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Even State Legislatures Look to HECM as Recommendation…

shutterstock_Money under lock & key 49213123State Campaign Points to Importance of Reverse Mortgages in Long Term Care

 

March 17th, 2014  |  by Elizabeth Ecker Published in News, Retirement, Reverse Mortgage

A state and federal initiative launched in 2012 has resulted in a report to lawmakers on long term care financing including the use of reverse mortgages to help Americans fund longevity.

The Own Your Future initiative in Minnesota was launched in 2012 to make recommendations to state and federal lawmakers on paying for long term care. Between 2005 and 2009, 26 states each sponsored Own Your Future campaigns to educate their residents about long term care challenges and make them aware of options and planning methods.

In Minnesota, the campaign was expanded to include an ongoing public awareness campaign throughout the state; efforts to make more affordable and suitable long-term care products available to Minnesota’s middle-income households; and evaluation of possible changes to Medical Assistance (MA) to better align with and encourage private payment for long-term care.

Among the recommendations developed by the state initiative: the use of reverse mortgages. An advisory panel has accepted the recommendations of the subcommittee with a separate set of recommendations having been sent to Congress.

“The Lieutenant Governor [Prettner Solon] has assured us that now that the report is out, it’s not a report that sits on the shelf. Action will be taken,” says Beth Paterson, a Minnesota originator who was appointed by the state’s governor to serve as the reverse mortgage representative on the advisory panel.

The report covers 11 recommendations, narrowed down from 16 that were considered, toward solving long term care funding problems for older Americans.

“The current long-term care financing marketplace consists of insurance products, home equity options  such as reverse mortgages, and health and retirement savings plans,’ the report states. “None of these products has seen widespread use recently due to a number of factors, including the perception of their stability, their safety and their benefit levels.”

Specific to the reverse mortgage market, the report indicates, are public perception challenges that are making it even more difficult for reverse mortgages to gain a place in the long-term care conversation.

“The market for reverse mortgages (RMs) is likewise in a difficult position,” the report writes.”Recently, state and federal  agencies have changed regulations governing the program to address consumer issues with the program, but the perception persists that RMs, as currently constituted, do not have adequate consumer protections.”

Advocates have developed action items for helping the perception around and access to reverse mortgages among Minnesotans.

Written by Elizabeth Ecker

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“RightSize” New Home with a Reverse Mortgage?

bigstock-Sold-Home-For-Sale-Sign-Home-1893969According to recent National Association of Realtors figures, last year over 26% of homes were sold to homebuyers over the age of 50. And as the peak bulge of the boomer generation approaches retirement, the number of older homebuyers is expected to rise dramatically until it makes up the largest homebuyer cohort in American history.

But not everyone heading into retirement is certain they want to move, and a question I am commonly asked is, “Should we refinance the home we’re in, or buy something with less upkeep?”

Obviously I don’t know – but I have accumulated quite a body of knowledge regarding what retiring boomers take into consideration. Following is a starting point for things to consider:

1.     Is your existing home safe for the long-term, including layout and accessibility to bedrooms, bathrooms, kitchen and laundry?
2.     Is the home the right configuration? How about size?
3.     Is the amount of yard and household maintenance appropriate?
4.     Is the location still right, meaning are you close to family and friends?
5.     Have traffic patterns gotten dangerous?
6.     Are you close to doctors, shopping, amenities, recreation, and your house of worship?
7.     Do you still know your neighbors?
8.     Will this still be the right house in 10 years? How about in 15?

If you answer a significant number of these “no,” moving might be a logical consideration. However, anyone who recently has applied for a home loan knows lending laws and regulations have become akin to major surgery. And for those looking to retire soon, or who have already retired, securing a loan can be very difficult.

However, FHA’s seniors’-only HECM for Purchase was specifically designed with the retired – or soon to be retired – buyer in mind. While there are qualifications that must be met, they are not as stringent as those governing “forward” lending.

A highly beneficial feature of HECM for Purchase is that you can buy your new home before you have sold your exit home. Not only does this get you into your new home in a timely fashion, but you now have time to market your exit home and wait for the next peak sales season to roll around before selling.

But perhaps best of all, rather than tying up a significant amount of your financial resources in the new house by doing an all-cash purchase, you bring to the table only a percentage of the purchase price, which allows you to keep liquid more of your savings, or more cash from the sale of your exit home.

 

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Lower Cost HECM Means Better Suited For Short Term Goals

Cash at Home: Two recent government moves could make reverse mortgages cheaper and easier for older homeowners to understand. The loans, which generally let people 62 or older convert their home equity into cash, traditionally have had high closing costs and have been most useful for people planning to stay in their homes for the long haul. But a new federally backed product, the HECM (Home Equity Conversion Mortgage) Saver, has cut the upfront mortgage-insurance premium to 0.1% from 2% of the property’s value. The change makes the product better for people with short-term needs, says Barbara Stucki, vice president of home-equity initiatives for the National Council on Aging, a Washington, D.C., advocacy group.

Also last month, the Department of Housing and Urban Development began requiring all HUD-approved reverse-mortgage counselors to give their clients the aging council’s 28-page consumer booklet on reverse mortgages, walk them through a new “Financial Interview Tool,” and offer to see what other assistance might be available using the council’s BenefitsCheckUp program ( benefitscheckup.org ).

