Forbearance-to-Foreclosure Pipeline

Laurie MacNaughton © 2021

She’s 78 years old.

She’s 78 years old and heading into foreclosure.

How did she get here? How the HELL did she get here?

A year ago, as allowed for under the CARES Act, she put her home into forbearance. Now one year on she’s newly widowed, meaning she’s got half the income and all the debt, and her home is coming out of forbearance in just a few weeks.

According to correspondence from her mortgage company, she also has a $69,000 lump sum due on her existing mortgage come September 1. If she cannot come up with that amount, per her mortgage company, her home is headed toward foreclosure. She has tried to refinance both with her current lender and with several other lenders.

But here’s the thing: it can be very difficult to refinance if you are not currently making payments. This means many thousands of our seniors may soon be in dire distress.

So back to our 78-year-old.

This past week her banker mentioned the possibility of refinancing using a reverse mortgage.

To answer your question: yes.

Yes I can qualify her.

Here’s why: with a reverse mortgage she does not have to have income enough to make monthly mortgage payments…because with a reverse mortgage there is never a monthly mortgage payment required. Rather, the mortgage will be repaid on the back end – in reverse – when the home is sold. All remaining equity belongs to the homeowner, the heirs, or the estate.

Because homeowners still own their home, they continue to pay homeowner’s insurance, property taxes (unless tax-exempt), and HOA or condo dues, if applicable.

We may well be in the calm before the storm. But our older homeowners currently in forbearance do not have to lose their homes if they can refinance using a reverse mortgage.

Please, please be proactive in asking the hard questions of your loved ones currently in forbearance. You know, as do I, that many older homeowners are not comfortable asking for help – until they’re out of all options they know to pursue.

Do please pass this message on to lenders, bankers, planners, attorneys – anyone in your life who deals with older homeowners.

And do call at any time if you have a client, friend, or family member aged 62 or older who wants to talk. I’m always available.

Bob and the stinky advice

Laurie Denker MacNaughton ©2021

I’ll call him Bob.

Bob is an advisor with a mainstream financial services firm, and he and I have a mutual client.

I will call her Ellen.

Ellen is 78, widowed, and is selling her current home and purchasing a new home closer to friends and family. Initially she thought she would purchase using a traditional mortgage, but she couldn’t qualify due to insufficient income.

Her “forward” loan officer sent her over to my office, where I easily qualified her for a reverse for purchase home loan.

Enter Bob.

Without making the effort to acquaint himself with details of reverse for purchase, he proceeded to pick up the phone and call Ellen. For fully fifteen minutes he spewed dire warnings that she would lose all her money; that it was a terrible “investment”; that she would end up with nothing. In other words, he scared the daylights out of her.

And here’s the thing: if fifty people tell you the skittles are good, and one person tells you there could be a poisoned skittle, you’re probably not touching the skittles.

But suppose the person warning you about the skittles doesn’t have any data about whether one skittle was poisoned. It’s just something he heard. And he won’t revisit his hunch – but he’s pretty sure he’s heard of a guy who knew a guy who met a guy who got sick on a skittle.

I’m the first to say there is no one right financial product for everyone. There simply isn’t. But for many aging homebuyers, reverse for purchase is a fantastic option: they can get into an appropriate aging-in-place home without picking up a monthly mortgage payment. Or, like Ellen, it can make possible the purchase of an appropriate home when it otherwise was not.

In my many years as a reverse mortgage specialist I can honestly say I have run into not more than a couple Bobs. Financial advisors are well known for paying scrupulous attention to hard data, education, and their clients’ needs. And this is a darn good thing – because one advisor’s stinky advice can cause an awful lot of emotional upheaval, anxiety, and deep distress.

No one knows everything. Everyone needs input.

But fallacious input can be hard – very, very hard indeed – to un-hear.

If you have – or someone you know has – questions regarding reverse mortgage, give me a call. I am always available to answer questions, and I always love hearing from you.

Advance planning information

Laurie MacNaughton 2021

As with most things in life, dealing with planning falls into two categories: steps to take before there’s a crisis, and measures to take once a crisis has already occurred. Everyone agrees the first option is preferable, because though nearly any issue can be remedied, the bigger the problem, the pricier the fix.

