Reverse Mortgages: A Bad Deal For You (Most of the Time)

when-does-a-reverse-mortgage-make-sense_363You have probably seen the commercials on TV for reverse mortgages.  They tend to feature older actors, like Fred Thompson of Law and Order, who speak in deep, reassuring voices in an attempt to convince you that reverse mortgages are the greatest thing since sliced bread.  But, except for a few very rare circumstances, they’re usually a bad deal for the elderly homeowner.

A reverse mortgage is a loan made available to homeowners who are at least 62 years or older that enables them to convert part of the equity in their home into cash.  For many Americans, the equity in their home is their largest financial holding, and for too many, it is their ONLY financial holding.  Years of government incentives to buy expensive homes have resulted in millions of elderly Americans being “real estate rich” but “cash poor.”

Reverse mortgages were designed to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses such as food, utilities, and health care. However, there is no restriction for how reverse mortgage proceeds can be used, and many elderly people are enticed every year to use reverse mortgages for travel and other lifestyle expenses.

The loan is called a reverse mortgage because the traditional mortgage payback stream is reversed.  Instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.

You are not required to pay back the loan until the home is sold or otherwise vacated.  As long as you live in the home, you are not required to make any monthly payments towards the loan balance, but you must remain current on your property taxes, homeowners insurance and condominium fees (if you live in a condo). Additionally, you must continue living in the home until you die or the reverse mortgage loan has been repaid.

There are three kinds of reverse mortgages:  single-purpose, federally-insured, and proprietary.  Single-purpose reverse mortgages are offered by states, municipalities, and some non-profit organizations.  Federally-insured reverse mortgages are usually issued by private companies, but are backed by the federal government via the Department of Housing and Urban Development to protect the companies from the risky nature of reverse mortgages.  And finally, proprietary reverse mortgages are backed by the same companies that issued them (they are not backed by the government).

Different lenders may have varying policies about other liens on the home, age requirements, financial counseling, etc.  But no matter what route you take to get a reverse mortgage, they generally work the same way.  The most common form is the federally-insured reverse mortgage, or Home Equity Conversion Mortgage (HECM).

HECMs offer different ways to extract money from your home, such as fixed cash payments each month for a specific time, fixed payments for the duration you live in the home, a line of credit, or combinations of those options.  The payments are non-taxable, and no repayment is required until you either die or sell the home.  If an owner enters hospice care or a retirement home on a permanent basis but still owns the home, then lenders generally require repayment within 12 months.  Another key feature is that the amount you repay legally cannot exceed the appraised value of the home upon sale or death.

Sounds like a good deal, right?  You get money, still get to live in the home, you don’t have to repay it unless you move or die, and you will never owe more than can be paid back from the sale.  So how could this go wrong?

Reverse mortgages are being pitched as reasonable options for average people, and based on the facts I presented above, you may be ready to jump on the bandwagon.  But it’s not that simple.  Generally speaking, if you’re considering a reverse mortgage, you are usually looking for extra income.  Translation:  you probably don’t have enough money to afford the lifestyle you’re currently living and you are borrowing against the future to pay for today.

One of the worst decisions you can make in retirement is to go into debt, but that is exactly what a reverse mortgage is.  Folks interested in reverse mortgages are usually having trouble making ends meet, and the slick advertisements touting government guarantees make reverse mortgages look very attractive; however, debt is just another word for slavery. Over the years, I have witnessed retired people who took out reverse mortgages to enjoy the good life eventually succumb to old age and have to move to a nursing home. Because they could no longer live in their homes, they were forced under the provisions of their reverse mortgages to sell exactly at the time when housing prices collapsed in 2008, resulting in their home values barely covering the loans on their reverse mortgages. The banks ended up getting all of the equity rather than their children or charities like they had hoped.

debt-management-1Compared to other loans, the origination fees and interest rates on reverse mortgages can often be exorbitant.  Since you will not make payments, there is usually no credit check.  So to offset some of the risk, lenders charge thousands of dollars in fees (sometimes much more) up front.  Moreover, the interest rates, often based on age, are typically much higher than a traditional mortgage or home equity line of credit.  In other words, the lender ends up getting a big chunk of the money you are paying them for the privilege of going into debt.

