited to talk with you because I love talking about wealth and wealth building protection and safety and security. And I love the sound of the Housing Wealth Institute. So I want to hear all about what you do and who you serve. But get us started first with your story and background and how you got into the industry. Fine. Thank you so much. Gosh, I'm in my 24th year of doing reverse mortgages. Before that, I was a CEO of a nonprofit called Habitat for Humanity in Philadelphia. And prior to that, I served in ministry and missions work.

And 24 years ago, I was introduced to a new way to serve and help people. And after I investigated it and spent a year looking at it, I thought this could be really a very important resource. And that's my story. Neat. And I think the recurring thread and theme through all of those is serving and giving value and not, the thing that I did not hear you say is, you know, I found this industry where you make a whole bunch of money. Nope. You started off in ministry, you started in Habitat for Humanity, serving and ministering to people who need homes.

That's so wonderful. And then you saw this kind of looking forward. Probably you started seeing people that had such a need for a reverse mortgage and they weren't able to maybe meet living expenses or things like that. So I think that's really neat when you see a huge problem need, you know, pain point. And then you come to the rescue to see where we can fix that and from the heart of a servant and an educator. Sure. And I saw more than that. There are kind of two types of people that engage in reverse mortgages. There's a borrower that's maybe struggling, financially, a retiree, senior, and there are those that are not struggling. But they need to solidify a plan to have a contingency for the unexpected. And so really, a lot of my practice has gravitated towards helping those all across that spectrum. And we'll give some examples. examples today as we continue to speak. Yeah, I definitely want to hear that because I love where that's headed.

Let's first define what is a reverse mortgage because I know that a lot of people know what a mortgage is. In fact, here's a little quip for you. I think you'll find it curious. Do you know what the Latin derivative of the word mortgage is? I do not. Well, you know, like a lot of the romance languages, you know, like mortier in Spanish is like death. So mort is death.

And then the gauge is grip. And really the derivative of that derivative of that word is death grip. And if you think about it, a mortgage can be a death grip if it's not managed the right way. So I thought you would find that curious. But let's go ahead and define what's a reverse mortgage because we typically know what a mortgage is. Sure. Reverse mortgage is a good way to disrupt a good barbecue if you're not careful. Think about it.

Last time you were at a gathering with family members and someone says, I'm thinking about a reverse mortgage for mama. What happened? Three people left at the table. Three people went under the table and your aunt Janie made a shank out of a plastic knife and fork and tried to kill you. It's dangerous when you don't know. But I tell folks, it's just four letters. It's four words. Four words. You ready? It's just the mortgage. Excuse me. It's just the mortgage. What is a reverse mortgage? Well, it started in 1961 here in the United States way sooner than that over in Europe. In 1988, it became sponsored by the federal government. So a reverse mortgage is a federally insured loan for retired homeowners or for homeowners age 60 to a better that allows them to convert a portion of their home's value turned into the tax-free dollars without having to make a monthly payment, without giving up ownership or coming off title to the home without owning more than the home is worth in the future. What is it? It's just a mortgage.

It's just the home equity loan or home equity line of credit that most of the listeners are going to be familiar with. So I remind folks, it's neither new nor dangerous nor spooky. It's been around for a long time. And so reverse, obviously, is going in the opposite direction. So when you are having a regular, typical traditional mortgage, you're making payments and slowly but surely the principle is going down. Well, am I correct in thinking that when you have reverse mortgage, then the principal, is going up because you're actually getting cash flow from that. I would tell people to think about a credit card, that most people have access to a credit card,

Visa, Masked, Discover, whatever. So when you think of a traditional home equity line of credit, you go to the lender, you present some qualifying data, and they approve you. So let's say you've got a $500,000 home and you're approved for a $200,000 line of credit, a traditional line of credit. Now you have access to that money, you use it for whatever you want, and when you take the money, you begin making a payment on that money the following month. That's a traditional line of credit.

Well, let's take that same thing, $500,000 home, a retired homeowner, and they get a $200,000 reverse mortgage line of credit. What does that mean? That means they now have a credit card with a $200,000 limit. They can access the money for whatever they want, whenever they needed. Here's the difference. the following month, they are not required to make a monthly mortgage payment. So it doesn't impact their cash flow.

