How the “Back End” of a Reverse Mortgage Works

Excerpted from Neil Sweren’s Interesting Points  http://sweren.com/ © 2014

Realtors, home owners, and family members frequently have questions regarding how the “back-end” of a reverse mortgage (or HECM) works. The answer to the question depends upon whether the property with the reverse mortgage is underwater at the time the last person on title permanently vacates the home.

Selling the home if the house is NOT underwater

If the loan balance is less than the current property value, the sale is handled like any other home sale. There is nothing unusual about paying off a reverse mortgage with one exception: there are certain time constraints the lender MUST follow once the last person on title no longer occupies the home as his/her primary residence.

If the property is not underwater the reverse lender provides a written payoff statement. At closing, the loan balance is paid off – just as would be the case with any other mortgage.  After the loan is paid off, any and all remaining equity goes to the seller, which typically is the borrower’s heirs or estate.

Selling the home if the property IS underwater

If the loan balance exceeds the property value the process is a little different.

HECM payoffs are not negotiated like other short sales or short payoffs.  The lender must accept as satisfaction of the lien the first offer that is at least 95% of the home’s current appraised value.

HECM loans are non-recourse in nature, so the borrower and his/her estate CANNOT be held responsible for any shortfall.  This is true even if the borrower has millions in other assets.  The house repays what it can, and any shortfall is covered by the FHA insurance fund.

It is important to understand this is not a short sale, and that there is no negotiation required or permitted. The lender is prohibited by HUD from accepting less than 95% of the home’s appraised value.

What if the heirs want to keep the home?  

The lender does not care how the reverse mortgage is paid off, only that it is paid off. If the family desires to keep the property, the loan can be satisfied by refinancing or by paying off what’s due.

In an underwater situation, the 95% figure noted above holds true for family members who want to purchase the home: heirs can buy the home for 95% of the appraised property value – which is not the full loan amount.

Important note on time frames

It is important to note there are mandated time constraints placed upon the lender, and the clock starts ticking the day the last surviving borrower no longer occupies the property. Once the home is unoccupied, the borrower or his/her estate have six months to pay off the loan. In addition to the initial six months, up to two three-month extensions can be requested (for a total of one year) if more time is needed.

Extensions are not automatic; documentation that the home is listed for sale, a sale is pending, or that a family member is applying for financing on the home will be required in order for an extension to be granted.

Communication is key

The loan servicer should be contacted immediately once the home is vacant. Reverse mortgage servicers deal with “back-end” situations every day and help borrowers and family members through the process. However, they can’t help if they don’t hear from anyone. All reverse mortgage servicers send monthly loan statements to borrowers. Those statements contain all loan and contact information necessary to make contact with the lender.

If you have questions regarding an FHA-insured reverse mortgage, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant with Southern Trust Mortgage.

She can be reached at 703-477-1183 Direct or Laurie@MiddleburgReverse.com

 

Retired and Can’t Refi? You’re In Good Company

Name Ben Bernanke ring a bell? As in the former chair of the Federal Reserve?

According to his own account when speaking to the moderator of a financial conference this past week in Chicago, Bernanke said, “Just between the two of us…I recently tried to refinance my mortgage and I was unsuccessful in doing so.”

“I’m not making that up,” he added when the audience laughed, his comment sounding vaguely like an homage to humorist Dave Barry.

And what was the conference Bernanke was addressing? None other than the National Investment Center for Seniors Housing and Care.

So that was October 2; fast-forward one day to October 3, 2014. I met with an aging homeowner and her adult son. The mother suffered an adverse health event and has had to quit her job. She is now struggling to make her monthly mortgage payment, and does not want to deplete her savings…only to be back in the same boat once savings are gone. Like Bernanke, she tried to refinance but was unsuccessful in doing so.

She considered selling her home, until she did the math and realized proceeds from the sale would not last as long as she’s hoping to.

A relative told her to look into reverse mortgage.

What does this accomplish?

  • One – never again does she have a monthly mortgage payment.
  • Two – she now has a cash buffer, in addition to other savings, as a rainy-day fund.
  • Three – she never has to move, unless she wants to.

Property taxes, if applicable, are still due, as is homeowners insurance, and routine home maintenance remains the homeowner’s responsibility – in other words, it’s still her home.