If you intend to leave your children anything when you die, they’ll either be required to repay the loan or sell the home you wanted to leave them.  In addition, if you ever intend to move, you will have to repay the loan immediately, whether or not you can afford to.  In short, you really limit your options in retirement by going into debt via a reverse mortgage.

If all that wasn’t enough, you’re still responsible for all of the costs associated with home ownership.  That means property taxes, homeowners’ association fees, repair and maintenance costs, insurance, etc.  If you fail to meet those requirements, the lender is legally able to foreclose on you.  If you find yourself in a home where your expenses go up frequently (like a nice neighborhood where home values—and thus property taxes—are rising), you could easily find yourself in a home you can’t afford now with large sums of debt associated with it.

Really, the only reason you should consider a reverse mortgage is if you have exhausted all your other options.  If you can’t afford your current lifestyle, downsize by selling your existing home and buying (or renting) a more affordable option, sell things you don’t need, and consider getting a part-time job.  You should not be borrowing from tomorrow to afford today, no matter how easy or credible the baritone voices on TV tell you it is.

A reverse mortgage is one of the most expensive forms of debt you can get.  If anything unexpected happens, like the need for long-term care, you could find yourself completely broke very quickly.  Unless you have exhausted all your financial options, intend to never move (even into a nursing home), and are determined when you die to leave little or nothing to your kids or favorite charities, I recommend avoiding a reverse mortgage.

If you have additional questions about reverse mortgages or any other financial concerns, please contact me at

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Lowering the Voting Age to 16

Yes and no campaigners in scottish referendumScotland’s vote for independence is now complete, and the nays have it.  With the highest voter turnout in Scottish history, 55% of Scots voted to remain in the union, spoiling a breakaway for the 45% who voted to leave.

Although most Americans don’t consider the contemporary British government to be a bastion of conservative thought, the citizens of Scotland tend to be more liberal than the United Kingdom as a whole.  The 2010 election of a Conservative British government angered many voters in Scotland where the Conservative Party is deeply unpopular.  Many in Scotland desire to spend less on defense and more on social programs like healthcare, education, and welfare.  Scottish First Minister (and leader of the independence movement) Alex Salmond argues that Scotland should have total control of their own affairs, and that revenues from Scotland’s offshore oil fields should belong to Scotland alone, and at least 45% of Scotland believes him.

What I found fascinating about Scotland’s move for independence was the demographics of the election results.  For Scotland’s vote for independence, 16 and 17 years olds were allowed to cast ballots.  Although the election was decided by 10 percentage points, the vote among teenage Scottish voters was more lopsided, with over 70% voting in favor of independence.  Some pundits are saying this was an election of hearts vs. heads.  A popular myth attributes British statesman Winston Churchill with quipping: “If you are not a liberal at twenty, you have no heart, if you are not a conservative at forty you have no brain,” which might explain some of the reason young Scots tended to vote to leave the relatively more conservative United Kingdom, and older Scots voted “no” out of fear of becoming a more socialistic Scotland.

While I am slow to admit that all older voters are smarter than all younger voters, I am quick to suggest that in social democracies, nearly all younger voters experience citizenship differently than nearly all older voters.  For example, from age 0-16, most children live a life of dependence where they produce very little and yet consume quite a bit.  Although not their fault, very little is demanded of youngsters in social democracies, yet they experience being well fed, well educated, and they enjoy access to urgent health care systems that are rather responsive to the common ailments of youngsters.  Nary a thought goes through a teenage head about who pays for all the amenities they almost universally enjoy.  On the other hand, the average 55-year-old voter must work for their food, education, and health care, and in social democracies they also have to pay for the food, education, and health care of voters who don’t work.  This contrast in experiences explains a lot about the predictable outcomes of voter demographics.

In the future, we are going to see aggressive efforts from the Left in social democracies to lower voting ages because the life experiences of the young predestines their voting behavior towards social utopias.  From their vantage point, food is always on the table, school is always in session, and health care is always available; and, someone else always pays for it.  Only the older voter, who actually pays for the social programs in social democracies, truly appreciates the real costs.