In general, needs can be placed into three buckets: financial, legal, and medical. Earlier in life these matters typically are very distinct. However, in the blink of an eye the three can become inseparably intertwined.

Following are important steps to take before a crisis arises.

The first is to record all administrative information on one master list. Include on this list:

  • The name of all banks and other financial institutions;
  • The name of any pension plan, life insurance plan, investment account, and health savings account, along with account numbers;
  • All income sources, including Social Security, annuities, pensions, veteran’s benefits, and the like;
  • All financial obligations, including credit cards, mortgages, car payments, and utilities, along with the names of the utility providers;
  • Usernames and passwords for all online accounts;
  • Copies of driver’s licenses, social security cards, healthcare cards, birth certificates, divorce decrees, or death certificates, as applicable;
  • The names of primary care physicians over the past 10 years. The current physician may well be different than the one used a decade ago. (I will say more about this, below.)

The second step is to meet with an attorney regarding the following documents:

  •  Power of Attorney (More about this, below)
  •  Will
  •  Advance medical directive
  • HIPAA release

If these documents already exist, review them and have an attorney make necessary updates.

There’s something important to know about a Power of Attorney: many times, in order to use a Power of Attorney a physician’s letter is required stating the Principal has become incapacitated. This letter serves as a safeguard against a bad actor who might try to exercise a Power of Attorney behind your back. In the letter the doctor must state that at the time you signed the Power of Attorney, you were mentally competent to do so. This seems insulting to the attorney who drew up the Power of Attorney, but there is no fighting this requirement. It also means your doctor must have access to medical records going back to the time you signed the Power of Attorney.

If no one knows who your physician was at the time the Power of Attorney was signed, or if the physician has died or is otherwise not to be found, the adult child – or other party – may well need to become your guardian, conservator, or both. Over the years I have had dozens of adult children go this route, and it has some advantages. However, it can be slower, and is certainly more expensive, than getting a letter from a doctor.

Another item of note is the following: in order to use a Power of Attorney when applying for a mortgage, the original Power of Attorney document must be available. A copy is not acceptable, regardless of state law. If the original document truly is not to be found, there are remedies; however, the fix requires the services of an attorney and will carry a price tag.

As I’ve said, almost any issue can be fixed. But if someone must run interference on your behalf, both time and money are likely to be at a premium.

In a utopian world there would be no aging, sickness, financial hardship, or death. But in this world we inhabit, a little planning and forethought can avert a lot of pain, a lot of hassle, and a lot of unnecessary expense.

If you would like more information on this topic, or if you would like to look into how an FHA-insured reverse mortgage might help with financial needs in retirement, give me a call. I always love hearing from you.

The rope and the cow

Laurie MacNaughton © 2021

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.

LIBOR, Schmibor – who cares?

Laurie MacNaughton © 2020

In September Ginnie Mae announced home mortgages, including reverse mortgages, would switch over to the Constant Maturity Treasury, or CMT, from the current LIBOR index. The move came fully one year earlier than anticipated.

So first, who cares?

Turns out, lots of people care. Indeed, global markets have been preparing for the transition for a number of years.

But also turns out…not a lot of consensus exists on exactly what the migration will mean for the average household.

Why the move?

The intent to move away from the LIBOR was announced after the index was found susceptible to manipulation. In fact, depending upon who you talk to, a small group of insiders almost brought about an end to civilization as we know it. Hyperbole notwithstanding, it’s widely acknowledged that manipulation of the LIBOR contributed significantly, almost catastrophically, to the 2008 worldwide credit crisis and global recession.

A few alternative indices were in the running as LIBOR replacements. Most explanations regarding the choice of the CMT are excruciatingly technical – I unsuccessfully tried to find a truly good Cliff’s Notes version – but here’s the Federal Reserve Board’s stab at it:

“Yields on Treasury securities at constant maturity are determined by the U.S. Treasury from the daily yield curve. That is based on the closing market-bid yields on actively traded Treasury securities in the over-the-counter market.”

