Play My Guy

Recently I attended an event at which the featured speaker, an attorney based in the Washington, D.C. area, led off with, “I hate reverse mortgages – I HATE them.”

Well, I’ll say this: if you’re an attorney, there’s nothing like a forceful opening statement.

As a reverse mortgage specialist who has been in the field several years, I am always interested in hearing what people have to say about reverse mortgages. So, after the event I asked the attorney what he hates about reverse mortgages. I thought he was going recite the same-ol’, same-ol’ outdated information, personal bias, and general peevishness toward the product. But I was wrong.

Here was his answer:

He said his firm sees reverse mortgages after a senior’s family has completely spent down savings, burned through assets, and utterly depleted the reverse mortgage. Then they turn to him for help.

I have to say, I have seen the same thing – an unplanned, undirected spend-down of assets which leaves the senior with no money and few options. Needless to say, this can result in a less-than-optimal outcome. And I hate it too.

In fact, I’ve given this approach to handling finances a name. I call it “Play My Guy.”

“Play My Guy” Approach to Financial Planning

I married young, and we started our family before I even graduated college. Consequently, I was still in my twenties when my girls were old enough to start playing video games, and I’ll admit it – I like video games. But as my girls got older and games got more sophisticated, I didn’t keep up my game skills. So every once in a while I’d be walking through the room where my kids were playing with friends, and would hear, “Hey, Mom, play my guy.”

Play your guy? Play your guy? I can’t play your guy – I don’t even know what this game is called.

A couple other things here.

I don’t know the rules to the game – I’ve never played this game. But let’s say I grab the manual and speed-read the rules. I still don’t have any experience. I’m going to get slaughtered. Preservation of self-esteem dictates you don’t just jump into something you’ve never done…even if it’s in the company of a bunch of 13-year-olds.

In much of life common sense prevents us from jumping headlong into certain activities. And yet, many adult children of aging parents plunge right into handling their parents’ finances and legal matters. The parents say the equivalent of, “Here, play my guy,” and one of the adult kids says, “SureI’ll play your guy. I can do this.”

Let’s say for argument’s sake the adult kids put in hundreds of hours on the internet and learn all about wills, trusts, estates, Medicare, eldercare, long-term care. Let’s pretend they’ve really learned all the rules. They still don’t have any experience. They’re going to get slaughtered – and it’s not going to be a roomful of 13-year-old girls laughing at them. In fact, no one’s going to be laughing.

So what this attorney was saying was that he hates mopping up after a slaughter. He hates being called into a situation in which there are few – if any – good options left. However, this same attorney conceded he recommends reverse mortgages when they’re used in strategic retirement planning.

A reverse mortgage is a powerful financial tool when used as part of a comprehensive, long-term retirement plan. It can mean the difference between financial sustainability and a less-than-desirable fallback position.

But just like with many things in life, rarely are deferred planning, poor management, and a piecemeal approach ingredients for a good outcome.

Give me a call or shoot me an email regarding your experiences with finances in an aging population. I always love hearing from you.

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant, President’s Club · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

So What is the “Fiscal Cliff,” Anyway?

You’re wondering what the Fiscal Cliff is all about? Here are the main issues:

In 2013, tax cuts for individuals will expire, along with long-standing tax breaks for businesses. Taxes for President Obama’s health care law will kick in, as will spending cuts enacted by Congress as part of the debt-ceiling deal. Long-term jobless benefits will also expire.

So What?

Here’s what: The Congressional Budget Office (CBO) estimates that if all these items occur, an estimated $600 billion will disappear from the U.S. economy in 2013, and push the country into a double-dip recession. Given that Europe is officially in a recession for the second time in four years, if our leaders don’t act now our economy is going to fall headlong over the same cliff.

And keep your head on a swivel regarding inflation. While the latest Producer Price Index and Consumer Price Index reports show inflation remained tame at the wholesale and consumer levels in October, inflation can quickly get out of hand.

What does this mean for home loan rates?

Inflation is the arch enemy of mortgage rates. However, home loan rates should continue to benefit from the uncertainty in Europe. This is because investors will likely continue to see our bond market – including mortgage bonds – as a safe haven for their money. But inflation is a very real threat to home loan rates: if inflation hits, look for mortgage rates to go up.