They use the money. They do these things. So if they were to use some money, $50,000 to do whatever they want it, now like a credit card, they have a loan balance. They're not making a payment, but that loan balance is accruing interest over time. Yeah. So the loan gets repaid, Mike, when the last survivor. borrowing, permanently departs the home, moves, deceased, as goals into a facility. At that time,

very important. You're going to have a loan balance, but you're also going to have a home balance. So now that $500,000 home is $800,000. The reverse mortgage money you took out, you borrowed $50,000 or whatever, now you owe me $100,000, or let's just make a big number, $200,000. I like the zeros, because I'm from Kentucky. So you've got an $800,000 home when you died, a $200,000. A $200,000. $200,000 home balance. So the difference is $600,000. What your house is worth, what you owed, who does that go to? That goes to the heirs. That goes to the estate. Or if you move, that goes with you. And so some of the common misconceptions, when people hear about a reverse mortgage is, oh, that's the loan where the bank loans you the money. And then when you die,

they take the house. That's not true. Yeah. It's just a mortgage. The loan gets paid home. I was just going to mention your comment about the barbecue. Over the last couple months, I was at a family gathering and it was not a barbecue, but almost not exactly what you described, but something similar where the topic of a reverse mortgage came up and one of my relatives was talking about it. Not necessarily I need to get one, give me one, but it was just the topic. And I heard them say, and this probably is a misconception. So this is what I'm going to bring this up so you can refute it.

they said, oh, you don't want to do those reverse mortgages because the ownership of the property transfers to the lender. And then if the value of the house goes up, you don't get the equity growth. The lender of the reverse mortgage gets that. And now you know, and your listeners know that that's not true. Yeah. Yeah. I, J-A-M. Say it with me.

It's just a mortgage. It's just a mortgage. Yep. Is that how a mortgage works? I said, that would be terrible. That would be criminal. I said, no. Right, criminal, literally.

It's a home equity loan. Whatever the appreciating equity in the home has at the end, if your home is now worth $800,000 and your reverse mortgage or your loan balance is worth X, whatever that gain is passes on to you, your heirs or your state. The bank doesn't take the home. The bank doesn't sell the home. The bank doesn't own the home. Someone says, well, my kids won't get anything. Absolutely. They're going to get whatever the remaining equity in the home is.

and if you use it strategically, they're going to get a lot more. And so just like a mortgage, just like a mortgage, there's a lien on the title because now there's a loan instrument that has a certain balance. And whenever ownership changes, like if you sell or whatnot, then you just call and get a payoff. So there's a lien on title, but the deed of trust, the owner's, husband and wife or whatever, there's not another owner on the deed of trust. it's only the lien because it is, like you said, just like a mortgage, just a mortgage.

That's correct. There's a lien on the property. That's a huge distinction. Absolutely. Absolutely. So you mentioned people that use reverse mortgages. You know, it's kind of like the dichotomy of people that desperately need cash flow and I'm house rich but cash poor. So I need a reverse mortgage so I can have money every month. And then the other side of the equation is people that just want to really maximize that home equity because they're affluent and they want to use. that to put it into other things that are more profitable. Talk a little bit about some of those common uses. Sure. And my 24 years of doing this, most of my work is with financial advisors, which is those advisors who are counseling clients who are at end or near retirement, and I simply help them expand the current conversation they have with existing clients. Why? Why is this important? 87% of retirees own a home. And as we go into retirement, it's going to be longer than expected, more expensive, and less predictable. So every available asset that we have

at our disposal must be used. There are three primary buckets, and there's the income bucket, Social Security, pension, maybe employment. There's your investment bucket. IRA 401k, brokerage accounts, X, Y, and Z, and there's an insurance bucket, fixed and variable annuities, whole and term life insurance, long-term care disability. Now, out of those three buckets, Mike, the retiree has to deal with expenses that are going to occur in retirement, emergencies, and then just enjoyment. And they have to determine what bucket do I pull from when these things happen? What I talk about in the newly restricted reverse mortgage says, no, you don't have three buckets.

You've got four buckets, 87%. The fourth bucket is your housing wealth. So what if you can turn your $500,000 home into a $2,000,000? $200,000 reserve line of credit from a reverse mortgage that's currently growing at about 8%. Historically, it's average 6 to 8% growth. Now, you've got another resource that when an emergency comes, my roof was leaking. We had a big storm. My roof is leaking, and that's an emergency.