And even though the program has now been around decades, it still bears mentioning that the bank does not own the home. Title remains in the homeowner’s name. Or, to repeat myself – it’s still her home.

A reverse mortgage cannot fix all the challenges associated with aging. But a reverse mortgage can often fix one of the most vexing issues, namely financial insecurity as it relates to seniors’ housing.

As I’ve said many times, in retirement no one is going to get by on just their Social Security. No one is going to make it on their 401-K. Few are going to survive on their pension, their annuity, their IRA, their bank account – or their reverse mortgage. But when added together, all these combine to create a long-term means of maintaining dignity and independence in retirement.

If you would like to explore how an FHA-insured reverse mortgage might help with your retirement plans or those of your loved ones, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant with Southern Trust Mortgage.

She can be reached at 703-477-1183 Direct or Laurie@MiddleburgReverse.com

Forward-thinking – In Reverse

Some analogies are hard to miss. This week two events came together to create just such an obvious pairing.

The first element of the analogy was a piece in the New York Times. The article, with a title that at best sounds like damning with faint praise, is entitled “Love Them or Loathe Them, Reverse Mortgages Have a Place.” Ron Lieber, author of the piece, writes:

[Criticism is easy] when you have enough savings or pension and Social Security income to get by. But given that older Americans’ homes are worth, on average, more than their other combined savings, there is a begrudging inevitability about reverse mortgages. As more people enter retirement in the coming decades with modest savings and no private pension, they’re going to need some of that home equity back during their increasingly long lives. (Emphasis added)

Note what he’s saying: life expectancy has dramatically climbed. Pensions have gone away. Savings may be meager. But the one investment most Americans faithfully fund is their home. And they’re going to need to draw upon that investment in retirement.

Now enter element two of my hard-to-miss analogy: today I met with a delightful couple. Well educated professionals, within the next two years they would like to retire from their careers as contractors with the federal government. They moved to the area 16 years ago and still have 14 years to go on their conventional mortgage.

The math isn’t hard. Their monthly mortgage payment is going to lug their retirement finances. However, if they go into retirement without a monthly mortgage payment their retirement income, investments, savings, long-term care insurance and Social Security will likely be more than adequate to meet their current and future needs.

This couple is very typical of what I call my “Forward-thinking Reverse” clients. They are not in distress. They are not lacking options. They do not see a reverse mortgage as a miracle product. Rather, they have done their research, they have run the numbers, and they have carefully planned for their retirement years.

And part of this planning involves a reverse mortgage. “It’s only been in the past year we started to understand what reverse mortgage really was,” the husband told me.

Which leads me back to Lieber’s New York Times piece.

“Many of the people entering or examining the reverse mortgage business now describe their interest in [reverse mortgage] as a sort of conversion. …Michael Gordon, BNY Mellon’s head of retirement and strategic solutions…thinks that many retirees…are unaware of their true asset allocation. After all, their home equity is an asset too,” Lieber writes.

As I’ve said many times, in retirement no one is going to get by on just their Social Security. No one is going to make it on their 401-K. Few are going to survive on their pension, their annuity, their IRA, their bank account – or their reverse mortgage. But when added together, all these combine to create a long-term means of maintaining dignity and independence in retirement.

If you would like to explore how an FHA-insured reverse mortgage might help with your retirement plans or those of your loved ones, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant with Southern Trust Mortgage.
She can be reached at 703-477-1183 Direct or Laurie@MiddleburgReverse.com

The Good, the Bad, the Beautiful – Reflections on Life

I have a confession: as my nearest and dearest can attest, I have to work at just sitting and “seeing.” It’s the notable downside of being a doer. When I look at something I immediately start breaking it down into constituent parts, tasks, responsibilities…whatever. Give me a mess to solve and my cup overfloweth.

Schlepping with me this elemental piece of baggage, this morning I strode down the hill and entered my garden.

Hang with me here – this story is going somewhere.

First, a little background

My garden has been a decade-long rehabilitation of the stream feeding our pond. When I began the project, the entire area was a tangled mess of pernicious non-natives: tree of heaven, honeysuckle, stilt grass, black mustard, curly dock. Over the years I eradicated invasives, cleared the choked stream bed, and reintroduced some 30 Virginia native plant species rescued from areas slated for development. Gradually over the years it became a healthy, thriving, native wetlands habitat.

