Tag: Estate Planning

Rarely is a problem too large

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse for Purchase, Reverse Mortgage

Laurie MacNaughton © 2021

It looked like it was heading for a bad outcome: Robert sold his mother’s home and placed her in a care facility.

The problem? Mom was on Medicaid, and her formerly exempt asset was now quite a large countable asset, which spelled big trouble for her care options.

Fortunately, Robert picked up the phone and called an elder law attorney, who listed buying another home among potential cures.

Because Reverse for Purchase has notably easier qualification guidelines, Robert’s mother qualified even on her limited income. And…yesterday she closed on a lovely new home. She is scheduled to move in shortly before Christmas.

Rarely in life is a problem too large. More often, solution sets are too small. In this case, Reverse for Purchase was the perfect fit for a problem that had few other solutions.

If someone you know is in need of options, give me a call. I always love hearing from you!

Let’s talk about the “F” word

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
Laurie MacNaughton [NMLS ID#506562] © 2020

Forbearance. It’s the hot topic of the day. It may also prove catastrophic for some homeowners who haven’t read the fine print – if they can even find fine print to read.

Social media posts state in emphatic terms, “Congress gives free money!” “Mortgage holiday!” “Don’t pay your rent!” In a time of uncertainty it feels good to think those in charge are all-wise and all-knowing, that they are looking out for us, that they have our best interests in mind. But it is well to remember the saying, “Rumor circles the world while truth is still lacing on its shoes.”

From the outset I want to make clear: if it comes down to feeding your family or making your mortgage payment, feed your family. If you truly must, ask your mortgage servicer for forbearance. Just don’t imagine for one moment your mortgage payment was forgiven, that it disappeared, or that there will be no long-term consequences.

Which leads to my second point. To date there has been little guidance regarding penalties for forbearance. But as a federally-licensed lender I can tell you this: it is highly unlikely there will be no credit implications for missed payments. Some credit blemishes last a very long time, and mortgage lates can dog homeowners’ feet for years to come.

The likeliest forbearance scenario is that if you miss three months’ worth of payments, all four payments will be due in month four. Let’s say your mortgage payment is $2,000, and you engage in a “mortgage holiday” all three months. Now you owe $8,000 in one lump sum, and you’ve just gone back to work. This would be nearly impossible for most Americans under the best of circumstances, let alone current circumstances when many have been unpaid for weeks. I fear, I deeply fear, we are going to see a foreclosure crisis that makes 2009 pale in comparison.

The punchline is this: if you can pay your mortgage, pay your mortgage. If you can only make a partial payment, call your loan servicer to see if they will accept a partial payment. If you truly cannot pay, bear in mind there will be consequences.

One last word to homeowners aged 62 or older: this time may be the right time to look more deeply into a reverse mortgage. An FHA-insured reverse mortgage is far different than most people think. You do retain title, and the home remains yours until you or your heirs sell it. The loan is not repaid on a monthly basis, but rather in reverse on the back end when the home is sold. All retained equity belongs to you or to your heirs.

Because there is never a monthly mortgage payment due, there is nothing to fall behind on when finances are tight. The FHA-insured reverse mortgage is not exotic, nor mysterious, nor even complex. It can, however, be a financial safety net when life becomes unpredictable.

Be well, stay safe, and if you have questions, give me a call. I always love hearing from you.

How the back-end of a reverse mortgage works

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage
Laurie MacNaughton and Neil Sweren © 2019

Within the past few years I lost both my parents and I can attest to this: dealing with estate issues is not fun, no matter how much advanced planning parents have done. This said, the more informed one is, the more smoothly things roll.

For those dealing with a home having a reverse mortgage, there may be questions regarding how the “back-end” works. The answer depends upon whether the property with the reverse mortgage is underwater at the time the last person on title permanently vacates the home.

Selling the home if the house is NOT underwater

If the loan balance is less than the current property value, the sale is handled like any other home sale. There is nothing unusual about paying off a reverse mortgage with one exception: there are certain time constraints the lender MUST follow once the last person on title no longer occupies the home as his/her primary residence.

If the property is not underwater, the buyer’s lender requests a written payoff statement from the reverse mortgage servicer. At closing, the loan balance is paid off – just as would be the case with any other mortgage.  After the loan is paid off, any and all remaining equity goes to the seller, which often is the borrower’s heirs or estate.

Selling the home if the property IS underwater

If the loan balance exceeds the property value the process is a little different.

