Funding the space between end of health and end of life

Laurie MacNaughton © 2022

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 years’-long gap between the end of health and the end of life.

Though there isn’t (yet?) a succinct term for it, for many there is another gap – a “finance gap.” It can be summed up simply as the years of life left once the money has run out – and often this chapter of life is accompanied by ever-increasing care costs.

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 in some circumstances gift money may imperil a parent’s 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 complex medical 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 impossible once 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.

Rarely will a reverse mortgage be the whole solution. However, a reverse mortgage can be a significant part of the solution.

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), a pension, or savings – or a reverse mortgage. But when added together, all these can contribute to financial longevity.

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.

Rarely is a problem too large

Laurie MacNaughton © 2021

It looked like it was heading for a bad outcome: Robert sold his mother’s home and placed her in a care facility.

The problem? Mom was on Medicaid, and her formerly exempt asset was now quite a large countable asset, which spelled big trouble for her care options.

Fortunately, Robert picked up the phone and called an elder law attorney, who listed buying another home among potential cures.

Because Reverse for Purchase has notably easier qualification guidelines, Robert’s mother qualified even on her limited income. And…yesterday she closed on a lovely new home. She is scheduled to move in shortly before Christmas.

Rarely in life is a problem too large. More often, solution sets are too small. In this case, Reverse for Purchase was the perfect fit for a problem that had few other solutions.

If someone you know is in need of options, give me a call. I always love hearing from you!

I feel I’ve lived a miracle

Laurie MacNaughton © 2021

Margaret was 75 when she inherited her mother’s ranch-style home. Because the home had a perfect aging-in-place layout, Margaret and her husband decided to sell their current home and move into the smaller, single-level property. Their current home sold quickly, and they began packing for the move.

But then one tragedy after another struck: Margaret’s husband died suddenly. Margaret lost her job when her employer closed his doors. And then, just days later, the inherited home burned to the ground. And, as fate would have it, the home was uninsured at the time.

Margaret moved in with family while she had the home rebuilt, and funded the construction with proceeds from the home she and her late husband had sold. However, the funds didn’t cover the full cost, so she tried to get a loan to cover the remainder. In the meantime, the contractor finished the work and placed a mechanic’s lien against the property.

She tried lender after lender – but the loan amounts fell far short of what she needed. After all, she was living on just Social Security and a state pension. Though her income was by no means meager, she could not qualify for a loan large enough to pay the contractor.

Months went by, and finally Margaret consulted an attorney regarding her options.

His recommendation? Look into a reverse mortgage.

With a reverse mortgage there is no requirement to prove the homeowner can make a monthly mortgage payment, and consequently Margaret qualified for a far larger amount than she had with a “forward” mortgage. The reason? A reverse mortgage has no required monthly mortgage payment.

The lender must verify the homeowner can cover property charges, including property taxes, homeowner’s insurance, routine upkeep, and condo or homeowner’s association dues, if applicable.

Today Margaret is living in her lovely new home. She has paid all her debts and has no required monthly mortgage payment. When I spoke with her recently she said, “I feel like I have lived a miracle.”

A reverse mortgage is not a miracle – it’s a mortgage. It’s a mortgage that’s repaid on the back-end, in reverse. However, it’s a mortgage that can accomplish results other mortgages often simply cannot.

If you are – or someone you know is – in need of options, give me a call. I always love hearing from you!

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.