Let’s talk about the “F” word

Laurie MacNaughton [NMLS ID#506562] © 2020

Forbearance. It’s the hot topic of the day. It may also prove catastrophic for some homeowners who haven’t read the fine print – if they can even find fine print to read.

Social media posts state in emphatic terms, “Congress gives free money!” “Mortgage holiday!” “Don’t pay your rent!” In a time of uncertainty it feels good to think those in charge are all-wise and all-knowing, that they are looking out for us, that they have our best interests in mind. But it is well to remember the saying, “Rumor circles the world while truth is still lacing on its shoes.”

From the outset I want to make clear: if it comes down to feeding your family or making your mortgage payment, feed your family. If you truly must, ask your mortgage servicer for forbearance. Just don’t imagine for one moment your mortgage payment was forgiven, that it disappeared, or that there will be no long-term consequences.

Which leads to my second point. To date there has been little guidance regarding penalties for forbearance. But as a federally-licensed lender I can tell you this: it is highly unlikely there will be no credit implications for missed payments. Some credit blemishes last a very long time, and mortgage lates can dog homeowners’ feet for years to come.

The likeliest forbearance scenario is that if you miss three months’ worth of payments, all four payments will be due in month four. Let’s say your mortgage payment is $2,000, and you engage in a “mortgage holiday” all three months. Now you owe $8,000 in one lump sum, and you’ve just gone back to work. This would be nearly impossible for most Americans under the best of circumstances, let alone current circumstances when many have been unpaid for weeks. I fear, I deeply fear, we are going to see a foreclosure crisis that makes 2009 pale in comparison.

The punchline is this: if you can pay your mortgage, pay your mortgage. If you can only make a partial payment, call your loan servicer to see if they will accept a partial payment. If you truly cannot pay, bear in mind there will be consequences.

One last word to homeowners aged 62 or older: this time may be the right time to look more deeply into a reverse mortgage. An FHA-insured reverse mortgage is far different than most people think. You do retain title, and the home remains yours until you or your heirs sell it. The loan is not repaid on a monthly basis, but rather in reverse on the back end when the home is sold. All retained equity belongs to you or to your heirs.

Because there is never a monthly mortgage payment due, there is nothing to fall behind on when finances are tight. The FHA-insured reverse mortgage is not exotic, nor mysterious, nor even complex. It can, however, be a financial safety net when life becomes unpredictable.

Be well, stay safe, and if you have questions, give me a call. I always love hearing from you.

Shelter in the time of storm

Laurie MacNaughton [NMLS #506562] © 2020

With market uncertainty caused by current events, it can be reflexive to check investments and to wonder if the traditional 4% rule is sustainable. This “rule” refers to longstanding advice that each year 4% can be withdrawn from assets without running out of money. The problem with a volatile market is that 4% of a shrinking asset pool might not provide enough income to meet expenses.

This week I took a call came from a woman I had first spoken with months ago. “We always knew we would do a reverse mortgage,” she said. “We just thought the time wasn’t right. Now our investments are struggling and we need a buffer from the storm.” Indeed – couldn’t we all.

It’s not new news that a reverse mortgage can serve as safety net during market 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 things to remember about a reverse mortgage:

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, when the home is sold. Just like with any other home sale, once 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. It’s 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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Minding the gap: funding the space between end of health and end of life

Laurie MacNaughton © 2020

It’s called health span – and though I only recently became aware of the term, turns out…not a new idea.

This odd-sounding term refers to how long one’s impairment-free health lasts. Some experts refer to this as “healthy life years,” and it is a concept separate from lifespan. What makes this topic significant is that for many older adults there is a year’s-long gap between the end of health and the end of life.

And though this isn’t (yet?) a term, for many there is another gap – a “finance gap.” That is to say, at some point in retirement many Americans will run short on money, and this gap is usually associated with health problems.

So how do you fund that gap, the gap between the end of health and the end of life? Where does one turn for money once health is declining and finances are depleted?

If you’re very lucky, your adult kids can help. However, rarely is this the best option, as that means the kids are using dollars they should be saving for their own retirement. Also, monies gifted to parents typically are not tax deductible by the gifter, and under some circumstances gift money may imperil certain benefits.

Though it’s an easy default position to judge those whose finances have grown thin, it’s not fair: when today’s retirees started working, lifespans were notably shorter. While it’s entirely possible to work 40 years and save enough for 5 years of retirement, it’s a whole other proposition to save enough for 25 or 30 years of retirement. And, people now routinely live for years with conditions that once were quickly fatal.