To learn more, see the aging council’s booklet “Use Your Home to Stay at Home,” at ncoa.org/reversemortgagecounseling.

 
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Posted by on October 26, 2010 in Uncategorized

 

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Reverse mortgage safe from plunging home value

Given the downturn in home prices, some seniors who took out reverse mortgages – especially in places like Florida, Arizona and California – are now upside down, or owe more than their homes are worth.

But in the topsy-turvy world of reverse mortgages, being upside down has almost no downside.

Dale Milfay of San Francisco says her 86-year-old mother, Florence, took out a reverse mortgage on her home in Cape Coral, Fla., about four years ago.

At that time the home was appraised for $260,000. Florence qualified for a $160,000 reverse mortgage guaranteed by the Federal Housing Administration.

This type of loan, known as a home equity conversion mortgage, lets seniors 62 and older borrow against the equity in their home without making monthly loan payments. Interest costs and an annual mortgage insurance premium are added to the principal.

The loan balance doesn’t have to be repaid until the borrower dies, sells the house, or moves out for more than 12 months. At that point, if proceeds from the sale of the home fall short of the loan balance, the FHA insurance fund – not the borrower or heirs – pays the lender the difference.

Borrowers can take their reverse loan proceeds in a lump sum, fixed monthly payments, a line of credit or some combination thereof.

Many borrowers take the lump sum because they are paying off a standard mortgage.

Milfay says that because her mom’s home had been paid off, she opted to take monthly payments of $500 for as long as she lives in the home and put the rest into a home equity line of credit, which she taps occasionally for home repairs and vacations.

Each monthly payment, and anything taken from the credit line, is added to the loan balance. Interest is charged only on the unpaid balance, not the untapped credit line. The unused credit line grows at a certain interest rate, so the longer it’s left untouched, the bigger it gets.

Today, Florence’s loan balance is about $75,000, and she has about $105,000 remaining in her line of credit.

But the value of her home has fallen to roughly $80,000.

Milfay asks, “Does she have the right now to take the remainder of her equity as a lump sum while remaining in the house?” Even though her loan balance will soon exceed the home’s value, “it seems to me that since she pays for FHA insurance, she has the right to the rest of the money. Am I right or wrong?”

Milfay is right.

“She can absolutely take out that $105,000,” says Susanna Montezemolo, a vice president with the Center for Responsible Lending.

That would bring her loan balance to almost $200,000. “If the house sells for $80,000, she does not owe the difference. That’s what the insurance pool is for. One of the great features of these reverse mortgages is that the borrower never owes more than the house is sold for,” Montezemolo says. “Borrowers never have to worry whether they are underwater or not.”

Whether she should is a tougher question.

If she knew she might die soon or move into a nursing home, she could take out $105,000, put it in a bank account or money market fund and use it to pay her expenses and leave the rest to her heirs.

The interest rate she earns on her savings will be far less than the interest rate on the bigger loan balance, but if she dies soon or moves out and her home is sold within 12 months to pay off the loan, it wouldn’t matter how much interest was added. Barring an explosive recovery in housing prices, she would still owe more than the home is worth and the government would pay the difference.

On the other hand, if Florence expected to stay in the home for many more years, it might make sense to let the credit line continue to grow. That way, if she needed more money later, she would have it.

“I usually encourage people to wait as long as possible to take it out because the longer you wait, the more you can take out,” Montezemolo says.

No matter what happens to the home’s value, she will always be able to take out whatever remains on her equity line. “The lender must honor the mortgage contract as originally written,” says FHA spokesman Lemar Wooley.

David Certner, AARP’s legislative policy director, says that borrowing money at a higher rate and investing it at a lower rate is “a guaranteed losing strategy.” The only advantage of taking the money out now is that “if she should have a heart attack and die tomorrow, her heirs could not take out any credit line that she had not exhausted, but they could inherit a money market account that she had stashed away.”

The reverse loan is non-recourse, which means neither the lender nor the government can come after the borrower’s other assets, nor the borrower’s heirs’ assets, for any unpaid balance.

Because every situation is different, Florence should check with a financial adviser before making any decisions.

Not surprisingly, “The decline in house prices has adversely affected the projected credit performance” of FHA-insured reverse mortgages, the Obama administration noted in its proposed fiscal 2011 budget. To shore up the program, the FHA recently announced changes designed to reduce risk and increase annual mortgage insurance premiums. To read about these changes, see my Sept. 23 column at sfgate.com/ZKJP.

Higher limits extended: In other mortgage news, Congress passed a continuing resolution last week that includes a provision to extend through September 2011 the conforming loan limit of $729,750 for high-cost areas, including many in California. These are the maximum loan limits for mortgages on single-family homes insured by Fannie Mae, Freddie Mac and the FHA. The higher limits were set to expire at year end. The limits do not apply to reverse mortgages, which have their own set of limits.

Contact Larry Benton CSA for more senior finance information asklarrybenton@gmail.com
Permission by Kathleen Pender at kpender@sfchronicle.com. Read her blog at sfgate.com/pender.
 
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Posted by on October 13, 2010 in Uncategorized

 

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