Reverse mortgage payoffs are not negotiated like other short sales or short payoffs.  The lender must accept as satisfaction of the lien the first offer that is at least 95% of the home’s current appraised value.

Reverse mortgage loans are non-recourse in nature, so the borrower and his/her estate CANNOT be held responsible for any shortfall.  This is true even if the borrower has millions in other assets.  The house repays what it can, and any shortfall is covered by the FHA insurance fund.

It is important to understand this is not a short sale, and that there is no negotiation required or permitted. The lender is prohibited by HUD from accepting less than 95% of the home’s appraised value.

What if the heirs want to keep the home?  

The lender does not care how the reverse mortgage is paid off, only that it is paid off. If the family desires to keep the property, the loan can be satisfied by refinancing or by paying off what’s due.

In an underwater situation, the 95% figure noted above holds true for family members who want to purchase the home: heirs can buy the home for 95% of the appraised property value – which is not the full loan amount.

Important note on time frames

It is important to note there are mandated time constraints placed upon the lender, and the clock starts ticking the day the last surviving borrower no longer occupies the property. Once the home is unoccupied, the borrower or his/her estate have six months to pay off the loan. In addition to the initial six months, up to two three-month extensions can be requested (for a total of one year) if more time is needed.

Extensions are not automatic; documentation that the home is listed for sale, a sale is pending, or that a family member is applying for financing on the home will be required in order for an extension to be granted.

Communication is key

The loan servicer should be contacted immediately once the home is vacant. Reverse mortgage servicers deal with “back-end” situations every day and help borrowers and family members through the process. However, they can’t help if they don’t hear from anyone. All reverse mortgage servicers send monthly loan statements to borrowers. Those statements contain all loan and contact information necessary to make contact with the lender.

If you have questions regarding an FHA-insured reverse mortgage, give me a call. I always love hearing from you.

 

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Silver Divorce – How Reverse Mortgage Can Make a Way Forward

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, Divorce, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage

What to do about Mom?

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage

Laurie Denker MacNaughton [506562]

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.

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The long journey: from end-of-the-line to mainline

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Financial Planning, Laurie MacNaughton, Laurie McNaughton, Retirement Planning, Reverse Mortgage

Laurie MacNaughton [506562] ©2016

What a change a few years make. In this week’s FinancialPlanning online magazine, a publication for financial professionals, author Dave Lindorff writes in a piece entitled “Reversal of fortune: Home equity makes a comeback for retirees”:

…[A]dvisers…are starting to view reverse mortgages as an important part of the retirement planning process, particularly since a set of reforms were imposed by the Federal Housing Administration and the Department of Housing and Urban Development in 2013.

The reforms he refers to are a tightening of guidelines surrounding qualifying for a reverse mortgage. Though many homeowners aged 62 or better still qualify, those with severe property tax default issues may have a harder time – or, in certain circumstances, may not qualify at all.

Lindorff goes on to cite FINRA, the Financial Industry Regulatory Authority, as an example of the financial planning industry’s change of heart toward reverse mortgages:

In the past, [FINRA] warned that reverse mortgages should only be recommended as a “last resort” for clients with no other sources of support besides the equity in their homes.

This past year, though…FINRA changed its recommendation.

The regulator now says only that reverse mortgages should be “used prudently.”

Not to pick on FINRA, but that is a little like saying, “Water can be beneficial to life, but only when used prudently.” I’m pretty sure any bona fide financial planner gets the fact that any financial tool should be used prudently.

Financial planners routinely recommend that their clients establish a line of credit to hedge against life’s unexpected events. But here’s the thing: the later in retirement an unexpected event occurs, the less able most people are to meet the month’s end payment that greets them once they’ve drawn on their line.

A reverse mortgage line of credit is not repaid on a monthly basis. Rather, the amount borrowed is repaid once the last person on title permanently leaves the home. The remaining equity goes to the homeowner or the heirs. And the difference between having a monthly payment and not having a monthly payment? It can mean the difference between staying in the home and having to leave the home.

Few government-insured financial products have ever been subjected to a beating like the FHA-insured reverse mortgage program has been over the 30 years since its creation. Nearly pronounced dead in 2012 when the last mega-bank stopped offering reverse mortgages, Tennessee Senator Bob Corker said to then-HUD Secretary Shaun Donovan, “I do not understand why you do not shut the program down.”

And why did HUD not shut down the reverse mortgage program?

Because HUD saw what those us of who don’t share Senator Corker’s $89.7 million in net worth saw: mainstream Americans whose savings simply were not sufficient to meet their financial needs in an ever-lengthening retirement.

