Laurie MacNaughton 2017
Answer? In several important ways…
Answer? In several important ways…
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.
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.
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.
Laurie MacNaughton ©2016
Ok, so we’re not exactly dealing with breaking news when we see Harvard’s housing research team reporting a shortage of senior-appropriate housing.
In fact, everywhere we look we see evidence of the shortage in senior-appropriate housing: Warrenton, Leesburg, Middleburg, Reston, Oakton, Arlington – pretty much everywhere you look in the greater D.C. Area you see new construction. But many of the new homes are multilevel “starter castles”…as I call them.
Harvard’s Center for Housing Policy study, titled “Housing an Aging Population,” backs up observations with numbers, and they’re a bummer.
Among other things, the report documents:
Within the next couple decades the population aged 65 and older will increase 120 percent. Over the same period the number of our oldest Americans, those aged 85 and older, will increase more than 200 percent.
Wowzers, right? But here’s where the report gets really scary:
The takeaway? Pretty straightforward:
The number of older adults is rising. The need for affordable senior-appropriate housing is rising. But affordable options are not rising.
Not everyone can age in place. That’s just the hard truth. However, for those whose can age in place, everyone involved benefits. But we need to urge our communities to support construction of appropriate housing.
We can do this.
It’s just a matter of doing it.
Don’t panic – but do be prepared.
Changes, the biggest in its history, are just around the corner for FHA’s reverse mortgage program.
Starting April 27 all homeowners applying for an FHA reverse mortgage should anticipate providing more documentation than has been required previously.
FHA’s new Financial Assessment mandate requires lenders to analyze homeowners’ financial resources and credit history. Under the new rules, homeowners must meet a certain “residual income” level. This means homeowners must have a certain monthly dollar amount left over after typical living expenses have been paid.
If the residual income level is met, no further documentation is required. However, if the residual income level falls short, more information will be necessary. All income sources can be counted, including Social Security, IRAs, pensions, 401-Ks, bank accounts, spousal support, and others.
Though many older homeowners are still expected to qualify, those with blemished credit histories or very low income and asset levels may not.
A second big program change is in the form of tax and insurance set-asides. If the lender determines paying property taxes and homeowners insurance may prove a challenge for the homeowner in the future, there will be a mandatory set-aside for this purpose. The amount set aside will come out of the available line-of-credit funds. This will result in a smaller available line of credit for those who meet the mandatory set-aside requirement.
Some homeowners may actually opt to set aside tax and insurance funds. This is perfectly acceptable, though one cannot later opt out – if you start off with a set aside, it’s a permanent feature of your loan.
The intent of the changes is to identify those homeowners who may fall into tax or insurance default down the road.
Time will tell if the new guidelines are too stringent. However, one thing is certain: if you have, or someone you know has, been thinking about a reverse mortgage, now may be the time you want to move forward.
If you have questions, give me a call. I always love hearing from you.
Laurie MacNaughton  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