As governments continue to shift away from republican/constitutional forms towards more social democratic systems, conservatives are going to be at a structural disadvantage.  Demagogues will persuade the young that with correct leadership and technology, we can all enjoy an overflowing cornucopia of government provided goods and services completely paid for by someone else.  Unfortunately, in free societies that burden their most productive citizens with taxes and regulations to finance utopia, the golden geese tend to fly away to societies that burden them less.

Whether suffrage will come to 16 year-olds in the U.S. anytime soon remains to be seen; however, for the security of the republic, we need to ensure young voters understand that at some point, they will be expected to give more than they take from society.  Those who don’t understand this expectation may find themselves trapped in a system they voted to create.

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Debt, Not Capitalism, is the Problem

credit-card-debtOur national financial crisis is not the inevitable failure of capitalism, but instead the inevitable failure of debt.  Debt is toxic at the personal, national, and global level.  Like anabolic steroids, it promises to make people (and nations) more of what they want to be, faster than is naturally possible.  At first, debt provides immediate positive results, giving citizens and government leaders the perception that borrowing money is wise.

This is similar to the man who jumps off the roof of a fifteen story building and proclaims to a horrified crowd when he passes the fifth floor that everything is going great!  Unfortunately, debt eventually takes more than it gives.  Individuals, corporations, and nations only go bankrupt when they have borrowed money.  We all know people (with high and low incomes and extensive and limited educations) who were suckered into debt by their desire to grow rich faster than what is natural.  Like gambling, a sufficient number of borrowers succeed at creating quick wealth to lure a significantly larger number of people into the poverty debt usually provides.

I live in Montana, and the Democrats have recently nominated Amanda Curtis, a young, energetic socialist to run for the open Senate seat once filled by Max Baucus.  Mrs. Curtis, a one-term state representative from Butte, is unabashedly strong in her vilification of capitalism.  To Mrs. Curtis, there is something immoral about two parties meeting the needs of one another in the marketplace under terms to which both parties agree.  Like many young socialists, Mrs. Curtis fixates more on the inequality of capitalism rather than the improved quality of living it brings to all members of a capitalist society.

Debt, not capitalism, is the evil that needs to be addressed. While debt is a component of modern capitalism, it is not a necessary one.  Throughout history, individuals and nations have achieved financial security with little or no debt.  Traditional religions have admonished debt for centuries because of its enslaving qualities.  Unfortunately, our current federal government encourages debt.  It insures the loans (deposits) we make to banks, and it insures many of the loans the banks make back to us.

From the government, we get tax incentives to borrow money and tax disincentives to make money.  On Wall Street, the federal government partners with bankers to cook up exotic new forms of debt that will give citizens wealth and prosperity that naturally is not theirs to have without work, time, prudence, and thrift.  When the government borrows money from our enemies to provide us bread and circuses, it is just a matter of time before our enemies become our masters.

I believe capitalism, when personally practiced with prudence, brings more prosperity and freedom to more people and nations than any other system.  I am concerned that politicians like Amanda Curtis will end up throwing the baby out with the bath water.  Instead of teaching the evils of capitalism, political leaders should be teaching citizens to avoid debt at both the personal and national level.  Enron, MF Global, and college kids swimming in student loans are all tragic not because capitalism is a failed system, but because in every case the agents involved used debt to achieve riches faster and easier than is naturally possible.

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The Overton Window

I came across a term I had never heard before in reference to public policy called the “Overton Window.”  The Overton Window was developed by Joe Overton (now deceased) while he served as senior vice president at the Mackinac Center for Public Policy from  1992-2003.  Essentially, Overton believed that at a given point in time, the number of public policy options that politicians are allowed to consider is rather limited.  The “window” of politically acceptable options is not defined by what politicians prefer (or what is even beneficial to society), but rather by what politicians believe they can support and still get elected or re-elected.  The Overton Window shifts to include new options not when new  ideas are presented by politicians, but instead when the public (who elects them) accepts the new ideas and demands they  become policy.


To avoid a left wing-right wing political comparison, Overton created a spectrum that arranged policies from “more free” to “less free”.  At some point in time, some group of policies along the freedom spectrum will fall into a “window of political possibility.”

