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.

Don’t tell – our national aversion to discussing personal finance

Laurie MacNaughton © 2018

As I write this I’m visiting long-time friends in Germany. Over dinner the past few evenings our conversation has turned to retirement, as within the next decade both they and I will be approaching retirement age in our respective countries.

During our discussions a couple data points have piqued my interest, including the fact that though average Germans save more than average Americans do, a 2018 survey indicates they do not have appreciably more in retirement savings. According to the survey this is largely due to the fact median incomes in Germany are somewhat lower, and the cost of living higher, than in the States. When I asked my friends about their retirement funding they pointed to their daughter and said, half-jokingly, “She’s a big part of the plan.”

But here’s a personal observation: we Americans tend to speak of retirement finances with much more judgmentalism and a much greater degree of shame and secrecy. Did your 401(k) take a big hit after the financial crisis? Tsk-tsk. Have you not saved the recommended $1.5 million for retirement? For shame. Are you considering a reverse mortgage? Don’t tell friends or family – not now, not ever.

I see the impact of this attitude played out time and time again. A homeowner encounters an unexpected event – illness, loss of a spouse, loss of employment shortly before retirement, a later-in-life divorce – and suddenly needs access to a significant amount of funds. Because we Americans do not feel comfortable openly discussing finances, for many the only option is to look to their bank for a traditional home equity loan.

But here’s the thing: let’s say the homeowner qualifies for a traditional home equity loan. For the first 29 days after closing everything seems fine – cash need solved.

However, day 30 is the kicker because now there’s a mortgage payment due. And, for some homeowners this new loan payment is on top of an existing mortgage. Even if the homeowner can juggle payments over the near term, over the long term the situation can be a recipe for disaster.

So what are some potential alternatives? First, awkward as it may be, the homeowner needs to talk to family. They’re going to know sooner or later, and these conversations do not get easier over time – nor do financial situations typically get better over time. Over the years many adult children have told me they wish their parents had been more open in discussing financial matters.

Second, the homeowner should speak with a qualified financial planner, wealth manager, or elder law attorney who can help put together a long-range financial plan.

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.

Money is not a moral issue, though it can feel like one. Running short on money is not a sin, though we can be made to feel it’s one. And asking for help is not a weakness, though our culture may imply it’s one.

If you have questions about how a reverse mortgage may benefit your loved one, or if you would like contact information for elder law attorneys, financial planners, or wealth managers – or just about anyone associated with aging-related issues – give me a call. I always love hearing from you.

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Silver Divorce – How Reverse Mortgage Can Make a Way Forward

When Ill-Conceived Rules Go Bad

Laurie MacNaughton ©2016

For nearly thirty years FHA’s reverse mortgage program has enjoyed tremendous success in making a way forward for aging homeowners to remain in their own homes. But just like any other loan program, over time guidelines needed to change to reflect evolving realties. In the case of reverse mortgages this included cutting back on available funds to accommodate ever-lengthening life expectancies.

After the housing crisis additional major changes were made to the program, including requiring that every reverse mortgage applicant pass a federal “financial assessment.” This was done to protect the FHA mortgage insurance fund, and to ensure the program’s long-term viability.

Nationally, numbers reflect the fact that some borrowers have indeed failed to qualify under the assessment guidelines – and that may have been necessary.

But now another round of changes is being considered. In addition to raising the bar yet higher, the proposed rules appear plain ill-conceived.

The most problematic of the proposed new rules may be including utilities in the financial assessment, “if failure to pay…utilities would result in a lien on the property.”

A couple things here.

First, what unpaid bill doesn’t run the risk of becoming a lien? I have seen hospital liens. I have seen homeowner association liens. I have seen eye-doctor liens. Why doesn’t FHA just say, “If you’re an aging homeowner and could potentially fall behind on future bills, start packing now”?

Second, there are many, many housing-assistance programs. A quick Google search returns references to hundreds of programs, some federal, some state-run, some private, and many which combine several funding sources.

But most of them have maximum income restrictions, and many, including some of HUD’s own affordable housing programs, don’t kick in until income is 60% below the regional average.

By contrast, as guidelines currently stand, to qualify for a reverse mortgage that enables homeowners to remain in their own home, combined homeowner’s insurance and property taxes are not supposed to exceed 10% of the homeowners’ income (HECM Financial Assessment and Property Charge Guide, §3.98).

So what happens if utilities are now included in that 10%?

Here’s what could happen: fewer homeowners could qualify. And here’s the thing: there is a really big gap between 10% of one’s income going to property taxes and insurance, and financially being in the bottom 30% of one’s region. So where are our aging who fall into the donut hole supposed to go?

I honestly don’t think HUD is trying to turn homeownership into a perk available just to the “welderly,” the wealthiest of our aging homeowners.

But advertently or inadvertently, that certainly looks like what they’re proposing.

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What to do about Mom?

Laurie Denker MacNaughton [506562]

The respirator’s soft “chhhh…pffff” sounded in the background as Susan and I sat at the kitchen table. “Years ago,” Susan told me, “I promised Mom, come hell or high-water, I would let her die at home – and I plan to do whatever it takes to keep my promise.”

It’s one thing to say that. But what do you do when you’re overseeing care and medical needs outpace your ability to foot the bill?

Susan’s parents had not gone into retirement financially unprepared: they retired with federal pensions, Social Security and Medicare, substantial savings, little debt and no mortgage. But four years back, on Thanksgiving, Susan’s mother had a massive hemorrhagic stroke. She spent 3 weeks in the hospital, and another 30 days in rehab. But when she failed to progress in her recovery, she was discharged – and Susan, true to her word, brought her mother home.