The bottom line is this:

Home loan rates remain near historic lows, making now the best time ever to talk with the seniors in your life about extinguishing their “forward” mortgage with a HECM Refinance. Also, there has never been a better time to use a HECM for Purchase to get into a home appropriate for aging in place. It’s hard to say how much longer rates will stay this low.

Call me with questions you or your clients might have – I always love hearing from you.

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 · Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

The Pickle and the Pickle Jar

Today I met with two typical Washington, D.C. couples: well-educated, highly-sophisticated, both have traveled broadly and lived internationally. Both live in charming, high-end D.C. neighborhoods. And in what I can only call a rapidly emerging scenario, though well past the traditional age of retirement, both couples still work – and both have one advanced-elderly parent living with them.

What has transpired that the HECM now finds itself squarely within the retirement plans of a demographic who heretofore would not so much as have entertained the idea.

The answer?

Life expectancy.

The Pickle

We have prolonged life to a remarkable degree – but we cannot stop aging. We’re in a pickle: the old go on for decades, until the children of the advanced elderly are themselves deep into their own retirement years.

Many adult children will eventually be called upon to support their parents. The parents, no matter how independent they wish to be, cannot be left unsupervised. They need, at very least, an in-home companion, but as needs go up, costs go up. And here’s the tough part: the adult kids themselves need every penny they have to make it through retirement.

The Pickle Jar 

The graphic I often use when speaking on the HECM is one of an old fashioned pickle jar. Not the little kind where you can reach bottom with an iced tea spoon – no, the jar I’m talking about is one of the BIG ones, the kind you had to reach your whole arm down into to grab the big, fat pickle at the bottom. So that big jar, into which for 30 years homeowners have been piling pennies, is the home. Now the mortgage is paid off, the jar is full – or mostly so – but the jar lid is screwed on.

The FHA-insured HECM, when set up as a line of credit, allows seniors to reach into the jar and take out pennies – one at a time, ten at a time, or a fistful at a time – according to their need. It is a non-cancellable line of credit, waiting in reserve to be used as needs arise.

How does this help in the case of the families I met today.

As they labor to meet the needs of their advanced elderly family member, the “burn-through” rate of their income and savings is too rapid. They have done the math: if expenditures continue apace, there will be nothing left for them when they are that age.

In today’s Journal of Financial Planning, authors Dr. John Salter and Harold Evensky write, “…[t]he FHA HECM Saver offers unique and attractive features,” and then go on to say:

We find this risk management strategy improves portfolio survival rates by a significant amount. The improvement in survival rates is attributable to the mitigation of the volatility drain – the risk of having to sell investments when depreciated.

The Journal article is spot-on. Current trends suggest that within a few years, rare indeed will be the person whose older relative does not depend upon a reverse mortgage for income, for a financial safety net – and for the very preservation of dignity itself.

Give me a call. I always love hearing from you.

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Reversing Years’ Worth of Skepticism

Even if they don’t adhere to it, most people have at least heard of the “bucket” strategy of saving for retirement. Basically, it’s a method of asset allocation, a way to diversify investments and save for the day you’re no longer working full time.

But here’s a question you might not know the answer to: for most people, what is the biggest – and best funded – bucket?  Cash equivalents? Fixed-income securities? Pension?

Answer: No, no, and no. For most people, the single biggest “investment bucket” is their home.

You can think about it this way: you might have designated several buckets. But if you didn’t put sufficient money into them during the working years, those buckets are not going to get you through retirement. However, most Americans paid into their home, even during the past few years when times were tough.

But here’s the problem: after spending years pouring the first fruits of one’s income into the home, that money is frozen, tied up in an illiquid asset. It’s an investment, certainly. But it’s not one easily converted into an income stream for retirement.

Increasingly, however, drawing upon that bucket by means of an FHA reverse mortgage is being recommended as a way to meet seniors’ financial needs during retirement.

FHA reverse mortgages have been around since 1988. But until recently, the financial planning community viewed them as the dirty underbelly of financial products.  It was the rare financial planner who saw any legitimate use for them whatsoever, let alone who used them in a strategic way.

However, within the past few years scores of scholarly studies have shown both the near-term and long-term positive impact of reverse on standard of living, financial portfolios, and estates.