Policies inside the window are politically acceptable, meaning officeholders believe they can support the policies and survive the next election.  Policies outside the window, either higher or lower, are politically unacceptable at the moment.  If you shift the position or size of the window, you change what is politically possible.  As the spectrum moves or expands, an idea at a given location may become more or less politically acceptable.

New ideas moved from outside the Overton window and into public policy as follows:

  • Unthinkable
  • Radical
  • Acceptable
  • Sensible
  • Popular
  • Policy

Overton often used Michigan’s education policy of the 1980s and ’90s to demonstrate his point.  The full spectrum for public education ranged from 100% parental choice at the high end, and a complete government monopoly void of  private schools, home schooling, charter schools, or other education options at the other. In the 1980’s, any politician who advocated for any option outside of 100% support for government schooling would have had a difficult time getting elected, and passing any legislation for education improvement outside of giving more money to government schools was unthinkable.  Although politicians could make  minor changes in support of home schooling, any support for charter schools was considered to be extreme; however, as the public became more aware of the success of private schools, home schooling, and charter schools in other states, it became safer for politicians to support legislation that would advance these new education initiatives.  By the 1990’s, home schooling and charter schools became part of the status quo, and opposition for these programs became a political liability.  The “window” had expanded to include options other than a government monopoly for education because the public had gained a deeper understanding and a greater appreciation for their benefits.

Politicians as a group are constrained to only advocate for ideas that fall within the window.  While they may personally believe in better ideas, most don’t have the fortitude to fight public opinion because it makes reelection more difficult.  As a result, their voting records tend to be reflections of voter demands rather than better ideas.

Overton believed it was the mission of think tanks to expand the window of opportunities for public policies by researching different ideas, educating the public, and advising politicians on how to implement them for societal improvement.  As in the case of Michigan’s education policy, the Mackinac Center helped get home schools and charter schools into the “Overton Window” by presenting these options to citizens and politicians alike.  As they became more familiar, they became more popular; today it would be unthinkable for a politician to come out against home schooling or charter schools as opposition now resides outside the Overton Window.

The concept of the Overton Window intrigues me, as I often struggle with our broken political system.  Occasionally I wonder if running for public office is really all that impactful.  It appears for those citizens who have a passion for improving our current political process, the best use of one’s energies is to educate the public on successful solutions that are currently outside the Overton Window.  Perhaps a citizen can make a bigger difference by educating his neighbors on the merits of free markets, sound money, and individual liberty than it is to convince our neighbors to vote for particular political candidates.

While I will continue to respect those willing to put up with the difficulties of running for and serving in public office,  I will, at least for the time being, continue to study policy issues and attempt to influence my peer group on why some policies work better than others.  I will let others serve in the halls of government; however, my chosen area of operations will be that piece of ground just outside the Overton Window.

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Using Tabata to Reach Your Fitness Goals

high-intensity-interval-trainingWe all know how important physical exercise is to excellent living, yet occasionally we don’t have the time to dedicate 50-60 minutes six times a week like many of the experts suggest.  For those on a busy schedule, the Tabata protocol might be a good alternative for those days when you don’t have a lot of time for a full blown workout.

Tabata training is 4 minutes of intense intervals utilizing one or more exercises.  Using jumping rope as an example, a Tabata drill goes like this:  Jump rope as hard as you can for 20 seconds.  Rest for 10 Seconds.  Repeat 7 more times for a total of 8 sets.  The whole Tabata drill only takes 4 minutes.

Tabata training can be done with a number of different exercises including:  sprints, push ups, sit ups, squat thrusts, dumbbells, or swimming.  The key is to push yourself as hard as you can for the full 20 seconds, and rest for the full 10 seconds.  It appears the secret to Tabata’s success lies in the 10 second rest periods, because no rest or more rest had less successful results.  While not impossible without one, using a Tabata timer will make timing the intervals much easier.  Timers like the Gymboss® can be purchased, but you can also find several Tabata timers available for free download to your Smartphone or computer.

