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.

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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.

 

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In a nutshell: how a reverse mortgage works

Laurie MacNaughton © 2018

Reverse mortgages…you’ve seen the ads a hundred times. But odds are you have a lot of questions.

In a nutshell, here’s the scoop

The first thing to know is a reverse mortgage is an FHA-insured home loan. I always start with this point simply because there can be confusion about the fact this is a home loan, in many ways not unlike any other loan we’ve all grown up with.

Here’s where the difference comes in: a reverse mortgage loan is repaid when the last person on title permanently leaves the home. In fact, the very name itself comes from the fact the loan is repaid in reverse on the back-end, rather than being repaid monthly.

The second thing to know is there are two kinds of reverse mortgages, namely a refinance reverse mortgage and a purchase reverse mortgage.

Reverse Mortgage Refinance

The best-known “flavor” of reverse mortgage is the Home Equity Line of Credit. It only differs from a traditional line of credit in that a reverse mortgage line of credit is not repaid until the last person on title permanently leaves the home. In other words, homeowners can borrow some of their home equity without picking up a monthly mortgage payment.

Reverse mortgage proceeds can be used for any purpose. Common uses include:

  • Financial safety-net in retirement
  • Healthcare
  • Home repairs or improvements
  • Paying off debt

Reverse for Purchase

This is an seniors’-only purchase loan, and it was designed as a way for homebuyers to purchase a retirement home without adding a monthly mortgage payment to their retirement budget.

Homebuyers provide a down payment (typically about 50% of the purchase price), and the loan amount covers the other 50%. There’s never a monthly mortgage payment due.

Buying a home with a Reverse for Purchase loan is an ideal way for homebuyers to double their purchasing power, and it is notably easier to qualify for this FHA-insured loan than it is to qualify for most other home loans.

Homeowner Responsibilities

With either type of reverse mortgage, because they still own the home homeowners remain responsible for:

  • Property taxes (unless property tax exempt)
  • Homeowners insurance
  • Homeowners association dues (if applicable)
  • Condo Dues (if applicable)

To explore how an FHA-insured reverse mortgage might help you or your client with retirement plans, give me a call. I always love hearing from you.

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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.

 

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MSNBC’s Today Show Features Benefits of Reverse Mortgage

This quick overview of reverse mortgages appeared on Friday’s Today Show. In this 4-minute piece, MSNBC‘s Today Show financial editor Jean Chatzky addresses some reverse mortgage trends, benefits, and things to consider.

See the full clip at:

MSNBC Today Show Clip on Reverse Mortgages

More Seniors Use Reverse Mortgages to Raise Cash

Finding themselves financially strapped, more seniors at an earlier age are trying to get reverse mortgages on their homes in order to survive, according to a new report.

The study says the percentage of people aged 62 to 64 applying for reverse mortgages has increased 15 percent since 1999.

The reason for the dramatic upswing among “younger” seniors is simple, the report concludes: They need the money.

READ THE REPORT AT:

More Seniors Use Reverse Mortgages to Raise Cash