I did a reverse mortgage a couple years back. Remind me of the details?

Laurie MacNaughton © 2020

Most people, whether they have a so-called “forward” mortgage or a reverse mortgage, can only retain so much about the nitty-gritty details. Factor in the aging process, and certain specifics may get foggier over time. As adult children move into caregiving roles, they often need servicing details regarding a parent’s reverse mortgage.

Here, in a nutshell, are some important things to remember:

  1. Each year the homeowner will receive by mail an Occupancy Certificate, which must be signed, dated, and returned within the time period specified on the certificate. This is federally-mandated, and it’s FHA’s way of making sure the homeowner is still living in the home.
  2. You MUST keep your property taxes paid and your homeowner’s insurance up to date. Many counties offer property tax waiver programs for older homeowners, and you can find out details by calling your county’s Commissioner of the Revenue. With any home – even if you don’t have a mortgage – when it comes to property taxes, “if you pay, you stay; if you don’t, you won’t.” Don’t let the taxes become delinquent before you reach out for help.
  3. Reverse mortgages are not assumable, which means the loan comes due when the last homeowner permanently leaves the home. This includes cases in which the homeowner has moved to alternate housing. If you are the heir, DO NOT run down the clock following the homeowner’s departure from the home. The servicer is required by federal law to give you 10 weeks to reach out regarding your plans for the property; thereafter they must start the process of selling the home.

Here are a few more details on questions I answer at least weekly:

Q: I get a lot of junk mail. How do I know the Annual Occupancy Certificate is legitimate?

A: The Annual Occupancy Certificate will clearly state on its header the following:

  • “Annual Occupancy Certificate” or “Annual Occupancy Certification Form”
  • Your servicer’s logo and contact information
  • The borrower’s (or borrowers’) name/s

Generally speaking, the certificate will be mailed to you on or near the anniversary of your closing.

If you have questions about the form, contact your servicer as soon as possible.

Q: My loved one was healthy when s/he did a reverse mortgage, but now is completely incapacitated. Can I sign the Annual Occupancy Certificate?

A: Yes, if certain conditions are met. Some of the conditions include the following:

  • The homeowner must still live in the home;
  • You must have a Power of Attorney that was signed when the homeowner had capacity to do so;
  • You must be named Agent in the Power of Attorney;
  • You must provide the servicer a copy of your photo ID, such as a state-issued driver’s license;
  • You must have a letter from the homeowner’s doctor, on physician letterhead. This letter must state the following information:
    • When the homeowner signed the Power of Attorney, s/he had capacity to do so;
    • The homeowner no longer has capacity;
    • The nature of the homeowner’s incapacity;
    • The date of diagnosis;
    • The homeowner is not expected to regain capacity.

Contact your servicer as soon as possible for further guidance on this matter.

Q: My spouse and I married after s/he had done a reverse mortgage on the home. Now my spouse has died. Can I stay in the home?

A: It may be possible to stay in the home. HOWEVER, time is of the essence, and you must contact your servicer as soon as possible for further guidance. Per federal guidelines, the servicer must follow a strict timeline following a borrower’s death or permanent departure from the home.

Following are potential options if you wish to stay in the home:

  • You may repay the loan balance;
  • You may refinance the loan using a new traditional loan;
  • You may refinance the loan using a new reverse mortgage, based upon your own age and eligibility.

Again – contact your servicer as soon as possible. Every day you wait to contact the servicer, the fewer options you eventually may have.

If you have questions, give me a call. I always love hearing from you.

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Mistletoe and red flags

Laurie MacNaughton © 2019

During the holiday season many of us will spend more face-to-face time with aging parents than we typically do. Consequently, in addition to the turkey, gifts, and mistletoe, this season can be a chance to spot red flags that may indicate it’s time to talk with parents about their finances.

Because unaddressed upkeep is often a money issue, deferred home repairs can be a big tip-off, especially if your parents historically have been timely with maintenance. Items seemingly as insignificant as dripping faucets, water rings on the ceiling, or an untended yard may be significant warning signs.

