Academic journal article Public Relations Journal

House-Rich, Cash-Poor Seniors Benefit from Reverse Mortgage Program

Academic journal article Public Relations Journal

House-Rich, Cash-Poor Seniors Benefit from Reverse Mortgage Program

Article excerpt

An innovative funding plan for seniors who own their own homes was all but unknown in California. Educating the public and the media were key aspects in a successful marketing campaign for this financial product.

During their "golden years," some seniors are among the poorest segments of American society. Ironically, even with their severely restricted incomes, many seniors live inside gold mines: houses worth several times their original costs.

To address this "new American economic contradiction," a unique funding program was introduced to California seniors and marketed by a San Francisco company. The plan provided borrowers with tax-free monthly payments for life via lifetime reverse mortgages, using their homes as equity.

"Being house-rich but cash-poor is the way of life for millions of elderly Americans," said William J. Texido, president, Providential Home Income Plan, Inc. "This is particularly true of those who paid off their homes years ago, watched them triple and quadruple in value, and yet today, find it tough to make ends meet."

Buying power eroded

In 1989, the U.S. population included 31 million people aged 65 and older, according to the U.S. Bureau of the Census. Roughly three-quarters of this population own their own homes, and about 13 million of these homeowners (80%) have paid off their mortgage.

California has the largest statewide population, with more than 3.8 million people aged 62 or older. About 75% of these seniors own their own homes. "About one-third of these elderly homeowners are living at or below the poverty level," Texido said. "Inflation has eroded the buying power of their pensions or social security benefits. Home equity is their single largest asset."

In many states, seniors have been forced to sell their homes due to escalating property taxes. Other states, including California with its stringent Proposition 13, have frozen property taxes. While older homeowners in those states have been able to keep their homes, increases in everyday living costs have seriouly eroded their purchasing power.

Mortgage mirrored

A reverse mortgage is the mirror image of a traditional mortgage. In a traditional "forward" mortgage, the borrower receives a lump sum of cash and pays off the loan in a stream of monthly payments over the life of the loan. With each payment the homeowner builds more and more equity until eventually the home is owned free and clear.

In a reverse mortgage, the borrower borrows against the equity accumulated in the home. He or she receives a stream of monthly payments, which are repaid in one lump sum from the estate of the borrower. The buyer is essentially converting home equity into a steady source of supplemental income. (Selling the home would create tax consequences.)

The Providential Home Income Plan was created in late 1988 to provide lifetime reverse mortgages enabling house-rich, cash-poor senior citizens aged 62 or over to convert this home equity into tax-free monthly payments for life. Reverse mortgages had been offered on a limited basis in some states in the East, but were virtually unknown in California.

Providential's management was ready to introduce the company and its unique product to seniors, first in California, then in other states. They also wanted to position the company as an industry leader, and its CEO as spokesperson for the industry. They asked San Francisco-based Kalt, Rosen & Associates (KR&A) to accomplish these tasks.

Economic plight portrayed

In alerting the media to the company and its product, KR&A introduced them to a new term, suggesting that "Senior Americans Living Longer and Independently," or "SALLIs," would replace the Yuppies of the '80s as a major purchasing group. The strategy proved to be the linchpin in securing significant publicity coverage nationwide.

Educating the media and the public about the economic plight of seniors was a key ingredient in the marketing plan. …

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