And then cometh the flood

Relentless rain fell throughout the night Sunday and into Monday morning. Living on a pond, high water is nothing new; this rain, however, was unusually heavy. As I walked down to the pond evidence lay everywhere that the stream had overtopped the road: tattered leaves, stones, and blue-bellied fingerlings lay in great, sweeping “W’s” across the pavement, heaping into furrows where the pavement meets the roadside grasses.

Then I entered the garden itself to view the post-flood damage.

And what damage. At first glance all I saw was an Armageddon of sand, stone, and mud – lots and lots of mud. My beautiful natives all appeared gone, now replaced by slick sludge and rock. My little wooden bridge was nowhere in sight, it, too swept away in the night. Close examination showed most of my natives were actually still there, just crushed and deeply buried. Instinctively I set to work engineering in my mind what to tackle and how.

But – marvel of marvels – before setting to work I forced myself to sit and “see.”

And this is what I saw: on the moist banks, on every rain-soaked branch, even on the wrought-iron garden archway sat butterflies, scores of butterflies, fanning in the morning light. Some twitterpated threesomes tumbled in the air, while others sniffed at me, the big, white foreigner in mucking boots sitting on the sodden bench. The roots of the giant sycamore had been scoured clean and now lay stunningly white, like an enormous albino python basking in the sun. Overhead an oriole nest bobbed in the morning breeze.

A shuffling noise caught my attention: a huge, lumbering snapping turtle plodded toward me. Several times the green heron shot back and forth across the swollen pond. A goldfinch landed on a nearby seedpod, and in the distance scores of songbirds called.

Life, life everywhere, surrounded me despite the storm, the flood, the fury.

The hopeless situation I had feared I’d find I did not. Instead I found a garden newly scoured but newly shimmering, newly undone but newly recreated, newly rich and delightfully vibrant.

Then the thought occurred to me: my garden is a parable, a reflection of life.

Life is change

Change, at first, rarely looks good. Change is often hard. And in the ever-changing world of financing retirement, change can be particularly hard.

During retirement conditions constantly change. Needs constantly change. Lives constantly change. It’s just part of life – but in the retirement years, life’s changes can be uniquely challenging, and more options are needed. And it’s here that a reverse mortgage can be pretty darn near a life-saver.

As I’ve said many times, in retirement no one is going to get by on just their Social Security. No one is going to make it on their 401-K. Few are going to survive on their pension, their annuity, their IRA, their bank account – or their reverse mortgage. But when added together, all these combine to create a long-term means of maintaining dignity and independence in retirement.

If you would like to explore how an FHA-insured reverse mortgage might help with your retirement plans or those of your loved ones, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant. She can be reached at 703-477-1183 Direct or Laurie@MiddleburgReverse.com

Fed Survey: One-Third of U.S. Households Unprepared to Retirement

 

 Reposted from National Reverse Mortgage Lenders Association, ©2014
The Federal Reserve Board published the results of a new online survey this week, which found that 31 percent of non-retired respondents have no retirement savings or pension, including 19 percent of those ages 55 to 64.

Additionally, almost half of adults were not actively thinking about financial planning for retirement, with 24 percent saying they had given only a little thought to financial planning for their retirement and another 25 percent saying they had done no planning at all. Of those who have given at least some thought to retirement planning and plan to retire at some point, 25 percent didn’t know how they will pay their expenses in retirement.

According to the survey, the Great Recession pushed back the planned date of retirement for two-fifths of those ages 45 and over who had not yet retired, and 15 percent of those who had retired since 2008 reported that they retired earlier than planned due to the recession. Among those ages 55 to 64 who had not yet retired, only 18 percent plan to follow the traditional retirement model of working full time until a set date and then stop working altogether, while 24 percent expected to keep working as long as possible, 18 percent expected to retire and then work a part-time job, and 9 percent expected to retire and then become self-employed.

The survey was conducted on behalf of the Board by GfK, an online consumer research firm. Data collection began September 17, 2013, and concluded on October 4, 2013. Just over 4,100 respondents completed the survey. To view the survey’s key findings visit www.federalreserve.gov/econresdata/2013-report-economic-well-being-us-households-201407.pdf

Reverse Mortgage : A bad idea whose time has come? Hardly.