The general idea is that the CMT accurately reflects the “actual” cost of money; furthermore, the CMT can respond quickly to economic conditions.

What does this mean for you, and for your clients?

If your clients have a loan in process – depending upon the closing date – they may be asked to sign another loan application. We all may well see credit card companies and mortgage servicers contacting us with new disclosures. According to some analysts, there could be short-term market turbulence.

I readily acknowledge I am not an economist. I am not investment advisor. Nor am I an expert on global markets, an investment banker, a possessor of a crystal ball; I am a loan officer. But I am also an avid consumer of financial bulletins, articles, and newsletters, and I believe this much is certain: the markets ultimately will determine whether the CMT index is the best index for the years to come.

But as clients’ increasingly frequent questions have forced me to seriously research the topic, I have grown ever more confident of this: you, and I, and all our clients will weather this transition just fine.

And…I will close with this: if you have questions regarding how a reverse mortgage might improve your client’s financial outlook in these unsettled times, give me a call. I always love hearing from you.

Born in 1960? Sound the alarm on a glitch in Social Security

Laurie MacNaughton ©2020

If you are a baby boomer turning 60 in 2020, here’s something you need to know: without a legislative fix, your lifetime Social Security benefits are very likely to be permanently reduced, even if you wait to retire until full retirement age.

Reduced. Permanently. Permanently reduced.

The reason for this is due to the formula the Social Security Administration uses to calculate benefits. The Social Security Administration, according to its website, takes a “snapshot of average wages of every worker in the country and factors it into your benefit calculation.” This means benefits are based upon average wages across all sectors of the economy. Due to COVID-19, wages are projected to be down nearly 6%, as measured by the Average Wage Index (AWI). And, because each subsequent year’s benefits are based upon the recipient’s first year’s benefits, this cohort can anticipate reduced benefits for the rest of their lives.

The news gets even worse for wage-earners with significantly higher-than-average incomes as, dollarwise, they stand to lose much more.

Then there is the knock-on effect. For survivors claiming a deceased spouse’s benefits, their monthly benefits will also be permanently reduced, as will those claiming Social Security Disability Income.

So, how did this problem arise?

Social Security was updated in 1977, and at that time no provision was made for dealing with a crisis that wrought devastation upon nearly all sectors of the economy – like, say, might occur with a global pandemic. There was ample warning indicating protections needed to be added when the dark economic times of 2008-2009 served as a shot over the bow. However, because the AWI fell only briefly and relatively insignificantly, no legislative action was taken to correct the glitch that came to light.

There is a proposal afoot to fix the problem. On August 4, Congressman John Larson (D-CT), Chairman of the Social Security Subcommittee, published an op/ed in which he calls upon “Republicans in Congress [to] join with House Democrats and correct this anomaly with the Social Security COVID Correction and Equity Act.” Chairman Larson’s proposed act would patch this hole and prevent a reduction that would have lifelong effects on a cohort already suffering financially on the doorstep of their retirement years.

Boomers have always been known for getting things done. But it’s hard to accomplish a task if there is no awareness the job needs doing.

Contact your congressperson, and let him/her know the time to fix this is now.

If you do not know who your congressperson is, you can find that information at https://www.house.gov/htbin/findrep. Your future benefits – or the benefits of one you love – are riding on this. And the clock is ticking.

 

 

Foreclosure: the gathering storm

Laurie MacNaughton © 2020

Let’s have a go at Jeopardy. The answer is: “Ten million.” The question? “How many Americans lost their home in the Great Recession?” Ding, ding, ding – you’re right. Ten million.

During the Great Recession it took nearly two years before the US saw the first 1.6 million homeowners fall delinquent on their mortgage. That many homeowners fell delinquent on their mortgage in April 2020 alone. On top of that, some 4.7 million homeowners are currently in forbearance, representing some $1 trillion in unpaid principal balances, according to Black Knight, a mortgage analytics aggregator. Out of that number, less than 30% report having funds on hand to catch up. That ten million from the Great Recession? By early next year it potentially could look like child’s play.