Unopened bills, especially if a parent has been ill, can be a dead giveaway. I once asked a homeowner about a laundry basket filled with mail, and she simply replied, “They’re bills.” For many of us an avalanche of doctors’ bills is disheartening, but if you’re living on a fixed income, medical bills can be outright paralyzing.

A third sign of potential money problems can be evidence of new credit – either an equity line or new credit cards. In the retirement years credit can be hard to come by, and newly-acquired cards may have extremely high interest rates.

Other, potentially more advanced red flags include a rash of strange phone calls, junk mail from debt-restructuring services, and late notices.

Taken alone, any of these signs may be nothing – or they may mean big trouble. You won’t know until you ask. And just like the other talk, the “money talk” can be awkward. In fact, according to a recent survey nearly three quarters of adult children have not talked with their parents about finances, and most report the topic is “uncomfortable.” Many helpful discussion guides are available through a simple online search.

By way of an abrupt aside, I have been on both sides of the money conversation: when my parents were ailing I falteringly addressed their finances. They were typical members of the Silent Generation for whom money discussions were taboo, so the conversation was barely this side of tortured. Then I encountered my own health issues and wanted to discuss my finances with my young adult daughters. Though my daughters and I are extremely close, this was clearly not a fun topic for them. In other words, I don’t have a magic formula for making this conversation un-weird.

But, as with most things in life, discussing financial matters can be handled in one of two ways: before there’s a crisis, or after a crisis has already occurred. During the course of any given week I talk with many families, and I can assure you pre-crisis planning is better – much better.

So, while you prepare to enjoy this holiday season with aging family members, consider also preparing to discuss their financial matters. It will save both you and your parents an untold amount of stress down the road.

And, if you would like to discuss how a reverse mortgage might help your parents with their financing needs in retirement, give me a call. I always love hearing from you.

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Long term care and reverse mortgage

Laurie MacNaughton © 2019

It’s just a fact: unless we drop dead, many of us will experience significant long-term care costs.

This fact is not lost on most Americans, and it leads us to consider long term care insurance. These policies cover the cost of in-home care or assisted living, typically for a defined number of years.

For some aging homeowners the fear – or risk – is that they will purchase a policy they will never need. And because these policies ain’t cheap, this fear is understandable. However, over the past few years long-term care/life-insurance “hybrid” policies have entered the market. These largely eliminate the financial risk of some older long-term care options.

Here’s how they work: if you don’t end up needing the full payout for your long-term care, the insurance company pays your beneficiary a benefit when you die.

Some policies are paid through monthly or annual payments, while others are paid in one lump sum – one hefty lump sum. But more about that in a minute.

There is a mind-blowing array of options, and as I am not an insurance agent, nor do I carry any insurance licenses, I will not attempt to lay out either the various products or their merits. I do have a list of highly-qualified, local professionals if you’d like to explore your options.

I can, however, definitively say this: increasingly calls come into my office both from homeowners and from homeowners’ financial advisors who are exploring ways to fund long-term care insurance. And more and more frequently they are turning to a reverse mortgage as a means of covering premiums.

Why? It’s simple. A long-term care policy creates a bucket of money that contains many times the dollar amount paid in. But as I mentioned, a policy can be pricey.

A reverse mortgage, which is a home equity loan much like any other, can provide funds for a long-term care policy without saddling the homeowner with a monthly mortgage payment. Because a reverse mortgage is a loan, it will be repaid – but not until the last person on title permanently leaves the home. At that point the heirs either sell the home or repay the debt and keep the home.

Many years ago I mindlessly said to a client, “Getting old is hard.” He replied, “No, getting old is easy. Paying for it is hard.”

Touché. Finances are the hard part.

There is never a one-size-fits-all financial product – including long-term care insurance or a reverse mortgage. Financial needs vary and every homeowner’s circumstances are a bit different.

But this much is certain: none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. However, a reverse mortgage often plays a very important role in asset longevity, and when added to other resources can contribute to long-term financial health in the retirement years.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.

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Make it easier for those of us who still believe

Laurie MacNaughton © 2019

I am not much into rebutting the demonstrably incorrect things I read or hear about reverse mortgage. Unless, that is, the source is a mainstream newspaper that really should know better.

