The Twelve-Month Rule

He’s not young. He’s not well. He needs a financial buffer. But for another six months he cannot move forward with a reverse mortgage.

And why not?

Because in a move that hit everyone by surprise, in December FHA enacted guidelines stating homeowners must now wait a full calendar year from the date of their most recent property lien before doing a reverse mortgage, if more than $500 was received from the transaction. This waiting period is called “seasoning.”

What does this mean?

In many cases it means that if homeowners have refinanced, or have established a home equity line of credit, they must wait a full 12 months before applying for a HECM.

The gentleman mentioned above is a perfect example of why it’s enormously important to know this. Six months ago, as his wife lay dying of Alzheimer’s, he refinanced his home in order to lower his interest rate and to reduce his monthly payment. In the process he took out $2,700 to pay down medical debt.

But here’s the thing: he doesn’t need a lower monthly payment. He needs NO monthly payment – and access to liquidity to cover unexpected expenses. A reverse mortgage is the only mainstream financial product available that accomplishes both. And now he’s in the unfortunate position of having to tread water until he can qualify.

Nearly every one of us is working to help family, friends, neighbors, or clients age with independence and dignity. And a reverse mortgage is going to play an important financial role for many.

Some new guidelines have already kicked in. More are on the way. And some changes, like the twelve-month Seasoning rule, are big.

Give me a call and let’s get caught up – I always love hearing from you.

 Laurie

Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant with Southern Trust Mortgage.

She can be reached at 703-477-1183 Direct or LMacNaughton@SouthernTrust.com

On Your Mark, Get Set, And…HOLD!

Yup – it’s true: FHA this week announced a temporary postponement of changes to its FHA Reverse Mortgage program. No word yet as to the new implementation date, but FHA has made it clear it’s to be sooner rather than later.

And what do upcoming changes entail? For the most part, documentation of income and assets. This is to ensure homeowners have both the ability to pay, and a demonstrated history of paying, homeowner’s insurance and property taxes, and of meeting their recurring financial obligations.

There will also be a minimum income requirement, based upon regional cost of living and household size.

However, for the immediate future, traditional documentation and qualification rules still apply.

If you or someone you know would like to discuss how a reverse mortgage may help achieve retirement goals, give me a call.

Truly, there has never been a better time!

Laurie

Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant with Atlantic Coast Mortgage.

She can be reached at 703-477-1183 Direct or Laurie@MiddleburgReverse.com

Ten Reasons Not to Read The Motley Fool

Laurie MacNaughton

Ok, enough is enough – what started off as sloppy journalism unbefitting a widely-read publication that purports to “help people take control of their financial lives” has become flat-out obnoxious as it spreads through the news channels.

I’m speaking about Peter Bennett’s poorly-reasoned, poorly-researched piece on reverse mortgage, published yesterday in The Motley Fool. The first time I was emailed a link and asked to comment I was willing to be forbearing: year’s end is historically slow in the financial markets, and doubtless the reporter was compensating by resorting to a favorite whipping boy.

Then I was sent the piece again for comment. And again. And…yet again. And pathetically, each was from a different news outlet. Apparently, fact-checkers for every major American publication are in Boca for the New Year, and left their cell phones in their hotel room.

So let me address some of most laughable, some of the most sensationalistic, and also some of the rudest and most elder-demeaning statements made by Motley Fool reporter Peter Bennett.

Bennett lists 10 reasons not to consider a reverse mortgage, and nearly each point becomes more fantastical. I have picked out his first couple points and last couple points, and analysed them sentence by sentence.

Point 1. High fees

Statement: Closing costs for a typical 30-year mortgage might run $3,000.

Reply: True. But they might not run $3,000. Closing costs are contingent upon many factors, and to pull a number from thin air is presumptuous and subject-matter ignorant.

Statement: For a reverse mortgage, they could run as much as $15,000.

Reply: True, but they might not run $15,000. There are many, many factors that determine closing costs, and in some cases closing costs could be, well, the $3,000 Bennett seems fond of.

Statement: That’s a lot of money just to access the equity in your own house.

Reply: Says who? If closing costs are this high it typically means there is a “forward” mortgage being paid off. A monthly mortgage payment is the single biggest monthly expenditure for most seniors, and a refinance that reduces their payment $70 a month just isn’t going to do the trick as far as putting them on solid financial footing. What they need is NO monthly mortgage payment, and a financial buffer. A reverse mortgage is the only main-stream refinance product available that can provide both, and that creates a solution to the cash flow problem so common during retirement.

Statement: Reverse mortgages come with more regulations than a regular mortgage so that accounts for some of the additional fees.