Just like in any crisis, the most vulnerable are hit first, hit hardest, and suffer longest. Included in this group are our youngest homeowners, our communities of color, and our hourly wage-earners, all of whom are likely to have little in savings. And then there are our aging homeowners. Homeowners who worked their entire lives. Homeowners whose largest asset may well be their home. Homeowners who were planning to retire in the next year or two. These homeowners – these are those for whom losing a home may well mean a rewrite of the whole retirement chapter.

We’ve already watched how this scenario rolls. We already know this pre-retirement demographic may not ever fully financially recover if the US drops into an extended recession.

Here’s the classic scenario: husband, wife, or both lose a job, and finances get tight. Rather than falling behind on the mortgage they begin to tap into their savings, and then into their investments, to meet their monthly mortgage payment. By the time they reach out for professional help, their options are severely limited.

So what are realistic options?

If they’re lucky, adult kids can help. However, rarely is this the best option, as bankrolling mom and dad means the kids are using dollars they should be saving for their own retirement. On top of that, adult kids may also be scrambling right now, as many professional positions have been hard hit.

A second option is to sell the home and rent, so long as there are no illusions it’s truly going to be cheaper in the long run. A recent analysis put out by Trulia, the online real estate consolidator, states that after six years buying is cheaper than renting. Additionally, rents in many metro area currently are quite high, and doubtless will climb higher still as foreclosures limit supply. Nonetheless, there are those for whom renting may be the strongest option.

Another option to consider: “Golden Girl” style communal living. This has been a trend among aging women for the better part of two decades, and these arrangements can meet both financial and social needs. In fact, in happiness quotient studies, communal housing generally scores very well.

For some, a reverse mortgage will be their saving grace. If homeowners have income enough to pay property taxes and homeowner’s insurance for the long run, not only is reverse mortgage a strong option, but it may be the ideal option. For the three people left on the globe not familiar with reverse mortgage, here it is in a nutshell: it’s a home equity loan. Punto. It’s a home equity loan that’s repaid on the backend, in reverse, and it is this feature that typically makes it an ideal fit. If there is 50% equity or greater, and if at least one spouse is 62 or older, a reverse mortgage can mean the difference between losing a home and retaining the home.

In one way or another, everyone in has been affected by this pandemic – and it ain’t over yet. In fact, when it comes to the economy in general, and housing in particular, the worst may be yet to come. We’re all going to find ourselves helping others, even if that just means passing on information.

A reverse mortgage is not a fit for everyone. And it’s not going to help everyone. But it’s going to be the solution for many homeowners, aged 62 or older, who otherwise might lose their home.

If you would like more information for a client, friend, or family member, give me a call. I always love hearing from you.

 

Reverse mortgage and later-in-life divorce

Laurie Denker MacNaughton © 2020

According to the US Census Bureau, the rate of divorce has been falling for the past 25 years across all demographics – except for adults over the age of 60. Among this age group, the divorce rate has nearly doubled in the same time period.

Though the reasons for divorce remain fairly consistent across all age groups, those going through a “silver divorce” may face issues specific to aging.

Typically, the greatest challenge facing long-married couples is division of assets. This can become very involved at any time, but there may be additional considerations later in life, in part because there simply has been more time to accrue…well…stuff.

For most couples, the single most valuable asset is the marital home. In a divorce, typically the marital home is sold and the proceeds divided per the Property Settlement Agreement. However, a job, proximity to specialists, or failing health may suggest moving is not the best option for one party.

If one spouse is intent upon – or is in need of – staying in the home, one way to accomplish this can be by means of a reverse mortgage.

Older homeowners are likely to have equity enough in the home for the proceeds from a reverse mortgage to pay the departing spouse’s portion of the marital share. This often makes retention of the home possible, without saddling the spouse remaining in the home with a monthly mortgage payment.

A reverse mortgage will not work in every “silver divorce.” But in many divorces involving homeowners in which at least one party is aged 62 or older, it’s one of the few ways a Property Settlement Agreement’s financial mandates can be met without selling the home, depleting financial reserves, or acquiring a monthly mortgage payment in the retirement years.

Divorce is no one’s “Plan A.” But as the classic line goes, life is what happens while you’re busy making other plans.