I get it: times are hard at the large papers, and what with staff cutbacks, summer vacations, and the ever-popular topic of “reverse-mortgages-are-of-the-devil,” it’s hard to resist a slam piece about reverse mortgages. Even if you have to skew the facts. Even if you ignore widely-available federal code that governs the FHA reverse mortgage program. And even if you’re USA Today and have a reputation to uphold.

I am, of course, referring to this week’s piece entitled, “Seniors were sold a risk-free retirement with reverse mortgages. Now they face foreclosure.”

So extensive are the outright errors in the piece, and so slanted is the coverage, that it’s hard to know where to start. So let me just point out the following: foreclosure for failure to pay property taxes may occur whether a homeowner has a “forward” mortgage, a reverse mortgage, or NO mortgage at all. Taxes are simply a cost of homeownership.

Furthermore, any home with a mortgage also must have homeowner’s insurance. This is not unique to a reverse mortgage; rather, insurance, too, is simply a cost of homeownership. Failure to afford taxes and insurance is not a “failed” reverse mortgage – it’s a failure to afford the costs of homeownership. Don’t get me wrong here: this is not “failure” in some guilt-slinging moral sense; it’s simply a financial assessment.

The article also fails to address what would have become of the low-income homeowners highlighted if they had not received funds from their reverse mortgage. Where were the adult children of these aging parents when the parents were in financial need? It may be the children were financially unable to help – but assuming that to be the case, the children benefitted greatly from having parents remain financially self-sufficient for as long as possible.

But by far the biggest disservice of this piece is its failure to point out that many jurisdictions across the nation have property tax waiver programs for the elderly and disabled. How is it this critically important information was not communicated during the discussion?

I will be the first to say a reverse mortgage is not right for everyone. If you simply cannot afford the costs associated with homeownership, it may indeed be time to sell and look at other housing options. Maybe it’s time to move in with an adult child, to houseshare with a friend, or to move to a less expensive part of the country. But waiting until the taxman is at the door is not…ideal.

As a complete aside here, not long ago I read a Monmouth University poll that stated three out of four Americans believe the press routinely reports fake news. If this is true, I squarely fall in the minority. I generally trust the mainstream news.

Consequently, I will say this: in an era of misinformation and widespread yellow journalism, and amid frequent allegations of “fake news,” never has it been more important for the press to get it right. Shoddy reporting by mainstream media just fuels allegations of a “Lügenpresse,” a lying press. So please, do your homework and just get it right. Make it easier for those of us who still believe.

But back to the topic at hand. No amount of financing – or refinancing – is singlehandedly going to meet the costs associated with aging. In fact, very few will survive on just a bank account, a 401(k), a pension – or on a reverse mortgage. But when added together, all these can contribute to financial health in retirement, particularly when used as part of a sound, long-term retirement plan.

If you have questions about reverse mortgage, give me a call. I always love hearing from you.

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The rope and the cow

Laurie MacNaughton © 2019

Many years ago a friend of mine named Alan, who had spent more than a decade working in Africa, told me this story: a boy came to Alan to say he had found a rope. Alan told him to fetch the rope and when the boy returned, tied to the rope was a cow.

The real issue was the boy had found…a cow.

While none of us may have issues either with ropes or with cows, here’s what we often do have: small problems that are tied to much bigger problems.

This past week I met with a couple who thought they were having cash-flow issues due to in-home health care costs. And here’s the thing: they are having cash-flow issues.

But that’s not all they have. They also have accessibility issues and, perhaps most of all, estate planning issues.

Money was the biggest felt need – it is the rope. The other issues are the cow.

And cows can sneak up on us. In the case of my clients, the wife is 14 years into an MS diagnosis and the husband, until this past year, was her fulltime caregiver. However, he now is undergoing chemotherapy and can no longer adequately care for her. They have legal documents, but they are critically outdated. Case in point: the couple’s Power of Attorney states their son will make medical and legal decisions for them if they become incapacitated. However, 10 years ago he died in a car accident on I-66.

Life is filled with the unexpected. We all know that. We also know no amount of planning will cover all life’s curve balls. But planning goes a long way toward protecting ourselves and those we love best when the unexpected occurs.