Reply: Baloney. Check your facts, Mr. Bennett.

Statement: Lenders also charge more because they claim they take on unique risks, in that reverse mortgages aren’t based on your income or credit score.

Reply:  Again I say baloney and check your facts. Or, better yet, cite your references.

Point 2. Property taxes and homeowners insurance to pay

Statement: With a reverse mortgage, the property remains in your name.

Reply: Score one for the “B” – he got this one right.

Statement: And because the property is in your name, you are responsible for paying all property taxes.

Reply: Um, do you know how this works, Mr. Bennett? They’re already paying property taxes themselves if they have no mortgage, and if they do have a mortgage, they’re escrowing for them. They’re already paying. This is not a new concept for a homeowner aged 62 or older. AND, many older homeowners qualify for a property tax reduction or for a property tax waiver. Their reverse mortgage does not impact their eligibility for this.

Statement: The lender also requires that you continue to carry homeowners insurance.

Reply: This is also not a new concept for a homeowner. And it is really rather demeaning to suggest the mature, experienced homeowner is not aware of homeowners insurance.

I’m going to skip several points here, each of which contain line after remarkable line of trash talk. But the last two points are so bad I can’t skip them.

Point 9. Stringent repayment rules

Statement: Typically, when the last remaining borrower living in a reverse mortgage property dies, the FHA requires loan servicers to send a letter showing the balance of the loan due.

Reply: No “typically” here: the servicer is required to send a statement of the balance due.

Statement: Upon receipt, the heir or estate administrator has 30 days to declare whether the loan will be repaid or the home sold.

Reply: By federal mandate there is an automatic 6-month period to sell or refinance the home, with two additional, six-month extensions possible.

Statement:  If no decision is made, the lender can initiate foreclosure proceedings.

Reply:  If no decision is made on any financed home, the lender can initiate foreclosure proceedings – and no 6-month grace period is tendered in the case of a “forward” mortgage. It’s just plain rude to imply homeowners and their families are unaware that homes with financing have to be dealt with.

Point 10. Heirs get less

Statement: As every month passes, the homeowner with a reverse mortgage sees debt increase and equity home equity (sic) decrease.

Reply: This is an appalling presentation of half the story. The amount the lender has lent collects interest, which will be repaid along with the loan, once the last person on the mortgage has permanently left the home. However, if homeowners have a line of credit, that line accrues a compounding growth month over month – imagine it’s a lump of bread dough sitting on the counter, getting bigger over time. The line of credit will grow even if the home goes down in value.

Statement: That equation doesn’t benefit heirs, so if you planned on leaving your heirs a little something, it will probably be very “little.”

Reply: Want to know what really doesn’t benefit heirs, Mr. Bennett? Adult children of aging parents burning through their own retirement funds at a double pace as they struggle to help finance their elderly parent’s longevity. If that older parent, however, can be self-pay through the end of life, his/her adult children stand a much greater chance of enjoying financial survival in their own retirement.

So to the armchair critics of reverse mortgage I say this: check your facts. Do your research. And don’t sit in judgment on those striving to maintain their own independence and dignity during retirement.

If you have questions regarding reverse mortgage, or would like to receive published research on the contribution reverse mortgage can make toward financial survivability in retirement, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant with Southern Trust Mortgage.

She can be reached at 703-477-1183 Direct or Laurie@MiddleburgReverse.com

Unprecidented Changes Coming to FHA’s Reverse Mortgage Program

Reverse Mortgage guidelines will change dramatically March 2, 2015.

Under current guidelines, age (62 or older) and equity are the basic Reverse Mortgage qualification requirements.

However, starting in March, verification of income, assets, monthly expenses, indebtedness, and an acceptable credit history will be taken into account. New guidelines do permit the factoring in of certain extenuating circumstances.

Needless to say, for many in their retirement years the new rules will make qualifying for a Reverse Mortgage notably more difficult.

Part of the Reverse Mortgage process is completion of an informational counseling session  with an FHA-approved housing counselor. (For an overview of the counseling process, see:  http://services.nrmlaonline.org/NRMLA_Documents/Preparing_For_Your_Counseling_Session.pdf )

Severe congestion is anticipated in counseling availability as the new guidelines draw near. Because an FHA case number cannot be issued until receipt of the Certificate of Counseling, few counseling appointments may be available in the weeks prior to the guideline change.

This means anyone considering moving forward with a Reverse Mortgage may be well advised to complete counseling as soon as possible. To find a counselor near you, FHA’s counselor search site can be accessed at: https://entp.hud.gov/idapp/html/hecm_agency_look.cfm. You may also give me a call and I can provide you with a list of both locally- and nationally-available Reverse Mortgage counselors.