If you would like more information on how a reverse mortgage might help you or someone you know, give me a call. I always love hearing from you.

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Don’t tell the kids

Laurie MacNaughton © 2020

When she called Saturday I was pretty sure I knew what the conversation would involve.

“We’re both in our 80’s, my husband is four years into an Alzheimer’s diagnosis, and our kids live in Nevada. The biggest thing is our investments are getting low.” And then there was this: “But we don’t want our kids to know.”

We don’t want our kids to know. It’s one of the worst statements I hear in the course of my job.

A couple things about this. First, I’m a parent. I understand about not wanting to worry kids, adults though they may be. But I’m also a lender who frequently talks to adult kids worried about their parents.

Would you like to hear how that side of the conversation goes? It’s something like this: “My wife and I live in Nevada but my aging parents are in Virginia. We’re worried about their finances – but they won’t talk about money.”

The risk to adult kids is this: if you do not help parents with the solution, it may get to the point where you are the solution. And odds are good you’re not really the best solution. I have seen adult children quit their job to become a caregiver. I have seen tension in marriages, finances under strain, 401(k)s prematurely tapped. The risk to aging parents is that if your finances are deeply stressed by the time you involve your kids, it’s almost guaranteed they’re going to have to help.

Nobody is going to say the money conversation is anything other than awkward for many people. Talking about money is not fun. But talking about overdue bills is even less fun.

These are anxious times for many, and times may well continue to be anxious for many months to come. There is little we can do to eliminate stress caused by world events. However, there are steps you can take that may greatly reduce hardship, whether you’re an aging parent or the adult child of aging parents.

Three recommendations I often make are the following: first, awkward as it may be, talk to family. These conversations do not get easier over time, so just do it.

Second, pre-crisis, the homeowner should speak with a qualified financial planner, accountant, or elder law attorney who can help put together long-range plans.

Third, the homeowner should consider using the home as a source of retirement funding. Several options exist here, including selling the home and downsizing, renting out a portion of the home, or doing a reverse mortgage.

If you have questions about how you or one you love may benefit from a reverse mortgage, or if you would like contact information for an elder law attorney, accountant, or wealth manager, give me a call. I always love hearing from you.

 

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Reverse mortgage or HELOC?

Laurie MacNaughton © 2020

In years past homeowners routinely turned to traditional equity lines to cover unexpected expenses. However, tightened credit qualifications have put this option out of reach for many older homeowners. Additionally, a traditional line of credit requires homeowners to make a monthly mortgage payment once they withdraw funds – and, in accordance with the terms of many lines of credit, the more funds withdrawn, the higher the monthly mortgage payment becomes.

It’s not new news that a reverse mortgage can serve as safety net during times of financial turbulence. In fact, longstanding research demonstrates that a reverse mortgage can relieve unsustainable drawdowns when retirement funds are under pressure. Some experts actually call a reverse mortgage a “buffer asset” due to the significant role it can play in wealth preservation.

Here are three advantages a reverse mortgage can hold over a traditional line of credit:

The first is that a reverse mortgage is a home equity loan. I could pretty much stop there and you would know more than most. However, it’s an equity loan with a few unique features. Most obviously, a reverse mortgage is not repaid on a monthly basis. Rather, it’s repaid on the back-end, in reverse, once the home is sold. Just like with any other home sale, after the loan is repaid all remaining equity belongs to the homeowner or the heirs.

Second, a reverse mortgage line of credit cannot be called due, canceled, or frozen the way a HELOC can be. A reverse mortgage line of credit is established at the time of closing and it’s there for the homeowners’ use regardless of market conditions. This makes it a powerful hedge against economic turmoil, as the value of the credit line does not decrease even if housing values fall.

Third, the unused balance in a reverse mortgage line of credit actually grows larger over time. This little-known attribute can add significantly to the amount available in the line of credit.

The takeaway is this: a reverse mortgage can lessen pressure on investments and create an asset source outside the investment portfolio. This may give other assets time to recover lost value as markets stabilize.

If you would like to discuss how a reverse mortgage might benefit you or one you love, give me a call. I always love hearing from you.

 

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