Certain insurance companies have pulled out of Florida, Texas, California, and homeowners insurance rates have tripled. in certain of these places. Well, that's an expense that could be difficult for certain folks. Dental expenses. Your dog Frisky got something stuck and you love Frisky, but it's $7,000 to fix Frisky. So where does that money come from in retirement? See, we don't know when we're going to expire. We all have an expiration date. We just don't know when. So we've got to deploy every available tool, our income investment, insurance bucket and our housing wealth bucket to make sure we can create a long and sustainable retirement. That's really the focus of the modern reverse mortgage. And so it spans the gamut. All types of folks will use it. I'll give you an example. And 68% of retirees are coming into

retirement with a mortgage, our mortgage payment. And I asked them, I say, Mr. and Mrs. Flintstone, I see that you've got a monthly mortgage payment. You're 75 years of age. I'm curious, if you had a choice, would you rather that payment be mandatory or voluntary? What would you choose? Now, Fred looks at Wilma and Wilma looks at Fred, and they say, duh, voluntary, of course. But, Don, there's no such program in the world. I said, no.

There is. Since 1988, the federal government has sponsored a program that will allow you to get rid of your mandatory monthly mortgage payment and turn it into a voluntary one, and that's called a reverse mortgage. That's a very common use. Imagine not having to make a mandatory loan payment, home equity loan line of credit mortgage, whatever it is, in retirement. That's something you may be care. Many people are going to carry that to 80, 85, 90, 95, 100. And all of a sudden, you realize, If I get rid of this mandatory monthly mortgage payment, I create cash flow, $1,500, $2,800 a month. I've created cash flow.

That has several tentacles. I can draw less from my savings, meaning it can last significantly longer. That's a very common example. Or just having a reserve, just being able to say, if you had a $200,000 credit card, you were pre-approved, you could use it for whatever you want it whenever you wanted and the following month you were not required to make a monthly mortgage payment. If you had access to this credit card, by the way, that was growing at 8% meaning your accessibility to the money was getting larger and greater over time, would that be helpful to your retirement? Absolutely. And you know what that would provide,

I'll just interject a comment here because what I'm hearing through that example is peace of mind. Sure. Because when someone is worried about, man, my mortgage payment is this. And if a couple that is in their 60s or 70s and retired and has a mortgage, they probably have other things too. So they probably have maybe a car loan credit card. So the mortgage is not their only debt. So if they have those payments and now they're on lower income, fixed lower income, there's going to be constraint financially. So if you are presenting these options and you're saying, oh, it's optional and we can create that cash flow. What a peace of mind that gives. And let's be fair to and realize something. When you, it's like a seesaw, when you push down on one side, the other side goes up.

So when you are getting this cash flow, it is increasing and eating into your equity, which affects what you are transferring to your heirs. And we know that. And as long as there's not exorbitant fees, then that's a fine thing in my opinion. So this is my comment and question to you. Isn't that a point where you're saying this is peace of mind, is taking care of you now so you're paying these bills? You're not drawing out of your retirement accounts, your cash accounts,

it's making your money last longer. And let's face it, if you died with this house paid in full, your heirs get that. Well, now they might just get a little bit less because of the reverse mortgage. But guess what? If you're in money trouble,

your kids and your family, they might be kicking in money right now anyway. So it's preventing that. It's keeping yourself esteem high and your peace of mind. There are, and that's absolutely true. There are five general concerns that retirees have. Longevity. How long will my savings last? Lifestyle. Can I live life on my terms? Get a steak versus a hamburger. Liquidity. Will I have access to money when I need it? Legacy. How will I be financially remembered and long-term care? am I prepared for the out-of-pocket cost of aging? So all of those, that spans the gamut. And so what I do, again, with financial advisors, with their clients, I say to them, now, your client's got a million dollars heading into retirement. I'm going to show them a way to

access their fourth bucket, and that in 30 years, instead of that million dollars going to zero, I'm going to show you how they can have $4 million left at the 30-year mark. We're going to leverage home equity and ways that you never thought. For those that, and I gave three E's earlier, I said there, the three E's in retirement, emergencies, expenses, and enjoyment, but there's a fourth E, and that's called erosion. Erosion. The old thought, when is a million dollars, not a million dollars, well, when it's in an IRA or 401K, because you've got taxes on that. And one of the there are 52 strategies, Mike, that I teach financial advisors in their clients. One of them is how to use reverse mortgages to mitigate income taxes in retirement. I show you that if you're taking

your required minimum distributions, but you need more than your requirement minimum distributions to live, don't take that from a taxable account. Take it from your reserve account, which is non-tax. That causes your dollars to last significantly longer. If you've got money in a taxable account and you're saying, Don, I don't know what the taxes are going to be when I need to use this, I say, let's talk to your advisor about using a structured Roth conversion. We're going to show how to use the reverse mortgage to pay the taxes on the Roth conversion so that over a five or 10-year period, that money is going to go from forever taxed to never tax. It's going to make it last longer.

