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.

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.

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.

A little planning can be a big gift

Laurie MacNaughton © 2018

Charles, sweet-tempered and kindly, sat in my office fidgeting with a ballpoint pen.

“My mom has never really been herself since her fall, and I found out she was having money problems only after I came across a delinquency notice for her property taxes. By the time I opened her bills, she was late on everything – mortgage, taxes, utilities, you name it. I need to negotiate with creditors on her behalf but she never drew up a power of attorney, so now I’m not sure what my options are.”

In my role as a reverse mortgage lender I’ve met with hundreds of aging homeowners and their families. I’ve seen homeowners who have planed extensively for their retirement years, and I have seen homeowners who have done very little planning. I have seen couples who saved extensively, but because they have lived 25 years longer than anticipated, their savings are running out. And then there are the couples who did everything right, but because they were financially assisting a loved one, they depleted their savings much more quickly than they ever imagined. And that scenario can be a huge bummer.

Following are some basic preparations to make before a crisis arises.

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

• The name of your banks and other financial institutions;
• The name of your pension plan, life insurance plan, investment accounts, CDs, health savings accounts and the like, along with account numbers;
• All income sources, including Social Security, annuities, 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 your online accounts;
• Copies of driver’s licenses, social security cards, healthcare cards, birth certificates, divorce decrees, death certificates and the like;
• The names of primary care physicians over the past 10 years. Current physicians may well be different than the ones used in years past, and it can become important to have contact information for previous doctors.

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

• Power of Attorney;
• Will;
• Advance medical directive;
• HIPAA release.

If these documents already exist, make sure they’re up to date.

Once you have collected this information, put it in a safe and secure place – and let a responsible party know where the documents are. Preparation is only helpful when the right person knows how to find the information.

In a utopian world there would be no aging, sickness, disability, or financial hardship. But in this world that is our lot, a little planning can be the most loving gift you can give your heirs – not to mention the fact that planning ahead can save thousands of dollars in legal fees should adult children need to become a parent’s legal guardian.

If you would like to look into how an FHA-insured reverse mortgage might help with your family’s financial goals, give me a call. I always love hearing from you.

For a printable version of this checklist, click here: A little planning can be a big gift – checklist.

Can a reverse mortgage create a financial safety net?

Laurie MacNaughton © 2018

Can a reverse mortgage create a financial safety net in retirement?

In a word, yes.

This morning I received a call from a wealth manager who led off by saying he wasn’t “that familiar with reverse mortgages.” He specifically wanted to know whether a reverse mortgage could offer retirement-aged clients a measure of security during market fluctuations.

Here was my answer: the most familiar “flavor” of reverse mortgage is the line of credit. It’s an equity line that is repaid when the last person on title permanently vacates the home. Once the home is no longer the primary residence, typically it is sold and the loan is repaid; the homeowner, heirs, or estate get the remaining equity. End of story. No mystery here, nothing “too good to be true.”

Many wealth managers routinely recommend traditional equity lines. However, with a traditional line of credit, once homeowners draw funds they then have a monthly mortgage payment due. Because the retirement years can be a time when access to liquidity is crucially important, a monthly mortgage payment can create an increasingly unstable financial environment.

A reverse mortgage line of credit does not have a monthly repayment obligation. This means that if homeowners need a cash infusion, they do not pick up a monthly mortgage payment. Furthermore, the unused portion of a reverse mortgage line of credit grows larger over time, making more funds available for future use.

As is the case with other homeownership, property taxes, homeowner’s insurance, and home repairs must be kept current, and if there are condo dues or a homeowner’s association, fees must be paid on time.

The FHA-insured reverse mortgage is not exotic, mysterious, nor even particularly complex. It can be, however, a helpful financial safety net when life becomes unpredictable.

For more information on reverse mortgage, give me a call. I always love hearing from you.

 

 

Hidden costs of poor reporting

Laurie MacNaughton © 2017

In a recent Washington Post article entitled “Hidden costs of reverse mortgages can lead to foreclosure,” author Jenifer McKim states, “…the risks of the [reverse mortgage] financial arrangement are stark….” What McKim doesn’t say is that the day her article went to print, the Post’s fact checkers apparently all skived off work – or took one last late-summer excursion to Rehoboth.

The implication of the Post piece is that reverse mortgages have hidden fees, namely property taxes and homeowner’s insurance. Taxes and insurance are “hidden fees”?

Ms. McKim, may I make so bold as to enlighten you to a fact of homeownership? Taxes and insurance are not hidden fees of a mortgage, traditional or reverse. If you own real property, you owe property taxes. If you have a mortgage, you must keep your home insured. That’s how it works.

This is not new news to homeowners; indeed, in the first foreclosure example cited in the Post, the homeowner had a traditional mortgage before doing a reverse mortgage. Had she stopped paying her taxes or insurance under the terms of the previous mortgage she would have also faced the threat of foreclosure. The homeowner is now delinquent in her property taxes and facing foreclosure. This has nothing to do with her having a reverse mortgage. It has everything to do with a property tax delinquency.

There is a research piece here, but it has to do with the availability of property tax waivers for the elderly. Misguided reporting overlooks a true dilemma we, as a society, must introduce into the public dialogue. Uninformed dialogue, however, accomplishes nothing productive.