In “How Important Is Asset Allocation To Financial Security in Retirement?” authors Munnell, Orlova, and Webb with Center for Retirement Research at Boston College state:

…[F]inancial advice…tends to focus on financial assets, applying tools that give prominence to the asset allocation decision. But most people have little financial wealth, and financial tools are often silent on the levers that will have a much larger effect on retirement security for the majority of Americans. These levers include delaying retirement, tapping housing equity through a reverse mortgage, and controlling spending [emphasis added].

Of particular interest to many financial planners is that, when set up as a monthly payment option, a reverse mortgage basically annuitizes the home – and it’s a considerably bigger annuity than most people would have been able to establish in the years they were supporting their family, helping with college tuitions…and paying their mortgage.

Rick Gow, wealth manager with the independent investment firm Lara, Shull, and May in Falls Church, Virginia, cites the example of a 66-year-old with a house valued at $400,000.

After subtracting closing costs, the retiree could receive a tax-free, monthly check of $1,252 for as long as the home remains the primary residence. By the time the homeowner turns 85, disbursements would total more than $289,100; by age 95, the total payouts would be over $435,600.

If the homeowner were to take a onetime, lump sum payout, he or she would receive approximately $256,800.  A third option would set aside that amount in a line of credit, the balance of which grows over time, tax free.

There is also a newer, reduced fee FHA reverse mortgage, called the HECM Saver. The over-all payout is less with this option, but Gow points out the lower closing costs make it a good option for some.

The majority of Americans fear running out of money in retirement more than they fear death, according to a May, 2012 AARP bulletin. In an America where 10,000 boomers a day turn 62, the FHA reverse mortgage has an increasingly pivotal role to play in retirement planning.

I always love hearing from you. Call me at any time with questions.

Laurie

Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Babies Don’t Have Dumb Ideas

When my daughters were teenagers I often said the biggest difference between teens and babies is that babies don’t have dumb ideas yet.

But both teens and babies have this in common: just a couple years later, both are more capable, more independent, and better able to care for themselves.

It’s tough to acknowledge, but I now have to add my mother to the comparison.

My mother is probably the most gifted person I know: brilliant, beautiful, funny, well read, extensively traveled, graceful and poised.

But she is getting old, and her proficiency in daily tasks is falling away at a relentless pace. And, unlike either babies or teens, a couple more years is not going to make the issue any better.

NPR Morning Edition’s Jessica Smith, in “Baby Boomer Money Squeeze Worsens, Multi-Gen Households Rise” (June 6, 2012), writes,

Roughly 78 million baby boomers are moving into their retirement years now. At first, they will be the “young” old. Legions of retired boomers soon will be walking around the mall, volunteering with community groups and taking grandchildren on trips.

At first, that can be good for the economy. But this immense generation, born between 1946 and 1964, will keep aging. Based on current medical outcomes, most of the people who live beyond age 85 will end up with dementia or other disabilities that require costly care.

Here’s how fast the numbers will ratchet up: In 1990, only about 3 million Americans were over the age of 85. Today, the figure is 6 million. By 2050, the United States will be home to about 19 million people older than 85, according to U.S. Census projections.(http://www.npr.org/2012/06/05/154001412/baby-boom-money-squeeze-is-set-to-get-tighter)

Almost 20 percent of advanced elderly Americans now live with their aging adult children, putting tremendous pressure on “leading edge” boomers who are hitting traditional retirement age. Boomers tended to have fewer children, later in life, which in some cases has resulted in their still having dependents at home at a time previous generations would have been saving intensively for retirement. Additionally, many middle-aged parents find themselves helping grown children who have lost jobs, homes, and businesses – the classic “sandwich generation” squeeze, made more intense by a prolonged recession.

We are a becoming a nation of the old and the older, the squeezed and the very squeezed.

Writes Ms. Smith, “For individuals, families, local government officials and federal taxpayers, this demographic shift will drain dollars and attention, and force extremely difficult decisions about living arrangements, as well as end-of-life care.”

When we have these talks about taxes and government, what kind of numbers are we talking about?  The primary number to watch is the national debt: in 1970, when boomers were young, the national debt ran about 28 percent of gross domestic product. It now stands at 70 percent.

And, as in the case of my mother, a couple more years is not going to make this issue any better.

According to Centers for Medicare and Medicaid Services, Medicare will remain solvent until 2024. Starting last year, Social Security already began paying out more than it takes in.

As former U.S. Comptroller General David Walker, a federal spending expert says, “Government has grown too big, promised too much and waited too long to restructure. It is going to spend less over time … which means that individuals will have to plan, save and invest for the future.”