Standard recommendations to improve finances include sticking to a budget, taking a part-time job, and by becoming a “life-long saver,” meaning putting a small amount by each month. But these measures often are not possible when a serious health condition arises.

This is where a reverse mortgage can be a true lifesaver. A reverse mortgage is a seniors’-only home equity line of credit that is repaid when the last titleholder permanently leaves the home; all remaining equity goes to the homeowner, the heirs, or the estate.

I will be the first to say there is never a one-size-fits-all financial product. Financial needs vary and homeowners’ circumstances differ from person to person.

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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If you pay, you stay; if you don’t, you won’t

Laurie MacNaughton [NMLS ID# 506562] © 2020

Recently I heard a heartbreaking story from a friend: A couple years back her 55-year-old cousin lost his job and shortly thereafter had a stroke. He spent well over a year in a rehab facility and during his recovery he fell behind on bills, including his property taxes. By the time I was hearing this story, the county had foreclosed on his home due to tax delinquencies.

Why did he lose his home? Because he lost his job and then had a stroke.

This morning I spoke with an attorney whose advanced-elderly client is losing her home to a tax foreclosure after not paying her property taxes for the past two years. Turns out, the homeowner has a reverse mortgage.

Why is her home in foreclosure? In many people’s eyes, it’s because she has a reverse mortgage.

If someone loses his job and then loses his home, we blame the circumstances. If someone has a reverse mortgage and loses his home, we blame the mortgage.

Wait, what? How did we get here?

The overview is this: in their earliest form, reverse mortgages had little federal oversight and few regulations, and by all accounts there was some pretty crazy stuff going on. Even with the modern reverse mortgage, until 2014 the qualifications were simply age and equity: if a homeowner was 62 and had enough equity, he or she could qualify. There was no financial assessment to verify the homeowner could pay property taxes and homeowner’s insurance on an ongoing basis.

A huge overhaul in 2014 corrected these issues, and now homeowners must meet income guidelines. The amount of equity they can access is spread out over time.

These two simple additions to the qualification process have gone a long way toward preventing problems.

So how is it that in 2020 an elderly woman with a reverse mortgage, living in Arlington, Virginia, may lose her home?

She’s losing her home because she didn’t pay her property taxes. Just because she can afford to pay them, it doesn’t mean she can remember to pay them. Even if she had no mortgage whatsoever, if she didn’t pay her taxes she would still be in foreclosure.

A couple points here. First, most Virginia tax jurisdictions offer property tax relief programs for older homeowners. Many homeowners are unaware of this, and it’s a shame – because tax relief can be a huge financial boost. Second, most tax jurisdictions allow taxes to be set up as an automatic, recurring payment. For some of our oldest homeowners interested in this option, this may mean they need a helping hand setting up recurring payments. My own father, a truly brilliant aerospace engineer, never did master the personal computer. My mother was quite good on the computer, but she wasn’t in charge of finances.

The third thing I want to point out is this: when homeowners with so-called “forward” mortgages lose their homes, the losses are spread over all age groups and the causes vary. When homeowners with reverse mortgages lose their homes, all the homeowners are nearing retirement or have already retired. When there is one demographic represented, it can be easy to blame the type of mortgage, even when the cause overwhelmingly is a failure to pay property taxes. Taxes are taxes, and they must be paid – unless homeowners are property tax exempt. It’s simple: “if you pay, you stay; if you don’t, you won’t.”

One last note is that it is now possible with a reverse mortgage to do something called a “Life Expectancy Set-Aside,” or LESA, whereby property taxes and/or homeowner’s insurance are withheld, and then paid by the loan servicer when due. A LESA may be required in cases where there is a spotty tax or homeowner’s insurance payment history. But some homeowners opt for a LESA simply out of convenience.

If you have aging loved ones in your life, please ask them if they would appreciate help setting up recurring property tax payments. Be mindful that the ability to keep track of dates, deadlines and requirements may diminish as we age, and that the “money talk” may be one you need to have with loved ones on an annual basis. And check to see if they qualify for tax relief.

If you’re an aging homeowner and would like to know more about property tax relief programs, call your county’s Commissioner of the Revenue. Bank branch personnel and local librarians can also look up your county’s property tax exemption guidelines, and many will print the application forms.

I always like to point out that money is not a moral issue, though some people get very judgy about financial matters. Long gone are the days of funding retirement – discussions now have to be about how we’ll fund longevity. This is an altogether different proposition, and it can be tricky. If you’re having money issues, it’s better by far to ask for help earlier than later.

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

 

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

Laurie MacNaughton [NMLS ID# 506562] © 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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