By all accounts, my dad was a funny guy. Looking every bit the part of the aerospace engineer he was by profession, no one ever expected him to have a piercing sense of humor or the ability to capture just the right turn of phrase – but he had both, and his humor was often profound.

One funny phrase he used occasionally was “a bad idea whose time has come.” He did not say this often, but an example of something fitting into this category might have been the Stuxnet software worm, if he had lived long enough to see it.

So why in the world do I bring this up?

This past week I received a call from a private wealth advisor who referred a client. While on the phone the wealth advisor said, “I always thought a reverse mortgage was a bad option people turned to when they were desperate. But during this month’s advisors’ meeting, reverse mortgage was suggested as a potential element of a well-rounded, long-range retirement plan.”

Bingo, my friend.

And more than ever, right now there are truly profound reasons to consider a reverse mortgage.

First is this: few financial experts anticipate interest rates will stay low. With a reverse mortgage, there is not a monthly mortgage payment, so that’s not how rates figure in. However, interest rates impact how much money the client receives – and even a small rate increase negatively impacts how much money the homeowner can access. In fact, if rates go up to 4.06% – which for much of history would be a modest rate – there would be a 26% drop in funds available to someone aged 68. That’s a hefty reduction.

A second consideration is that a reverse mortgage may enable a senior to delay drawing Social Security until age 70, when benefits are maximized. Most of us have seen the charts and know how much money we walk away from if we start drawing benefits at 62; less well-known are strategies available to help avoid an early draw.

A third thing to consider is this: there is an automatic growth rate associated with a reverse mortgage line of credit. This, in my opinion, is the least-known element of a reverse mortgage – and that’s a darn shame.

Each month, the unused portion of a reverse mortgage credit line grows bigger. This means that if you establish a line of credit now and let it sit until you need it, month over month the credit line will be bigger than it was when you originated.

Right now, more than ever, a reverse mortgage is a good option – whose time has come.

As I’ve said many times, no one is going to get by on just their Social Security. No one is going to make it on their 401-K. Few are going to survive on their pension, their annuity, their IRA, their bank account – or their reverse mortgage. But when added together, all these combine to create a long-term means of maintaining dignity and independence in retirement.

If you would like to explore how an FHA-insured reverse mortgage might help with your retirement plans, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [NMLS# 506562] is a freelance writer and a Reverse Mortgage Consultant at Middleburg Mortgage. She can be reached at: 703-477-1183, or Laurie@MiddleburgReverse.com

 

Weekly Scenario

Steven E. Shane, Esq. | © 2014 Offit Kurman, Attorneys At Law | Used by permission                                

Question:  My son lives across the country but is my health care agent.  He has a copy of my advance medical directive.  I’m concerned that if I am admitted to the hospital suddenly, or there is a medical crisis, he may not be able to quickly deal with the situation.

Answer:  An advance medical directive gives instructions as to the type of medical care you would like to receive in the event you cannot express those wishes yourself.  The document can also give another person the ability to make medical decisions for you.

The document, however, is not helpful if it is locked away at the bank or in your attorney’s office.  One solution [for dealing with this problem] is with a new app called “My Health Care Wishes.” This app allows one to import and store important health care documents on a smartphone so they are accessible when needed.

So in this scenario, your son could keep the information on his smartphone.  If there were an emergency, you would have a “My Health Care Wishes” wallet card stating your son has your medical proxy documents.  He would access and send that document quickly, and then have the authority to speak with the medical facility and make decisions.

Two other apps available are DocuBank and MyDirectives.  I have also seen articles which advise using a phone or tablet to simply store documents in a cloud-based storage system.

Comment:  One issue to be wary of is the security of these legal documents.  My hope is that these apps have worked on the security issues, but I can’t comment on whether that has actually taken place.

As always, if you have any questions or would like to learn more, please let me know.

Steven E. Shane                                            
Principal Attorney                                              
Offit│Kurman®
Attorneys At Law

www.offitkurman.com
8171 Maple Lawn Blvd. | Suite 200 | Maple Lawn, MD 20759 | 301.575.0300

 

Please note the above material discussed is intended to provide only general information.  Do not, under any circumstances, solely rely on this information as legal advice. Legal matters are often complicated.  For assistance with your specific legal problem or inquiry please contact me directly.