For the last five or six years, network television viewers have been enticed to investigate a financial instrument called a “reverse mortgage.” As Fred Thompson strolls along a busy street or garden path, he tells of a great new option for Americans which offers “options for retirement and security for your family.”

Thompson, an actor and former conservative GOP senator, certainly has the reputation, voice, and demeanor to earn the trust of many older viewers, if he doesn’t already have it.
His pitch is very promising. “You can turn your home into tax-free cash while you continue to retain full ownership of your home.”

He reminds us that in 1988 President Reagan signed a bill into law providing reverse-mortgage insurance by the U.S. government. (He fails to mention that this law and insurance does far more to protect the lender than the homeowner.)

This sounds fantastic if you don’t remember commercials of past years that told homeowners they were rich and should take advantage of the greatly increased equity in their homes by refinancing.

Another interesting part of the Thompson ad is his statement that the owner of the house retains ownership of the home. I fail to see how one can own something that he cannot transfer to someone else free and clear.

The most glaring irony is that Thompson, a professed small government conservative, is pushing a product that is subject to the good faith and credit of the United States government.

Is this another financial instrument designed to coax the average American to donate their money up the path to the rich? At the end of the reverse mortgage’s term, an elderly person is certainly left without an asset to transfer to their children at the time of their death.

Another secret is that reverse mortgages are nothing but a no-risk gift to bankers, or a wealth transfer engine from the masses to a select few. When the "owner" of the home dies, the government will pay the bank any difference between the money owed (principal plus interest) less the sale price of the home.

If the heirs want to keep the home, they must pay the loan off in full. If the amount owed is more than the value of the home, the heirs must pay 95 percent of what is owed to the bank with the government paying the rest. What is the reason for the bank being in the transaction, other than to extract from the government and the homeowner? There is absolutely no risk for the profits they will make.

The popularity of the reverse mortgage masks a systemic problem affecting the American middle class. Workers make an economy possible by providing years of work, taxes and spending. When retirements are incapable of providing retired workers with what they feel is an adequate living, a vehicle is created for them to totally deplete their assets to survive.

It is well known that the wealth and income of the very few at the top grows much faster than the growth of the economy as a whole. This would suggest that some of that growth is directly coming from the pockets of the working middle class in the form of lower wages, extractions from the government (tax dollars, interest payments, etc.), reverse mortgages, higher tuitions as states lower taxes, and commercial student loans.

This is an unsustainable path.

Will it lead to a society where the vast majority of citizens will have no assets? Those without assets are functionally indentured servants and are little more than a commodity of work and service. It is a winning combination to create a need, then to fill it.

Our nation already has an alternative economy, based on payday loan institutions, in neighborhoods where the old economy has died. A payday loan is something with which you are either intimately familiar, or completely oblivious to.

These stores supply small loans (usually under $500) at exorbitant interest rates to be paid off, ideally, with one’s next paycheck. The storefronts are cheerful, decorated with pictures of flowers, gold or the American flag. 

In the state of Missouri, there are 958 more payday lenders than there are McDonald’s restaurants, a ratio reflected in most U.S. states.

Are many Americans who have worked their entire lives, put their children through school, helped many in need, and faithfully paid their mortgages for decades, now being taken advantage of once again?

While they may have followed all the rules necessary to be considered fiscally responsible, another form of legal fraud put forth by the financial sector with the help of purchased politicians may well compromise their retirement years and the financial well-being of their children.

In past years, the highest one percent has walked away with a large percentage of Americans’ 401Ks, SEPs, and to varying degrees with their financial security. With stagnant or falling real wages, much of the working middle class have maxed out their credit in an attempt to maintain a standard of living.

If a country governed by the wealthy must feed on perpetual growth, where will it feed now? Could it be this well-crafted financial instrument, known as the reverse mortgage, which is now being marketed on steroids to a baby boomer population?

Most Americans’ wealth is in their homes. Having some wealth to transfer has always helped the next generation to gain financial security. Isn’t this the reason always given by conservative politicians for their elimination of estate or “death” taxes at state and federal levels?

Yes, Mr. Thompson’s cleverly-crafted reverse mortgage pitch has the full faith of an actor and the credit of a former conservative national political figure (or maybe two); but what will be its result?

Jim Surber is the Darke County engineer. He is a graduate of The Ohio State University and a columnist for The Highland County Press.