Plan, save, invest…and take out a reverse mortgage, according to research put out by Boston College in May, 2012.

….but more in my next piece about several watershed reverse mortgage articles published this spring by major research institutions.

Laurie

         Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank ·                   20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

FHA Weighs Rule Reversal, Boon for Condo Sales?

Daily Real Estate News | Tuesday, May 22, 2012

The Federal Housing Administration is reportedly considering revising rules that many in the real estate industry have called overly strict and that have left many condo units ineligible for FHA’s low-downpayment mortgages.

For example, one sticking point under the FHA’s rules has been that “individual condo units cannot be sold to buyers using FHA-insured mortgages unless the property as a whole has been approved for financing,” The Wall Street Journal reports. However, condo association boards are increasingly opting not to obtain recertification of their buildings for FHA loans due to its tightened regulations against condo units.

FHA’s regulations “have had an enormous impact on individuals,” says Moe Veissi, president of the National Association of REALTORS®. More condo unit residents are finding they are unable to sell their unit because the condo board hasn’t obtained approval from FHA, Veissi told The Wall Street Journal. This then can have a roll-over affect that negatively impacts the price of condo units in the buildings then.

Half of all condo buyers tend to use FHA mortgages, and it’s an important source of lending for first-time and minority home buyers, Christopher L. Gardner, managing member of FHA Pros, a consulting firm that helps condo boards obtain FHA approvals, told The Wall Street Journal.

FHA officials say they are willing to reconsider some of their rules that have raised such an outcry among condo owners, lenders, and real estate professionals. For example, one rule the FHA is reportedly reconsidering is its stance on non-owner occupancy. As of now, FHA requires that no more than 50 percent of the units in a condo building be non-owner occupies. “This rule alone has made large numbers of condominiums in hard-hit markets ineligible for FHA financing, where investors have purchased units for cash to turn into rentals,” The Wall Street Journal reports.

FHA also is reportedly revisiting its condo rules on how many owners in a building can be delinquent on their fees. As of now, FHA refuses to approve a project if more than 15 percent of the condo units are 30 days or more late on their condo association fees, The Wall Street Journal reports.

Source: “Condo Sales May Become Easier if FHA Revises Rules Governing Mortgages,” The Wall Street Journal (May 18, 2012)

Financial Planners to Reverse Mortgage Lenders: Educate Us

by Elizabeth Ecker Published in News, Reverse Mortgage

A panel of financial planning professionals shared insight with attendees of the National Reverse Mortgage Lenders Association conference in Irvine, California last week. By and large their message to reverse mortgage professionals was: education is paramount.

While some financial planners do understand the viability of reverse mortgage products and they ways in which they can work for clients, and even with the help of recent positive financial planning press on the products, there is still work to be done on the education front, they say.

“I was getting a lot of phone calls about reverse mortgages,” said Pat McClain, senior partner and founding principal of Hanson McClain Advisors of his early experience with reverse mortgages. “I initially had a negative attitude toward reverse mortgages. But I realized they weren’t the reverse mortgages of old; they actually help people if used correctly.”

McClain, who became one of the founders of Liberty Reverse, now advises clients on financial planning. While his mind was changed, there are still others who need help understanding how the products can work.

“In terms of clients’ perceptions, there is still a lot of work to be done,” says Jerry Clements, certified financial planner with Ameriprise. “For most there is a negative connotation when I talk to clients.”

But, Clements says, there are ways reverse mortgage professionals can work with financial planners to bring them up to speed. Some are working with reverse mortgage advisors already, others are not.

“A lot of us still have preconceived ideas. …hopefully over time with education [the reverse mortgage] could be something they integrate more as a tool to prevent portfolio failure,” he says.

While real estate professionals focus on location, location, location, McClain says, for financial planners, it’s education that counts.

“For us in the financial planning community, it’s education, education, education,” he says. “You may assume we understand how it works, but some do not have a clue. It’s a process. It may take years to develop the relationship, but if you do and there’s that trust, you will be top of mind. Our clients are asking about it and the more educated we are the more we can help our mutual clients.”

Looking ahead, McClain says, the reverse mortgage could be incorporated into financial planning calculators.

“Figure out as an industry how to bake calculators into financial planning software, so it shows up as a line item. It will make a difference in three to five years, whether they recognize it now, or not.”