Tabata was developed and named after Japanese  physiologist, Dr. Izumi Tabata at Japan’s National Institute of Fitness and Sports.  Dr. Tabata and his team of researchers did a study comparing the effects of moderate intensity endurance (typical aerobics) and high endurance intermittent training (Tabata drills) on VO2 (1) max and anaerobic activity.  Dr. Tabata’s team discovered that a moderate intensity endurance program produced VO2 increases of about 10% with no anaerobic capacity (2) improvement.  The Tabata group; however, improved their VO2 max by 28% and their anaerobic capacity by 28%!  Both groups worked out 5 days per week for 6 weeks.  Additionally, Tabata drills were discovered to be an outstanding way to burn fat.  In fact, it was demonstrated that fat burning often continued up to two days after the last Tabata workout.

Make no mistake, Tabata is not for an out of shape beginner.  It is a serious exercise program that should only be attempted once you are already conditioned.  However, when you are short of exercise space or time, Tabata removes any excuse you might have for not getting in your workout.

(1) VO2 Max is often used as a measurement of an individual’s physical fitness. It is the maximum capacity of an individual’s body to transport and use oxygen.

(2) Anaerobic capacity refers to an individual’s ability to perform at maximum output, usually refers to strength or power rather than endurance (e.g., ability to sprint at the end of a distance race).

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schoolchoice1Although we have been conditioned to believe public school is a different animal, free markets work for education too.  In America, universities compete for scholarships, grants, and tuition dollars.  Consumers, not colleges, determine where those education dollars are ultimately going to be spent.  Unlike our centrally planned and taxpayer funded public school system, America’s university system is considered the best in the world.  Over the last 150 years we have experimented with government controlled school monopolies, and they have proven to be expensive, overly bureaucratic, and inefficient.  It is time we consider free market solutions to solve the problems that are inherent to our current public education system.

Treating education as an entitlement tends to destroy education’s value in the minds of its recipients.  According to the law of diminishing marginal utility, as a person increases consumption of a product (i.e. education) while keeping consumption of other products constant, there is a decline in the marginal utility (value) that person derives from consuming each additional unit of that product.  What this means is that the more we have of something the less we value the portions we possess above what we really want.

Let’s use the “all-you-can-eat” buffet style restaurant as an example.  These restaurants entice us with “all you can eat,” while knowing each additional plate of food provides less utility to us than the one before.  Despite their enticement, most people will eat only until the utility they derive from additional food is slightly lower than the original. For example, say you go to a buffet and the first plate of food you eat is very good. On a scale of ten you would give it a ten. Now your hunger has been somewhat tamed, but you get another full plate of food. Since you’re not as hungry, your enjoyment rates a seven at best.  Most people would stop before their utility drops even more, but say you go back to eat a third full plate of food and your utility drops even more to a three.  If you kept eating, you would eventually reach a point of total dissatisfaction, or ‘dis-utility.”  In education, the first plate of food is learning to read and write, as well as basic math.  Beyond the basics, most families don’t value additional education.  While this is a bold statement, public school student appreciation for education drops off dramatically with mastery of the basics, and parental disinterest in post- elementary school teacher conferences confirms this reality.  Whereas restaurant food bills are normally paid by the people eating the food, such is not the case for public education.  Instead, the bill is usually paid by someone else.  This lack of “skin in the game” by the consumers of public education further diminishes the value people have for it.

Realizing taxpayer funded education is susceptible to the law of diminishing marginal utility, I prefer a policy where citizens are not forced to pay for the education of families who don’t value it.  Instead, I support eliminating public education entirely and allowing the natural order to inspire families to pursue the education they deem appropriate.  It is wasteful to spend money on citizens who don’t value education, but it is wise to let families invest the money they normally pay in taxes towards education opportunities that already exist in the free market.  Public education in the 21st century is like bottled water: an unnecessary expense when quality education is readily available in so many other places at much lower costs.  Online academies, homeschool curriculums, and most private schools are much less expensive, usually more successful in equipping students for the 21st century, and far less controversial than public schools.  If education wasn’t a government provided entitlement, the free market would quickly provide the education resources necessary for citizens to function in the 21st century.

school-choice-1Evidence suggests that under a policy where taxpayers aren’t forced to pay for the education of their neighbor’s children, poor families would also have access to quality education through patronage.  At Whitefish Christian Academy (where I serve as board president), many struggling families who value education (and ensure their children work hard in class) have received tuition assistance necessary for their children to attend. Financially successful people in our community continually demonstrate their willingness to partner with hard working families and students who value education, like they do.  In spite of the efforts of public school monopoly advocates to paint successful Americans as inherently selfish, I suspect most communities possess citizens as generous as mine, particularly if they are freed of the burden of paying for public education.  Community rejections of school bond issues are usually indictments against the inefficiencies of public school bureaucracies rather than denials of education’s societal value.

