Sasquatch, Martians, and…”The Bank Gets the House”

The law office fills the building’s entire top floor, and lining the reception room walls are newspaper and magazine articles enumerating the firm’s many accomplishments. I knew going into the meeting the attorney was movie-star handsome – I had seen his social media page.

What I didn’t know was his sentiment toward reverse mortgages.

After a brief introduction he got right to the point: “I think I should let you know I don’t like reverse mortgages. I think they’re obscenely expensive, I don’t like the fact the bank gets the house, and I don’t like the fact my client can’t move from the property if she needs managed care later in life.”

Wowzers. This was like a scripted encounter: if he had tried, the attorney couldn’t have come up with three more classic misconceptions about reverse mortgages.

But rather than jumping into an apologetic, I asked the attorney why he thought reverse mortgages were “obscenely” expensive, why he thought the bank got the house, and why he thought his client couldn’t move. He sat silent for fully 20 seconds, and then said, “Are you implying this isn’t true?”

Yup – pretty much.

So for the record, here are some facts about reverse mortgage:

  1. The home still belongs to the homeowner. Title doesn’t change, and ownership doesn’t change.
  2. A new FHA fee structure means homeowners with a small existing mortgage will see much lower fees than they would have just a couple years ago.
  3. The homeowner can move whenever he or she wants. There is no early termination fee, and there are no restrictions placed on how long one must live in the home after doing a reverse mortgage. However, the home must be the primary residence of at least one title holder. If homeowners are absent from the home for more than one full year, for the purposes of the reverse mortgage the home is no longer a primary residence and the loan becomes due.

But back to the attorney: despite initially being an outspoken critic, he was far from being either closed-minded or unteachable, and after we reviewed his client’s numbers he did indeed counsel her to proceed with a reverse mortgage.

But I was left with this thought: I cannot think of any other federally-insured loan that has swirling around it persistent misconceptions. You don’t hear weird things about VA loans or USDA loans. But here’s a loan that literally can change long-term financial survivability in retirement, and some still view it as suspect.

And that’s too bad, because a reverse mortgage can be a financial lifesaver.

So if you have doubts, fears, or just plain-old questions about reverse mortgage, 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 Southern Trust Mortgage. She can be reached at: 703-477-1183, or Laurie@MiddleburgReverse.com

Southern Trust Mortgage, LLC is proud to be an equal housing lender [NMLS 2921]

Remember When? Mortgage Debt and the Older Homeowner

Laurie MacNaughton – July 7, 2015

Remember when paying off your mortgage before retirement was a thing? Remember? Now, barely 40% of homeowners aged 60-65 live in a paid-off home.

But remember when seventy was old? Today I know seventy-year-olds who have started second careers, who run marathons, or who take ten days off work to volunteer in health clinics in Kibera.

It’s just a different world we live in – different opportunities, different expectations, different needs.

But there are attendant challenges in this new world.

No matter how gifted, how fit, how determined, at some point most people either have to slow down or just plain want to. But here’s the thing: if you’re still paying on your home, the first fruits of your monthly income go right back out the door to pay the mortgage. Also, like everyone else, most people in their 60’s or 70’s saw steep investment losses during the recession, losses that are harder to recover the older you are.

Added to the mix are these facts: boomers, in general, had babies later, and many are still footing kids’ college tuitions in the years when previous generations were saving for retirement. People also relocate more often, and later in life, so by the time they retire many people haven’t lived in their home 30 years.

If we had a magic wand, most of us would get rid of our mortgage debt. If granted three wishes, we’d gain back what our 401k lost – and add to it a mound of gold. If we had a genie, we’d have her undo that adverse health event. But needless to say, most people will have to look to other solutions.

Last week I met with a retired medical doctor. In addition to running a thriving medical practice, he had taught at one of the nation’s preeminent universities – until he suffered a stroke three years ago. “I never thought I’d be in a position of worrying about money,” he said to me.

“I have a substantial amount of equity in my home, so I tried to get a line of credit to help with cash flow. But I was told I couldn’t qualify because I’m no longer working. I really didn’t see this coming.”

