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

Did you hear the one about the realtor?

Laurie MacNaughton

It’s not that I was unaware of the fact realtors have a hard job – after all, I dragged my own realtor around for months, six months to be precise, before finding exactly what I was after. But to be honest, it was not until I changed careers and became a lender that I came to truly understand the caliber of our Loudoun area realtors, the skill set necessary to meet homebuyers’ needs, the adaptability it takes to function in our ever-changing housing market, and the daunting amount of knowledge required of today’s realtors.

But mostly I did not know of the unsung acts of selflessness, the dedication to community service, or the deeds of sheer human kindness regularly displayed by our realtors.

By way of background, I am a lender – a reverse mortgage lender. This means all my clients are aged 62 or better. The vast majority of my clients use reverse mortgage for long-range planning purposes in what is called a “reserve reverse.” These clients tend to be younger, healthier, still employed, highly educated, and working with a financial planner – or they’re purchasing a retirement home using a reverse for purchase loan.

But as a reverse mortgage lender it also means a certain percentage of my clients are advanced elderly. Some have very specialized needs and some are working with major life changes: loss of a spouse, major health issues, financial challenges. For many of these clients a reverse mortgage is nothing short of a miracle. And most of these clients are referred to me by realtors.

They are referred by realtors who could have seen a need but moved on without getting involved. Realtors who could have concluded there was no paycheck to be had in helping a senior refinance out of a bad situation. Realtors who could have been unwilling to make that call, go that extra mile, lend that listening ear, extend that helping hand.

So what, exactly, I am talking about?

Early in January I received a call from a realtor working on a potential listing. The older, self-employed homeowner was still feeling the effects of a struggling construction sector, and had also run into some health challenges. He deeply wanted to stay near doctors, adult children, and the community where he had lived his entire life. However, he knew of few choices but to sell: his upper-valued home held much of his net worth, and there were medical debts to pay.

The realtor could have simply tabulated the potential commission, listed the home, and ignored the homeowner’s other concerns. But he didn’t – he recommended that his potential client refinance using a reverse mortgage.

In another instance a realtor visited me at my office. Her homebuyer had a relentless, degenerative disease and needed to get into single-level living, but had been turned down for “forward” financing – a sadly common situation for retirees. A few days later when I met in person with the homebuyer in her current 5-story home, the realtor had stayed an extra hour in order to spare the homeowner a trip down the stairs to answer the door. Small stuff? Maybe. But it wasn’t small stuff for that homeowner.

And, I should mention, that frail homeowner is now safe, sound, and secure in a beautiful new home due to the realtor’s familiarity with FHA reverse for purchase.

I see realtors spend untold hours meeting needs outside the scope of their clients’ home purchase. I have stood shoulder-to-shoulder with realtors on home rehabs; I have watched as year after year realtors collect winter coats, food for food banks, blankets for needy families. I have seen drives for shoes and backpacks, school supplies and household supplies, disaster relief and emergency-housing relief. They give and they give and they give – but I don’t often hear them receiving due credit.

I’m not naïve: I know there are bad realtors, just as I know there are bad members of any other profession. However, unlike many professionals, realtors’ acts of selflessness seem to go unnoticed.

So to the realtors of our community I say this: thank you for your unflagging efforts to meet needs as you encounter them, to fight for local housing issues, and to serve our community in so very many ways.

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

 

Ten Reasons Not to Read The Motley Fool

Laurie MacNaughton

Ok, enough is enough – what started off as sloppy journalism unbefitting a widely-read publication that purports to “help people take control of their financial lives” has become flat-out obnoxious as it spreads through the news channels.

I’m speaking about Peter Bennett’s poorly-reasoned, poorly-researched piece on reverse mortgage, published yesterday in The Motley Fool. The first time I was emailed a link and asked to comment I was willing to be forbearing: year’s end is historically slow in the financial markets, and doubtless the reporter was compensating by resorting to a favorite whipping boy.

Then I was sent the piece again for comment. And again. And…yet again. And pathetically, each was from a different news outlet. Apparently, fact-checkers for every major American publication are in Boca for the New Year, and left their cell phones in their hotel room.

So let me address some of most laughable, some of the most sensationalistic, and also some of the rudest and most elder-demeaning statements made by Motley Fool reporter Peter Bennett.

Bennett lists 10 reasons not to consider a reverse mortgage, and nearly each point becomes more fantastical. I have picked out his first couple points and last couple points, and analysed them sentence by sentence.