Ms. McKim, I am not unfamiliar with your work and have appreciated much of what you have written. Sensationalistic reporting such as that exhibited in this piece is unworthy of you, and certainly of The Washington Post.

 

 

Understandable issues, unintended consequences

Laurie MacNaughton © 2017

The call seemed like an outlier: the elder law attorney said her widowed, wheelchair-bound client was poised to lose her home due to foreclosure of a HECM after the homeowner failed to pay her property taxes.

Weird thing was, the homeowner had long had a full property tax waiver.

And then came another call, and then another – all within a couple weeks. All borrowers involved had had property tax waivers.

The question then became the following: had anything in the tax code changed regarding property tax waivers for senior homeowners?

Bingo.

A few months earlier tax waivers for the elderly had been changed to tax deferrals. And that’s a big deal.

Here’s why: the Code of Federal Regulations (CFR) citation addressing tax deferrals as they impact HECM reads:

The mortgagor shall not participate in a real estate tax deferral program or permit any liens to be recorded against the property, unless such liens are subordinate to the insured mortgage and any second mortgage held by the Secretary (24 C.F.R. PART 206, § 206.27 (B)(3)).  [Emphasis added]

Tax deferrals are also addressed in the HUD Handbook:

The mortgagor is prohibited from participating in any real estate tax deferral program unless the lien created by this program is subordinate to the insured mortgage held by the mortgagee (HUD Handbook, 4330.1, chapter 13, section 12). [Emphasis added]

Due to federal guidelines on deferrals, if a HECM-holder’s tax waiver is turned into a deferral, the homeowner is subject to a clawback of the full amount of back taxes. If they cannot come up with the clawback and report late on their property taxes, their HECM is in default.

Virginia elder law attorney Veronica E. Williams cites an example.

She says:

My client, a participant in a senior homeowner tax relief program, has a reverse mortgage. Per county requirement, my client filed his annual application for tax relief and it was accepted.

Due to a municipal change from tax waivers to tax deferrals, my client’s reverse mortgage servicer became aware of the fact he now has tax deferral status instead of tax exempt status. As a result, the servicer advised that he had to withdraw his application for tax relief. When my client withdrew the application all deferred taxes became due and payable. The reverse mortgage servicer then notified him he had to pay all back real estate taxes.

The story gets worse. Attorney Williams continues:

My client advised the servicer he was unable to pay the taxes all at once because he was on a fixed income.  The servicer offered to put him on an affordable installment plan, and he agreed to the terms of the plan.  However, the servicer also advised that HUD would have to approve the payment plan.

Unfortunately, HUD did not approve the payment plan. This lack of approval was not based upon any fault on the part of my client, but instead was based upon the fact my client’s reverse mortgage didn’t contain funds enough to pay the back taxes.

The reverse mortgage servicer paid my client’s real estate taxes and then sent notice he would be subject to foreclosure and eviction if he did not reimburse them for paying back real estate taxes.

This homeowner did nothing wrong. The rules changed and now he stands to lose his home.

From the county or municipality viewpoint the issues here are understandable: county boards concede the point that payment of property taxes can be a crushing burden in the retirement years. However, many counties face declining revenues, have yet to recover financially from the recession. For this reason they feel they cannot forfeit taxes outright, and instead recover back taxes after the property has been vacated by the senior homeowner.

But here’s where the math becomes complex: if seniors who were successfully aging in place and on track to being self-pay through the end of life lose their homes, solutions can represent a pricy fix. Long-term solutions potentially carry a price tag that far exceeds the tax revenue the county recovered. For instance, is there affordable housing sufficient to accommodate the newly displaced senior? And, does the county want to foot bill for aging homeowners who cannot qualify for reverse mortgages in the future due to property tax policies?

One last twist here: If the senior homeowner had Medicaid home-based care (also called an EDCD Waiver), and now has no home in which to receive care, are there enough Medicaid-approved nursing home beds to house the Medicaid recipients?

Medicaid is a cooperative between states and the federal government, meaning the financial burden does not fall upon individual counties’ shoulders. If counties inadvertently cause a care crisis, they don’t foot the bill; rather, the burden falls to the state and federal governments. No county would dare say, “We are a senior un-friendly community, and our goal is to disenfranchise our older homeowners.”

And yet – and yet – this can be precisely the unintended consequence if counties move forward with tax deferrals in a manner that does not take HECM guidelines into account.

There are examples of states successfully addressing the waiver/deferral issue. National Reverse Mortgage Lenders Association Executive Vice President Steve Irwin says California, Oregon, Massachusetts, and New Hampshire record tax liens subordinate to a HECM, thus fulfilling both the CFR and HUD Handbook qualifying requirements. Oregon is taking it one step further and moving legislation on the matter.

Making a way forward for as many people as possible to be self-pay through the end of life is a goal shared by many homeowners and municipalities alike – and reverse mortgage plays an integral role in achieving this goal.

Informed tax policy is going to prove a determining factor for many as to whether aging in place remains a viable option. As author Eckhart Tolle says, “Awareness is the greatest agent for change.” ‘Tis indeed, ‘tis indeed.