Fortunately, the loan officer at his bank understood reverse mortgages. She gave the retired doctor my name – and it looks like he’ll be able both to get rid of his monthly mortgage payment and establish a line of credit for use in the future.

“When [the loan officer] first said ‘reverse mortgage’ I just about had another stroke,” the doctor told me. “I really thought she was nuts, because I was under the impression the bank owned the house with a reverse mortgage.”

His comment was one I hear so often it made me want to print up a cue card. It would say the following:

No – the bank doesn’t own the house.                                                                                                                                No – you don’t have to move if you use up your line of credit.                                                                                             No – the kids don’t have to pay back the reverse mortgage.                                                                                              Yes – you can sell the home and move if you want to.                                                                                                      Yes – you can always call me even after your loan closes.

A reverse mortgage is a home equity loan for the years when having a monthly mortgage payment can be a back-breaker. It can be a miracle for adult children struggling to bankroll their parents’ longevity. It can make aging in place possible.

A reverse mortgage is not a fit for everyone – just as homeownership is not a fit for everyone.

But 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 during retirement, 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 Southern Trust Mortgage. She can be reached at: 703-477-1183, or Laurie@MiddleburgReverse.com

Fixed at Last

Fixed at Last, Fixed at Last, Oh Thank God…

It’s Fixed at Last

Laurie MacNaughton

And…it’s official: June 12, 2015 the Department of Housing and Urban Development released a new policy statement addressing – and yes, FIXING – a longstanding issue with older reverse mortgages that included a Non-Borrowing Spouse.

Non-Borrowing Spouse (NBS) was a status assigned a spouse too young to be included on a reverse mortgage, or a spouse who opted to be removed from title during the reverse mortgage origination process. Reverse Mortgages originated after August 2014 did not have a Non-Borrowing Spouse option.

Unless sufficient pre-planning had been done to prepare for issues that might arise upon the death of the older spouse, when the title-holding spouse died the Non-Borrowing Spouse could be left facing a tough outlook: s/he had either to refinance the loan into his/her own name, or to sell the home. If s/he didn’t – or couldn’t – do either, the lender was required to begin foreclosure proceedings.

Under HUD’s new policy, the Non-Borrowing Spouse may remain in the home following the death of the borrower, even if the loan’s current balance exceeds the loan’s original principal balance.

Securing this new legislation involved a very long, very hard-fought battle by members of the reverse mortgage profession, certain lawmakers, and private citizens. But, thankfully, the longstanding issue is resolved – and some 12,000 Non-Borrowing Spouses are now on solid ground.

Questions? 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 Southern Trust Mortgage. She can be reached at: 703-477-1183, or Laurie@MiddleburgReverse.com

By A Country Mile

I spoke with two homeowners yesterday, and both had the same question.

This made me realize it’s not even close: by a country mile the most common question I’m asked regarding Reverse Mortgage is, “When the homeowner dies, how does the Reverse Mortgage get repaid?”

How does any loan get repaid?

For the moment, let’s forget we’re talking about a Reverse Mortgage. How does any home loan get repaid when the last person on title dies?

Let’s make up a bank – we’ll call it First Community Bank – and let’s say it holds the mortgage. When the executor sells the home, First Community Bank gets repaid and the family or heirs get the rest. This is a concept we all grew up with. If we put it into an equation, it would be:

Sales price of the home – Amount due on the mortgage = What you pocket

If the family wants to keep the home, they would either pay off First Community Bank, or refinance the home by getting a new loan.

Same thing with Reverse Mortgage

The same holds true with a Reverse Mortgage: when the last homeowner permanently leaves the home, the family can sell the home. The lender gets repaid at closing, and the family gets the rest. The same equation holds, namely:

Sales price of the home – Amount due on the mortgage = What you pocket

If the family wants to keep the home, they repay what’s due on the loan and keep the house, or they refinance the home by getting a new loan.

Rocket Science

My dad was a rocket scientist – literally. He worked on some of the Cold War era’s biggest defense projects, and I grew up in a home where pocket protectors and slide rules, mechanical pencils and graph paper were part of the landscape.

Reverse Mortgages are not rocket science. They are a home equity loan for the years when having a monthly mortgage payment can be a back-breaker. They can be a miracle for adult children struggling to bankroll their parents’ longevity. They can make aging in place possible.