Point 1. High fees

Statement: Closing costs for a typical 30-year mortgage might run $3,000.

Reply: True. But they might not run $3,000. Closing costs are contingent upon many factors, and to pull a number from thin air is presumptuous and subject-matter ignorant.

Statement: For a reverse mortgage, they could run as much as $15,000.

Reply: True, but they might not run $15,000. There are many, many factors that determine closing costs, and in some cases closing costs could be, well, the $3,000 Bennett seems fond of.

Statement: That’s a lot of money just to access the equity in your own house.

Reply: Says who? If closing costs are this high it typically means there is a “forward” mortgage being paid off. A monthly mortgage payment is the single biggest monthly expenditure for most seniors, and a refinance that reduces their payment $70 a month just isn’t going to do the trick as far as putting them on solid financial footing. What they need is NO monthly mortgage payment, and a financial buffer. A reverse mortgage is the only main-stream refinance product available that can provide both, and that creates a solution to the cash flow problem so common during retirement.

Statement: Reverse mortgages come with more regulations than a regular mortgage so that accounts for some of the additional fees.

Reply: Baloney. Check your facts, Mr. Bennett.

Statement: Lenders also charge more because they claim they take on unique risks, in that reverse mortgages aren’t based on your income or credit score.

Reply:  Again I say baloney and check your facts. Or, better yet, cite your references.

Point 2. Property taxes and homeowners insurance to pay

Statement: With a reverse mortgage, the property remains in your name.

Reply: Score one for the “B” – he got this one right.

Statement: And because the property is in your name, you are responsible for paying all property taxes.

Reply: Um, do you know how this works, Mr. Bennett? They’re already paying property taxes themselves if they have no mortgage, and if they do have a mortgage, they’re escrowing for them. They’re already paying. This is not a new concept for a homeowner aged 62 or older. AND, many older homeowners qualify for a property tax reduction or for a property tax waiver. Their reverse mortgage does not impact their eligibility for this.

Statement: The lender also requires that you continue to carry homeowners insurance.

Reply: This is also not a new concept for a homeowner. And it is really rather demeaning to suggest the mature, experienced homeowner is not aware of homeowners insurance.

I’m going to skip several points here, each of which contain line after remarkable line of trash talk. But the last two points are so bad I can’t skip them.

Point 9. Stringent repayment rules

Statement: Typically, when the last remaining borrower living in a reverse mortgage property dies, the FHA requires loan servicers to send a letter showing the balance of the loan due.

Reply: No “typically” here: the servicer is required to send a statement of the balance due.

Statement: Upon receipt, the heir or estate administrator has 30 days to declare whether the loan will be repaid or the home sold.

Reply: By federal mandate there is an automatic 6-month period to sell or refinance the home, with two additional, six-month extensions possible.

Statement:  If no decision is made, the lender can initiate foreclosure proceedings.

Reply:  If no decision is made on any financed home, the lender can initiate foreclosure proceedings – and no 6-month grace period is tendered in the case of a “forward” mortgage. It’s just plain rude to imply homeowners and their families are unaware that homes with financing have to be dealt with.

Point 10. Heirs get less

Statement: As every month passes, the homeowner with a reverse mortgage sees debt increase and equity home equity (sic) decrease.

Reply: This is an appalling presentation of half the story. The amount the lender has lent collects interest, which will be repaid along with the loan, once the last person on the mortgage has permanently left the home. However, if homeowners have a line of credit, that line accrues a compounding growth month over month – imagine it’s a lump of bread dough sitting on the counter, getting bigger over time. The line of credit will grow even if the home goes down in value.

Statement: That equation doesn’t benefit heirs, so if you planned on leaving your heirs a little something, it will probably be very “little.”

Reply: Want to know what really doesn’t benefit heirs, Mr. Bennett? Adult children of aging parents burning through their own retirement funds at a double pace as they struggle to help finance their elderly parent’s longevity. If that older parent, however, can be self-pay through the end of life, his/her adult children stand a much greater chance of enjoying financial survival in their own retirement.

So to the armchair critics of reverse mortgage I say this: check your facts. Do your research. And don’t sit in judgment on those striving to maintain their own independence and dignity during retirement.

If you have questions regarding reverse mortgage, or would like to receive published research on the contribution reverse mortgage can make toward financial survivability in retirement, 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

Unprecidented Changes Coming to FHA’s Reverse Mortgage Program

Reverse Mortgage guidelines will change dramatically March 2, 2015.

