No one can whistle a symphony

Laurie Denker MacNaughton © 2018

Put a bunch of experience in a room and you’re going to get a good result, right?

Not even close.

This morning I read an interesting study: when surgeons are with a familiar team, outcomes are good. When the same surgeons are with an unfamiliar team, outcomes are…not so good.

The same holds true in sports – some teams with great players cannot get it together, while others achieve magical results with less stellar athletes.

And another sector studied? Financial services. Yup – financial services.

Turns out, team dynamics are hugely important. No amount of experience can replace the “magic” of an established, well-functioning team.

A few days ago I had a closing with a client whose reverse mortgage application had very big issues. In fact, he had been told by another lender he did not qualify. How did our team get him across the finish line?

It wasn’t just experience, though we have lots. Much of our success lay in knowing whom to turn to for what.

Reverse mortgage is a unique product designed to help meet financial needs in retirement. But there can be difficulties: homeowners may have several goals to consider. Extended family often has detailed questions. Online information can be outdated, uninformed, or outright wrong.

I would love to talk with you about how our reverse mortgage team may help you meet your retirement goals. Because as the saying goes, “No one can whistle a symphony. It takes a whole orchestra.”

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Did you know?

Did you know the average reverse mortgage borrower is not in financial distress?

Rather, the typical person doing a reverse mortgage is the retiring boomer who watched a parent’s financial situation later in life and is determined to avoid a financial crunch down the road.

And did you know there are two “flavors” of reverse mortgage, a refinance and a purchase?

Typically, the homeowner doing a reverse mortgage refinance is the baby boomer putting together a long-range financial plan.  The homebuyer using a reverse for purchase is looking to buy a home without pinning down a huge chunk of cash or taking on a new 30-year mortgage during retirement.

A reverse mortgage is not mysterious, nor exotic, nor any more complex than any other loan. It is simply a home loan repaid when the last title-holder permanently vacates the property.

So if this looks like it fits your retirement goals, or the goals of someone you love, give me a call. I always love hearing from you.

 

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Market volatility and reverse mortgage

Laurie MacNaughton © 2018

If you’re even a casual market observer, Monday’s financial news grabbed your attention as the Dow plunged 1175 points, the biggest point drop in history.

As a result of the market turbulence, the first call I took Tuesday went like this: “In light of the market crash, should I do a reverse mortgage?”

So…a couple things here.

First, and perhaps most importantly, a loan officer is not the same thing as a financial planner, wealth manager, nor accountant; most loan officers are neither estate attorneys nor CPAs. Even if your particular loan officer does carry one or more of these designations, he or she should not be dispensing advice across disciplines, as conflicts of interest might quickly become an issue.

Second, even though 1175 is an uncomfortably large number, percentage-wise it’s not anywhere near a big enough drop to qualify as a market “crash” by any reasonable definition.

Third – and I want to emphasize this – if a reverse mortgage was a good fit before a market plunge, it’s a good fit following a market plunge. If it was a poor fit before a drop, it may well continue to be a poor fit. And for those urgent reverse mortgage sales pitches? It’s always a good idea to listen to a “sky-is-falling” message with a healthy measure of skepticism.

But this topic does suggest a very real question, namely what are some factors that make a reverse mortgage a good fit?

Optimally, a reverse mortgage is one part of a long-range financial plan in retirement.

Here’s what I mean: as life expectancies continue to increase, retirement is going to take more than just Social Security. It’s going to take more than a well-funded 401-K. In fact, it’s going to take more than a pension, an annuity, an IRA, or a bank account – or a reverse mortgage. But when added together, these can combine to create a long-term means of maintaining dignity and independence in retirement.

So, don’t panic. And certainly don’t get caught up in catchy sales pitches. But do understand your options – and how a reverse mortgage can fit into your long-range financial plans.

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

 

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No crystal ball

Laurie MacNaughton © 2018

“My mother’s home was paid off, and at the time we thought a home equity line was going to be the best way for her to pay medical bills. But at this point the payment is crushing her – and she has new medical bills coming in. Looking back, what we really needed was a crystal ball.”

Truth is, a crystal ball would come in handy in much of life. It’s just that more is at stake when we’re dealing with our aging parents.

No honest lender is ever going to tell you a reverse mortgage is a universally good fit: there are older homeowners for whom the time has come to sell their home and transition into other housing. Some are better served by doing a traditional home equity line of credit (also called a “forward” line of credit). And there are those who benefit from drawing down monies under management.

But for homeowners who wish to stay at home and need to leave managed retirement accounts untouched as long as possible, or for those with Medicaid considerations, a reverse mortgage may be the perfect fit.

If you would like more information on how a reverse mortgage might help you or your loved one 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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Guilty as Charged

Laurie MacNaughton [506562]  © 2014

I could hear it in her voice, I could see it in her eyes – the fear, the sublimated guilt, the tears lurking just beneath her every word.

Her sin? Old age.

Her crime? The loss of her husband of 58 years. And, with his death went fully 50% of her household income.

And now a new challenge: she has suffered a stroke, and though her recovery is steady, it is slow, and the long-time family home is simply no longer appropriate.

I met with “Mrs. Jones” last night. Her darling middle-aged daughter joined us, and mentioned it was a realtor who had given them my name. After speaking with both mother and daughter it became clear just how good a call it was on the part of the realtor: Mrs. Jones needs out of this big house, and to get into a home appropriate to aging in place.

HECM for Purchase

HECM for Purchase (also known as Reverse for Purchase) is an FHA-insured home-purchase loan available to seniors aged 62 or older. The purchaser provides a down payment – often derived from the sale of the exit home – and the HECM for Purchase loan provides the rest of the purchase funds.

Punto. That’s is. That is the last mortgage payment the home buyer will make on that home until s/he permanently leaves the home. At that point the loan will be repaid from the proceeds of the sale, and the remaining equity will belong to the homeowner, or to the heirs.

Property taxes (if applicable), homeowners insurance, and routine upkeep of the home are still required.

Are you in a home too big, or with too much upkeep, or with too many stairs? Have your longtime neighbors moved, leaving you in a neighborhood you no longer recognize? Has traffic become such an ordeal you are afraid to leave your house?

Give me a call and let’s talk. Include your adult children on the conversation. And together, let’s explore your options. You may have far more than you know.

Laurie

Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant, President’s Club · Middleburg Mortgage · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · Laurie@MiddleburgReverse.com

   Visit me on Facebook at www.facebook.com/MiddleburgReverseMortgage

Licensed in: Maryland (MD), Washington, DC, Virginia (VA), Pennsylvania (PA), Delaware (DE), North Carolina (NC), South Carolina (SC), Georgia (GA), Tennessee (TN).

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

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