Guideline changes coming in 2015 are the most dramatic in the program’s history, and may put a Reverse Mortgage out of reach for some seniors who previously would have qualified.

If you or someone you know is considering a Reverse Mortgage, now may indeed be the time to move forward.

Call at any time. I always love hearing from you.

Laurie

Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant with Southern Trust Mortgage.

She can be reached at 703-477-1183 Direct or LMacNaughton@SouthernTrust.com

Fed Survey: One-Third of U.S. Households Unprepared to Retirement

 

 Reposted from National Reverse Mortgage Lenders Association, ©2014
The Federal Reserve Board published the results of a new online survey this week, which found that 31 percent of non-retired respondents have no retirement savings or pension, including 19 percent of those ages 55 to 64.

Additionally, almost half of adults were not actively thinking about financial planning for retirement, with 24 percent saying they had given only a little thought to financial planning for their retirement and another 25 percent saying they had done no planning at all. Of those who have given at least some thought to retirement planning and plan to retire at some point, 25 percent didn’t know how they will pay their expenses in retirement.

According to the survey, the Great Recession pushed back the planned date of retirement for two-fifths of those ages 45 and over who had not yet retired, and 15 percent of those who had retired since 2008 reported that they retired earlier than planned due to the recession. Among those ages 55 to 64 who had not yet retired, only 18 percent plan to follow the traditional retirement model of working full time until a set date and then stop working altogether, while 24 percent expected to keep working as long as possible, 18 percent expected to retire and then work a part-time job, and 9 percent expected to retire and then become self-employed.

The survey was conducted on behalf of the Board by GfK, an online consumer research firm. Data collection began September 17, 2013, and concluded on October 4, 2013. Just over 4,100 respondents completed the survey. To view the survey’s key findings visit www.federalreserve.gov/econresdata/2013-report-economic-well-being-us-households-201407.pdf

Never Read the Comments

A good friend of mine, a professional writer and one of the smartest people I know, once said to me. “Never read the comments at the end of an article – you’ll end up loathing humanity.”

I don’t know why I do it, but I persist in ignoring his advice. And while I can’t say I end up hating humanity, I confess I often end up just this side of appalled at the flawed reasoning, the foul language, and the venomous attacks commenters level against other commenters.

Imagine my surprise, then, when the tables were turned this week after The New York Times ran a piece on reverse mortgage: the article was terrible, but the comments were extraordinary.

The piece, entitled “Pitfalls of Reverse Mortgages May Pass to Borrower’s Heirs,” struck me as a remarkable specimen self-pity, greed, and lack of self-reflection on the part of adult children whose parents had reverse mortgages, and (yet another) instance of poorly-researched reporting by Jessica Silver-Greenberg, who has written other sensationalistic reverse mortgage pieces for NYT.

Then, in an act of self-punishment – you guessed it – I clicked on the comments tab.

The word “astonished” comes to mind.

First of all, at the time of this blogpost there were 598 comments. I read a lot of online news, and that is an unusually high number of people weighing in on a financial piece.

Second, despite the negative nature of the article, the overwhelming majority of comments were highly supportive of reverse mortgage.

But my third and biggest source of amazement? The level-headed, well-reasoned nature of the replies, some from seniors themselves, but many more from adult children of parents who have taken out a reverse mortgage.

A minimal sampling of comments include JPB’s from Chicago, who wrote:

This article is somewhat misleading, and Ms. Santos [the aggrieved daughter featured in the NYT piece] is delusional.

My siblings and I opted to help my parents obtain a reverse mortgage and it’s been a godsend. In their case, they had lots of equity (in a fairly pricey property), good health, and very little cash.

We were never expecting to inherit anything; the reverse mortgage is doing exactly what it’s supposed to do. It has allowed my parents to remain in their home and removed a huge financial burden off their backs.

Jbsa wrote:

My mom has a reverse mortgage from a reputable bank. It lifted her obligation to make monthly payments out of her Social Security and teacher’s pension, which allowed her to stay in her home. We are aware that each month, the payment she would otherwise be making is instead a paper transaction that is reducing her equity in her home. That’s ok with us, her kids. We’d rather have her living in her home and not stressing about the payment. It’s been a huge financial relief. If, god willing, she lives long enough to completely exhaust the equity, the bank can’t kick her out. She gets to stay in the house for as long as she is able to live there. We won’t inherit the house, but that’s not the point. For us to inherit, she’d have to keep struggling to make those payments, or we’d have to make them for her. It’s a loan, just structured differently than a traditional one. It works as intended.