Under current guidelines, age (62 or older) and equity are the basic Reverse Mortgage qualification requirements.

However, starting in March, verification of income, assets, monthly expenses, indebtedness, and an acceptable credit history will be taken into account. New guidelines do permit the factoring in of certain extenuating circumstances.

Needless to say, for many in their retirement years the new rules will make qualifying for a Reverse Mortgage notably more difficult.

Part of the Reverse Mortgage process is completion of an informational counseling session  with an FHA-approved housing counselor. (For an overview of the counseling process, see:  http://services.nrmlaonline.org/NRMLA_Documents/Preparing_For_Your_Counseling_Session.pdf )

Severe congestion is anticipated in counseling availability as the new guidelines draw near. Because an FHA case number cannot be issued until receipt of the Certificate of Counseling, few counseling appointments may be available in the weeks prior to the guideline change.

This means anyone considering moving forward with a Reverse Mortgage may be well advised to complete counseling as soon as possible. To find a counselor near you, FHA’s counselor search site can be accessed at: https://entp.hud.gov/idapp/html/hecm_agency_look.cfm. You may also give me a call and I can provide you with a list of both locally- and nationally-available Reverse Mortgage counselors.

Guideline changes coming in 2015 are the most dramatic in the program’s history, and may put a Reverse Mortgage out of reach for some seniors who previously would have qualified.

If you or someone you know is considering a Reverse Mortgage, now may indeed be the time to move forward.

Call at any time. 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

It’s Not Just a Boomer Issue

This is not a rant about profligate boomers and slacker Gen X kids, so hang with me here while I quote a couple statistics that are pretty scary: according to a Wells Fargo study out this month, 71% of Americans between the ages of 50 and 59 lack confidence they will have enough retirement savings to live comfortably during retirement, and 41% have no savings whatsoever.

The Wells survey, which has been conducted each of the past five years, added a new question this year, with 22% of respondents stating they would rather “die early” than run out of money in retirement.

The poll was not a sampling across all economic classes; rather, the median income was $63,000, well above the national average.

Why do I bring up these sobering statistics? Because they represent real people and indicate a real issue.

A conversation I had this week highlighted the issue in Technicolor terms: the adult daughter of a baby boomer said, “Every penny I could be saving for my own retirement is going to support my mother.”  This statement was not self-pitying, nor was it laced with bitterness. It was just a fact. And why hadn’t her mother saved better? There had been a late-in-life divorce, and the mother got the home but little else. She nows lives on Social Security, but every month there is a shortfall which the daughter makes up.

Joe Ready, director of Wells’ Institutional Retirement and Trust, is quoted in the Wells study as saying, “Saving for retirement isn’t easy. It requires sacrifice, and it’s not something people can push off and hope to achieve later in life. If people in their 20s, 30s or 40s aren’t saving today, they are losing the benefit of time compounding the value of their money. That growth can’t be made up later, so people have to commit early in life to make savings a regular discipline year after year – it is the only way most people will achieve their financial goals to carry them through retirement.”

I often read advice like this addressing spending habits and saving patterns – and saving more while spending less is always a good idea. But like I said, that’s not where I’m going with this. The truth often isn’t that straightforward. Many Americans have yet to financially recover from the Great Recession, and compounding the problem is the fact that many laid off in their 50’s and early 60’s were never rehired. Some had to tap into saving early, and others had to turn to adult children for support. It’s well and good to say one ought to have planned better. Sometimes life just isn’t that tidy.

In another conversation this week a 65-year-old, who is supporting his 90-year-old mother, said, “I never thought I would get to the point where $1,000 a month would be a big deal – but here I am.” He was, as were many of his age cohorts, laid off a few years ago and has not been able to find work since. His aged mother did save – for retirement. But now she’s funding longevity, a different matter altogether. Her retirement savings are long gone and she is dependent upon her son, who is caught in the classic “double draw-down”: he is burning through his savings much more quickly than planned because he didn’t work as long as he anticipated, and he is bankrolling his mother, whose expenses climb year after year.

In both these situations a reverse mortgage is going to pay off the existing “forward mortgage” and create a financial buffer.

There is still going to have to be self-discipline. They are still going to have to practice economy. That’s just the way it is. But that’s a far cry from lying awake nights worrying whether there is going to be money enough to meet monthly expenses.

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