First they utilized their long-term care benefits until the benefits ran out. Then they used their savings. When those were gone, Susan began tapping her own retirement savings to help cover her mother’s in-home medical care. This was clearly unsustainable, so Susan made an appointment with an elder law attorney, who suggested she look into a reverse mortgage for her mother.

In this case, due to the value of the home and the homeowners’ ages, the reverse mortgage will provide funds enough to cover another 4½ years of care, and the attorney is working to put in place additional benefits that will further stretch the reverse mortgage funds.

Increasingly, boomers face this same challenge: helping mom and dad finance care, even as they themselves labor to save for retirement. Reverse mortgage can play a significant role in helping balance this equation.

Is a reverse mortgage a fit for everyone? Of course not. No one financial product is.

But as we Americans age, nearly all of us will need every financial tool available, either as we fund our own retirement, or help mom and dad fund theirs.

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

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The long journey: from end-of-the-line to mainline

Laurie MacNaughton [506562] ©2016

What a change a few years make. In this week’s FinancialPlanning online magazine, a publication for financial professionals, author Dave Lindorff writes in a piece entitled “Reversal of fortune: Home equity makes a comeback for retirees”:

…[A]dvisers…are starting to view reverse mortgages as an important part of the retirement planning process, particularly since a set of reforms were imposed by the Federal Housing Administration and the Department of Housing and Urban Development in 2013.

The reforms he refers to are a tightening of guidelines surrounding qualifying for a reverse mortgage. Though many homeowners aged 62 or better still qualify, those with severe property tax default issues may have a harder time – or, in certain circumstances, may not qualify at all.

Lindorff goes on to cite FINRA, the Financial Industry Regulatory Authority, as an example of the financial planning industry’s change of heart toward reverse mortgages:

In the past, [FINRA] warned that reverse mortgages should only be recommended as a “last resort” for clients with no other sources of support besides the equity in their homes.

This past year, though…FINRA changed its recommendation.

The regulator now says only that reverse mortgages should be “used prudently.”

Not to pick on FINRA, but that is a little like saying, “Water can be beneficial to life, but only when used prudently.” I’m pretty sure any bona fide financial planner gets the fact that any financial tool should be used prudently.

Financial planners routinely recommend that their clients establish a line of credit to hedge against life’s unexpected events. But here’s the thing: the later in retirement an unexpected event occurs, the less able most people are to meet the month’s end payment that greets them once they’ve drawn on their line.

A reverse mortgage line of credit is not repaid on a monthly basis. Rather, the amount borrowed is repaid once the last person on title permanently leaves the home. The remaining equity goes to the homeowner or the heirs. And the difference between having a monthly payment and not having a monthly payment? It can mean the difference between staying in the home and having to leave the home.

Few government-insured financial products have ever been subjected to a beating like the FHA-insured reverse mortgage program has been over the 30 years since its creation. Nearly pronounced dead in 2012 when the last mega-bank stopped offering reverse mortgages, Tennessee Senator Bob Corker said to then-HUD Secretary Shaun Donovan, “I do not understand why you do not shut the program down.”

And why did HUD not shut down the reverse mortgage program?

Because HUD saw what those us of who don’t share Senator Corker’s $89.7 million in net worth saw: mainstream Americans whose savings simply were not sufficient to meet their financial needs in an ever-lengthening retirement.

Lindorff concludes his piece by quoting Steven Sass, program director at the Boston College Center for Retirement Research:

Reverse mortgages make sense not just for low-income people who want to stay in their homes but also for wealthier retirees who have considerable equity but want to goose their income streams.

You can say reverse mortgages need to be part of the retirement plan discussion.

Indeed. As we Americans age, nearly all of us will need every financial tool available to get through retirement with as much independence and dignity as possible.

Give me a call and let’s talk. I always love hearing from you.

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The Breathtaking Irony

Laurie MacNaughton ©2016

It wasn’t yet noon, but already I had had the same conversation with two separate homeowners:

“It’s not that you have insufficient income; it’s that the first fruits of your income are going right back out the door to pay your home mortgage.”

“It’s like you know me,” the caller said.

Know you? No.

Intimately know your situation? Absolutely. I see it every day.

It boils down to this: retirement + mortgage payment = not a good combo for many older homeowners.

Nationally, most homeowners of retirement age owe nothing on their home by the time they retire. In the greater Washington, D.C. area, however, that is less likely to be true because many homeowners moved to the area as consultants after spending much of their successful career elsewhere. This means many homeowners go into retirement with years yet to go on their mortgage. An alternative – but common – scenario is that homeowners paid cash for their home, and now have much of their net worth tied up in a pricy, illiquid asset.

And the breathtaking irony is this: the same gifts and skill packages that enable homeowners to work into later life can also set them up to falter financially if health fails abruptly and catastrophically, or if any one of life’s many other vagaries ensue.

Back to this morning’s conversation: this homeowner, indeed a consultant, has a home conservatively valued at $1,000,000. He and his wife are in their mid-70’s, but still have 15 years to go on their mortgage. His health is still robust, but his wife was recently diagnosed with cancer. Their fear is they will encounter uncovered medical costs that will consume their investments. It was their financial advisor who suggested they look into a reverse mortgage in order to free themselves of their monthly mortgage payment.

Is a reverse mortgage a fit for everyone? Of course not. No financial product is.

Is a reverse mortgage going to play a part in the long-term financial wellbeing of many retiring – or retired – homeowners? Absolutely.

If you have a family member, client, or colleague who would benefit from knowing more about an FHA-insured reverse mortgage, give me a call.

I always love hearing from you.

And…

Check out my various YouTube videos. Just click the link, or google Laurie MacNaughton YouTube.

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