Reverse mortgages were created for the purpose of helping retirees enhance their quality of life. To qualify for the highest loan amounts, retirees need to be in their 70s.

Using a reverse mortgage frees up money to take that dream vacation or whatever it is those people wanted to do right now and not tomorrow—consumer confidence.

Unfortunately, that trend has changed since the credit crisis…dramatically.

Reverse mortgages are designed for those aged 62 and over who own a home, and that particular home must be their principal residence to qualify. The homeowner gets a lump sum for the equity of the house. The interest-bearing loan does not have to be repaid until the last surviving homeowner moves out of the property or passes away.

Reverse mortgages are not taxable, so in general, they don’t affect the amount of social security or Medicare that a senior receives.

A new, just-released study by the MetLife Market Institute reveals that more and more homeowners are using reverse mortgages because they need the money to survive—so much for consumer confidence.

Those applying for a reverse mortgage between the ages of 62 and 64 jumped 15% since 1999. The disturbing part is that, in that age group, the loan limits available through a reverse mortgage are much lower than when one is in their 70s, which exhibits desperation, not consumer confidence.

Unfortunately, the severity of the problem is revealed when the study shows that 46% of all new applicants are under the age of 70. So much for consumer confidence!

One survey within this study that was conducted in 2010 disclosed that 67% of respondents who applied for reverse mortgages were doing so to lower their debt levels—not for consumer confidence reasons like a vacation. Some of these respondents saw obtaining a reverse mortgage as the only way to keep their house. The effects of the credit crisis live on.

One of the study’s major conclusions and immediate recommendations is that advisers who help plan for people’s retirement must become more educated about reverse mortgages, because, unfortunately, since the credit crisis, they are now being used as part of the retirement vehicles seniors are looking at and not as a vehicle of consumer confidence to pay for luxuries. Education is critical, because those loans eventually have to be repaid.

This sobering study proves that the credit crisis still has left very real effects on people’s lives and consumer confidence. The problem is that retirees are faced with higher inflation than what the Consumer Price Index (CPI) indicates, but since their pension benefits are adjusted by CPI, they are not being compensated, stifling consumer confidence.

Compound this with the fact that retirees can only earn very low returns on the money they saved for and this squeezes the average retiree and their consumer confidence. That is why more and more are opting for part-time jobs to help ends meet since the credit crisis.

These are supposed to be the “Golden Years” for retirees; keeping in mind that if indeed retirement was “golden,” people would spend more—consumer confidence—which helps the economy. This study shows otherwise and indicates more stress in a system that is looking for consumer confidence and spending since the credit crisis. If retirees are not earning interest on their capital and are not being compensated for inflation, how can they exhibit consumer confidence? How can the economy really improve?

Where the Market Stands; Where it’s Headed:

I've been out for the past few days talking to business owners, analysts, and would-be economists. They are all telling me the same thing: the U.S. economy is improving. Why it’s improving, they don’t know.

If I had to pick a classic bear market as an example for my readers, we are living it now. Every recession in modern history has been followed by rising interest rates—except for this post-recession period. Interest rates can’t rise, because the economy is too fragile and government debt too onerous, which means the economy is on very shaky ground.

Stock prices continue to rise and the bear continues to lure investors back to stocks—a classic bear market at work.

What He Said:

“Overbuilt, over-speculated, over-financed and overdone. This is the Florida real estate market right now. For those looking to buy for personal use or investment, hold off! The best deals are yet to come. I continue with my prediction that the hard landing in the U.S.housing market, which is now affecting lenders, will have significant negative effects on the U.S.economy.” Michael Lombardi in PROFIT CONFIDENTIAL, April 3, 2007. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.