As a reverse mortgage specialist I frequently meet with people who are planning ahead for the unexpected, as they understand that long-term illness, a major accident, or the death of one spouse might well put them financial jeopardy. It’s not that my clients haven’t saved; most of them have both savings and investments. Rather, they have done the math and realize that with care costs often running some $10,000 per month, they eventually are going to need every financial resource available.

And here’s why a reverse mortgage can uniquely fit long-range financial plans during retirement: each month a small amount gets added to a reverse mortgage line of credit. This growth compounds over time, and is not based upon home appreciation, but rather upon prevailing interest rates. It’s counterintuitive, but if rates go up, the line of credit actually grows more quickly.

I will be the first to say there is no one-size-fits-all financial product. Financial needs vary and every homeowner’s circumstances are a bit different. So are long-term financial goals.

But this much is certain: none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. But when added together, all these can contribute to financial health in retirement, and a reverse mortgage can play a very important role in financial wellness in the retirement years.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.

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How the back-end of a reverse mortgage works

Laurie MacNaughton and Neil Sweren © 2019

Within the past few years I lost both my parents and I can attest to this: dealing with estate issues is not fun, no matter how much advanced planning parents have done. This said, the more informed one is, the more smoothly things roll.

For those dealing with a home having a reverse mortgage, there may be questions regarding how the “back-end” works. The answer 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 buyer’s lender requests a written payoff statement from the reverse mortgage servicer. 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 often 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.

Reverse mortgage 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.

Reverse mortgage 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.

 

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Too good to be true?

Laurie MacNaughton © 2019

The conversation often progresses along a similar path: first skepticism of reverse mortgages, to comprehension, to the following statement, “This sounds too good to be true.”

I get this progression, as I myself walked this precise path when I first learned about reverse mortgages.

There are a few seemingly “too-good-to-be-true” elements of FHA-insured reverse mortgages, the first of which is its mode of repayment: this is a home equity line-of-credit that doesn’t saddle homeowners with a monthly mortgage payment. Rather, the loan is repaid on the back-end, in reverse, when the last homeowner permanently vacates the property. There is simply no other home equity loan that does that.

But another feature of a reverse mortgage is much less well-known, and is the following: the unused balance in the line of credit grows over time, much the same way money in a high-interest savings account grows over time. However, unlike monies in a savings account, the compounding growth on a reverse mortgage line of credit is not taxable. This growth, along with the principal, is there for the homeowners to use as needs arise.

And this growth can be substantial – at today’s rates and terms, homeowners starting off with some $90,000 in their line of credit might expect to have some $165,000 in ten years. This means that if the homeowners were to do a reverse mortgage before they need the funds, and were to let the line of credit grow for 10 years, by the time they start accessing the monies there would be far more available to them than there had been at the outset. And, as I mentioned, this growth is always tax free.

Several misconceptions often surround reverse mortgages, including the question of who owns the home. The answer, without any caveats, is “the homeowner.” End of story. The second question often is whether the homeowners, the heirs, or the estate, can end up owing the lender if the home were to decrease in value. Again without any caveats, the answer is “no.” And a third question I am often asked is whether there is a prepayment penalty if the homeowner moves. Nope, never – there is never any kind of prepayment penalty.

As an aside, I once went to someone’s reverse mortgage seminar, and the speaker said, “Reverse mortgages are a miracle.” Maybe I have a higher bar for miracles. Or maybe, as a reverse mortgage specialist, I take exception to silly statements like that. Reverse mortgages are not a miracle. But they’re also not a mystery; they’re just a mortgage – a mortgage with some amazing features, it’s true, but just a mortgage, in most regards just like any other mortgage we all grew up with.

There is never a one-size-fits-all financial product, as financial needs vary and every homeowner’s circumstances are a bit different. So are long-term financial goals.

But this much is certain: with longevity being what it is, none of us is likely to get by on just our Social Security. Few will survive on just an IRA, a 401(k), or pension – or, for that matter, on a reverse mortgage. But when added together, all these can contribute to financial health in retirement, and a reverse mortgage can play a very important role in financial wellness in the retirement years.

If you would like to discuss your financial needs, or those of a loved one, give me a call. I always love hearing from you.