A Reverse Mortgage is not a fit for everyone. But 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 during retirement, 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 Southern Trust Mortgage. She can be reached at: 703-477-1183, or Laurie@MiddleburgReverse.com

Don’t panic – but be prepared: changes a’comin’

Don’t panic – but do be prepared.

Changes, the biggest in its history, are just around the corner for FHA’s reverse mortgage program.

Starting April 27 all homeowners applying for an FHA reverse mortgage should anticipate providing more documentation than has been required previously.

FHA’s new Financial Assessment mandate requires lenders to analyze homeowners’ financial resources and credit history. Under the new rules, homeowners must meet a certain “residual income” level. This means homeowners must have a certain monthly dollar amount left over after typical living expenses have been paid.

If the residual income level is met, no further documentation is required. However, if the residual income level falls short, more information will be necessary. All income sources can be counted, including Social Security, IRAs, pensions, 401-Ks, bank accounts, spousal support, and others.

Though many older homeowners are still expected to qualify, those with blemished credit histories or very low income and asset levels may not.

A second big program change is in the form of tax and insurance set-asides. If the lender determines paying property taxes and homeowners insurance may prove a challenge for the homeowner in the future, there will be a mandatory set-aside for this purpose. The amount set aside will come out of the available line-of-credit funds. This will result in a smaller available line of credit for those who meet the mandatory set-aside requirement.

Some homeowners may actually opt to set aside tax and insurance funds. This is perfectly acceptable, though one cannot later opt out – if you start off with a set aside, it’s a permanent feature of your loan.

The intent of the changes is to identify those homeowners who may fall into tax or insurance default down the road.

Time will tell if the new guidelines are too stringent. However, one thing is certain: if you have, or someone you know has, been thinking about a reverse mortgage, now may be the time you want to move forward.

If you have questions, 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 LMacNaughton@SouthernTrust.com

The Twelve-Month Rule

He’s not young. He’s not well. He needs a financial buffer. But for another six months he cannot move forward with a reverse mortgage.

And why not?

Because in a move that hit everyone by surprise, in December FHA enacted guidelines stating homeowners must now wait a full calendar year from the date of their most recent property lien before doing a reverse mortgage, if more than $500 was received from the transaction. This waiting period is called “seasoning.”

What does this mean?

In many cases it means that if homeowners have refinanced, or have established a home equity line of credit, they must wait a full 12 months before applying for a HECM.

The gentleman mentioned above is a perfect example of why it’s enormously important to know this. Six months ago, as his wife lay dying of Alzheimer’s, he refinanced his home in order to lower his interest rate and to reduce his monthly payment. In the process he took out $2,700 to pay down medical debt.

But here’s the thing: he doesn’t need a lower monthly payment. He needs NO monthly payment – and access to liquidity to cover unexpected expenses. A reverse mortgage is the only mainstream financial product available that accomplishes both. And now he’s in the unfortunate position of having to tread water until he can qualify.

Nearly every one of us is working to help family, friends, neighbors, or clients age with independence and dignity. And a reverse mortgage is going to play an important financial role for many.

Some new guidelines have already kicked in. More are on the way. And some changes, like the twelve-month Seasoning rule, are big.

Give me a call and let’s get caught up – 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 LMacNaughton@SouthernTrust.com

On Your Mark, Get Set, And…HOLD!

Yup – it’s true: FHA this week announced a temporary postponement of changes to its FHA Reverse Mortgage program. No word yet as to the new implementation date, but FHA has made it clear it’s to be sooner rather than later.

And what do upcoming changes entail? For the most part, documentation of income and assets. This is to ensure homeowners have both the ability to pay, and a demonstrated history of paying, homeowner’s insurance and property taxes, and of meeting their recurring financial obligations.

There will also be a minimum income requirement, based upon regional cost of living and household size.

However, for the immediate future, traditional documentation and qualification rules still apply.

If you or someone you know would like to discuss how a reverse mortgage may help achieve retirement goals, give me a call.

Truly, there has never been a better time!

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 LMacNaughton@SouthernTrust.com