You're going to sleep better. And so I've had clients who were retired CEOs of multinational pharmaceutical companies. I've had a $10 million home or $4.5 million home. I said, why would these people who had assets do the reverse mortgage? So they can have more assets. They can sleep better. They can leave more. And they can deal with the five Ls of retirement.

And so it spans the gamut, the strategy. So I tell folks, it's more than a 60-second commercial, folks. There's some real benefits to understanding how to use the fourth bucket. And quite frankly, if you had a bucket of money, a piggy bank that you had been saving 20, 30 years, and all of a sudden, that piggy bank's got $200,000 in it, wouldn't you want to know how to incorporate that with your other asset? Absolutely. I would want to know. And that's what I do.

The word through that example I was coming to my mind is arbitrage, because if you're using one financial tool to parlay, leverage that into another financial tool. that then grows really, you know, well protected, you know, whatever financial product that might be. We're not advisor, so we don't know what. But I do know that there are some financial tools that people can put money in where it's guaranteed not to lose principle and to grow tax-free. Like you were mentioning with the Roth conversion, but if you can access that mortgage bucket where you don't have the payment and you're putting it into a financial bucket to help you grow your wealth, that's a whole different client than someone that doesn't have two nickels are up together. is someone that wants to really arbitrage some of their assets and capitalize on their hard work over the years. It's the fourth bucket. It's saying that you've got your income bucket, your insurance bucket, your investment bucket, now you've got your housing wealth bucket. It's not a standalone.

It's to be incorporated and integrated with the retirement planning strategy to give you the best opportunity of a successful and enjoyable retirement where you sleep well all the nights that you can't. Because listen, retirement's going to be longer, more expensive, and less predictable than we ever imagine. It's better to have more at your disposal than less. You know, and we're talking about misconceptions of a minute ago, Don, and one of the thoughts that comes to my mind is, you know, if it sounds too good to be true, where's the catch? So are reverse mortgages really high fees? Is it going to, you know, you take that 50,000 to fix the roof or whatever? Is there just massive fees that are eating into that as well? we know there has to be fees. That's just how the lenders make their money. But talk a little bit about

the fees involved. Sure, because this is a regulated program. This is not my program. This is an FHA loan. So it's sponsored by the federal government. So whatever the standard closing costs would be on any FHA mortgage will apply here. And so it's no different. As a matter of fact, when you begin investigating a reverse mortgage, there's some safeguards that are built in. And so, So if you're listening, and this is for Mama, this is for you, or for your clients as a financial advisor, they're safeguards. Number one, there's always a proposal that has to be sent. Number two, the client has to speak with an independent third-party counselor that speaks with them to say, Mr. Mrs. Flintstone, let's make sure you understand.

How is this going to be used? What are you doing? What are the fees and costs? What's the benefit? And then they receive a certificate from the United States Department of Housing that says, I've received reverse mortgage counseling. So there's safeguards that are built in. So no one, theoretically, who gets a reverse mortgage is going into this ignorant and uninformed.

And for 24 years, I appreciate that safeguard. Now, I want to mention that, Mike, you said something earlier about someone who got a reverse mortgage just to do a roof. That's what I would call a single-use reverse mortgage. I don't practice that. That's not something I encourage people to do. I would say, go borrow money from your family, go get a traditional home equity loan if you're only going to get a single use reverse mortgage because there's 52 strategies. Now, most people may think that's all I needed for, but I can promise you, you don't know what you don't know until we begin to look at this. And we do that through assessments and coaching and these type of thing.

Well, I love it. Well, Don, I think it's been so eye-opening to see. kind of pulling the scales back on people's misconceptions on reverse mortgages. I've learned a thing or two for sure. If someone is interested in learning more and then also reaching out and connecting with you, what's the best way that they can do that? Sure. A lot of people go to my masterclass. It's www.w.orgatremorcemorgatgemasterclass.com. That's 47 minutes where I impact everything I just said here and they can learn more. that's a very simple way.

Reverse Mortgagemasterclass.com. And they can reach me through that as well. So that's just a video class. Or you can email me to Ask Don Graves at gmail.com. That's real simple too. Ask Don Graves at Gmail.com. Excellent. Well, Don, thank you so much for coming on today and teaching us.

It's been a real pleasure talking with you. Thank you, Mike. You've been listening to influential entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www. www. Influential EntrepreneursRadio.com.