Peter R from Cresskill, New Jersey wrote:

I have the perspective of the reverse mortgage experience from start to finish. We secured a reverse mortgage in 2006 for my wife’s parents. We sold the house after both her parents had passed away by 2011. There are many reasons to have one and many sides to the benefits. The main benefit is for the parents….

But I think my favorite is by a senior homeowner identified as Entice, from Miami, Florida:

So, I’m a homeowner, I paid over the years from the money that I earned. It’s my largest asset. I’m now in need of additional money. I take out a reverse mortgage to provide for my needs – note, I’m not sponging off my grateful children. I die. My grateful children’s response is “what do you mean we don’t get the house, we didn’t support the old man in his declining years.” I took out a reverse mortgage because I can’t get buried with my home and I sure am not going to leave it to my kids who have to learn to earn their own way in life. The mortgage company (RMS) spelled out in detail that when I die they get the house; my heirs might get a small residual from the sale or not; the company did not try to hide anything.

I guess it really shouldn’t surprise me a loan that enjoys over 90% positive reviews from those who have one would get good reviews. I only wish the popular press would stop working so hard to scare the daylights out of seniors and their adult children.

No one is going to get by on just their Social Security. No one is going to make it on their 401-K. Few are going to survive on their pension, their annuity, their IRA, their bank account – or their reverse mortgage. But when added together, all these combine to create a long-term means of maintaining dignity and independence in retirement.

If you would like to explore how an FHA reverse mortgage might help with your retirement plans, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [NMLS 506562] is a freelance writer and Reverse Mortgage Consultant at Middleburg Mortgage. She can be reached at: 703-477-1183 or Laurie@MiddleburgReverse.com.

 

 

Stick to What You Know, Suze

I don’t own a television – I never have. And, frankly, I cannot imagine any scenario under which I would want one. This fact is material to what I say next:

Suze Orman needs to butt out of discussions on topics she clearly does not know well.

In order here is a bit of background leading up to this admittedly snarky statement.

This past week I attended an event where a woman said to me, “I don’t really know much about reverse mortgages, but Suze Orman doesn’t like them – so that’s enough for me.” I mentioned I didn’t know who Suze Orman was, and the woman, clearly shocked, answered, “Suze Orman? She’s on TV. She’s America’s financial guru.”

STRIKE THREE, Suze. You’re out, girlfriend.

Strike one is this: for one television personality to impose her opinion upon her entire viewing audience displays presumptuousness beyond measure. Where does she get off saying the 6,000,000 million Americans over the age of 62 have the same needs, and can be told, out of hand, a reverse mortgage should be a last resort? This is particularly audacious in light of the many scholarly pieces published within the past three years showing so-called “reserve reverse” mortgages – those established early and used to augment other savings – greatly increase odds of financial survival in retirement. She’s out of date, off base, and apparently not well read.

Strike two: in her online transcript Orman says, “I would much rather you base your retirement on other income sources—your savings, Social Security, and a pension.” I would love to meet the person who says, “By golly, I would never have thought of that. Use my Social Security, pension, and savings to cover my living expenses? Thank God for Suze Orman, or I would have missed that altogether.”

To this point I say this: one of the worst things I see in the course of my job is the person doing what I call a “rescue reverse” – the person who has drained all other financial buckets, and is now turning to a reverse mortgage as a last resort. Many times, indeed, perhaps most times, had this person done a reverse mortgage when he still had other monies available, he would not be left wondering if his money would last. This is not hypothetical: the studies have been done, and these by major universities and retirement research institutes.

And…strike three? “America’s financial guru.” America’s financial guru? There are 360,000,000 Americans. That’s a lot of people for one “guru.” I’m surprised Janet Yellen, Ben Bernanke, Harold Evensky, Robert Shiller, or any of the other 54 Americans to win the Nobel Prize in economics didn’t make the list.  And anyway, who says she’s America’s financial guru? It’s like saying Sandra Bullock is America’s sweetheart. Thank you, but I reserve the right to pick my own sweetheart – and my own financial advisor.

No one is going to get by on just their Social Security. No one is going to make it on their 401-K. Few are going to survive on their pension, their annuity, their IRA, their bank account – or their reverse mortgage. But when added together, all these combine to create a long-term means of maintaining dignity and independence in retirement.

If you would like to explore how an FHA reverse mortgage might help with your retirement plans, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [NMLS 506562] is a freelance writer and Reverse Mortgage Consultant at Middleburg Mortgage. She can be reached at: 703-477-1183 or Laurie@MiddleburgReverse.com.