The inequality created by America’s monopolistic public school system is apt to become our most pressing civil rights issue.  Recent popular documentaries like “Waiting for Superman” and “The Cartel” demonstrate that inner city communities value education as much as any other. They also reveal that public school monopolies are rejected as vehemently in poor minority neighborhoods as they are in affluent, predominantly white ones.  Teacher protests in Wisconsin and New Jersey have exposed government policies that favor teachers and school administrators over taxpayers and children.   Parents and students are quickly learning that better alternatives exist; however, the only thing blocking them from receiving a decent education in their neighborhood is their government protected public school monopoly.

Even though privatizing education is the most efficient way to improve education, I realize America isn’t ready for the idea of jettisoning taxpayer funded education altogether; therefore, I support a voucher system where each child is entitled to a set dollar amount of education paid for with a voucher.  Under such a program, each family is free to choose where their vouchers will be spent.  Families may choose to homeschool, enroll their children in private, parochial, or public school, or use the money to hire private tutors.  In order to continue receiving funds, I support the requirement that students demonstrate grade level proficiency before receiving more funds.

Free market competition in public education will improve it immediately.  For communities that lack the courage to do away with public education entirely, the voucher system is the most viable method for introducing free market competition into public education.  Because both poor and wealthy communities have voiced strong desires for school choice and equally loud impatience with public school costs and inefficiencies, vouchers are now politically viable.  Free markets have proven effective in providing the highest quality of goods and services at the lowest prices to the greatest number of people; therefore, I support the idea of a voucher system that promotes education choice.

Requesting Your Credit Reports: What You Need to Know

facIn my experience, checking your credit report regularly is one of the best ways to keep tabs on your identity and to prevent errors from becoming major hassles.  No one wants to deal with an incorrect credit report when they’re buying a home, and checking your credit reports often can help you nip potential issues in the bud before they wreak havoc on your credit rating.  For years now, I have been using, a truly free website that makes the process of monitoring my credit reports extremely easy.

Basically, there are three simple steps to requesting your credit reports.  First, just fill in your information, like name address, etc.,  then pick the reports you want to see.  There are three major credit reporting bureaus, TransUnion, Equifax, and Experian, and they are all required by law to offer you one free credit report per year.   Next, request a credit report from one of the three.  I recommend requesting a report from one bureau every four months, so you’re getting a total of three reports per year staggered throughout the year. (For example, mark on our calendar to request a report from Experian in January, Equifax in May, and TransUnion in September).  Finally, once you receive your report, read through it carefully to ensure the information it has on you is accurate.

?????????????????????????????????????????When you get the report, you’ll want to be on the lookout for potential issues such as: credit charges you don’t recognize, lines of credit you didn’t open, applications for credit you didn’t make, or strange accounts and addresses you don’t recognize.  In addition to being possible errors, they may also be signs of identity theft.  The Consumer Financial Protection Bureau (CFPB)  has useful information on how to spot and address identity theft,   as well as useful information on what  to look for and how to report potential errors.  You might also check out  AnnualCreditReport’s resource page.

If you find errors or questionable information on your credit report, contact the reporting bureau directly to  have them fixed or removed.  If you don’t agree with what is reported, then dispute it.  The first time I requested a credit report years ago I discovered my parents’ financial information was being reported on my report. I contacted the credit bureau immediately and they promptly removed the incorrect information.

Don’t be a victim of bad information, errors, or identity thieves.  The best defense against issues on your credit report is vigilance.  Using the resources outline above, you should have the tools you need to stay on top of your credit reports and the information to take action as necessary.  No one wants to have to deal with errors on their credit reports, but it’s better to deal with any issues you find now, rather than when you need your credit report to buy a home, obtain a business loan, etc.  By proactively reviewing your credit report periodically you will stay ahead of errors and criminals, and quite possibly prevent a mole hill from turning into a mountain.

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