Lindorff concludes his piece by quoting Steven Sass, program director at the Boston College Center for Retirement Research:

Reverse mortgages make sense not just for low-income people who want to stay in their homes but also for wealthier retirees who have considerable equity but want to goose their income streams.

You can say reverse mortgages need to be part of the retirement plan discussion.

Indeed. As we Americans age, nearly all of us will need every financial tool available to get through retirement with as much independence and dignity as possible.

Give me a call and let’s talk. I always love hearing from you.

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The Breathtaking Irony

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Retirement Planning, Reverse Mortgage

Laurie MacNaughton ©2016

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.

And…

Check out my various YouTube videos. Just click the link, or google Laurie MacNaughton YouTube.

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Yes, you CAN buy a home with a Reverse Mortgage

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story
Laurie MacNaughton © 2019

I got a call from a darling client who, a number of months back, purchased a home using a Reverse for Purchase mortgage.

I’ll call my client Marie  – and I need to mention she long ago immigrated to the U.S. and speaks in lightly accented English.

Here’s what Marie told me: When she tells people she bought her home using a Reverse for Purchase mortgage and that she’ll never have a monthly mortgage payment, they tell her she didn’t really understand the transaction. Never mind that Marie’s adult daughter, American born and raised – and a highly successful realtor in Northern Virginia – walked through every step of the transaction with Marie. Never mind that Marie has a PhD in applied physics. Because Marie’s friends don’t know about Reverse for Purchase, Marie must be wrong.

Well, Marie isn’t wrong. But it is true that many people don’t know Reverse for Purchase even exists.

If you are 62 or older and have questions on how Reverse for Purchase may help with your home purchase needs, give me a call. I always love hearing from you!

 

Laurie

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

Sasquatch, Martians, and…”The Bank Gets the House”

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story

The law office fills the building’s entire top floor, and lining the reception room walls are newspaper and magazine articles enumerating the firm’s many accomplishments. I knew going into the meeting the attorney was movie-star handsome – I had seen his social media page.

What I didn’t know was his sentiment toward reverse mortgages.

After a brief introduction he got right to the point: “I think I should let you know I don’t like reverse mortgages. I think they’re obscenely expensive, I don’t like the fact the bank gets the house, and I don’t like the fact my client can’t move from the property if she needs managed care later in life.”

Wowzers. This was like a scripted encounter: if he had tried, the attorney couldn’t have come up with three more classic misconceptions about reverse mortgages.

But rather than jumping into an apologetic, I asked the attorney why he thought reverse mortgages were “obscenely” expensive, why he thought the bank got the house, and why he thought his client couldn’t move. He sat silent for fully 20 seconds, and then said, “Are you implying this isn’t true?”

Yup – pretty much.

So for the record, here are some facts about reverse mortgage:

  1. The home still belongs to the homeowner. Title doesn’t change, and ownership doesn’t change.
  2. A new FHA fee structure means homeowners with a small existing mortgage will see much lower fees than they would have just a couple years ago.
  3. The homeowner can move whenever he or she wants. There is no early termination fee, and there are no restrictions placed on how long one must live in the home after doing a reverse mortgage. However, the home must be the primary residence of at least one title holder. If homeowners are absent from the home for more than one full year, for the purposes of the reverse mortgage the home is no longer a primary residence and the loan becomes due.

But back to the attorney: despite initially being an outspoken critic, he was far from being either closed-minded or unteachable, and after we reviewed his client’s numbers he did indeed counsel her to proceed with a reverse mortgage.

But I was left with this thought: I cannot think of any other federally-insured loan that has swirling around it persistent misconceptions. You don’t hear weird things about VA loans or USDA loans. But here’s a loan that literally can change long-term financial survivability in retirement, and some still view it as suspect.

And that’s too bad, because a reverse mortgage can be a financial lifesaver.

So if you have doubts, fears, or just plain-old questions about reverse mortgage, give me a call. I always love hearing from you.

Laurie

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

Southern Trust Mortgage, LLC is proud to be an equal housing lender [NMLS 2921]

Remember When? Mortgage Debt and the Older Homeowner

by middleburgreverselady, posted in Caring for Aging Parents; A Daughter's Story
Laurie MacNaughton – July 7, 2015

Remember when paying off your mortgage before retirement was a thing? Remember? Now, barely 40% of homeowners aged 60-65 live in a paid-off home.

But remember when seventy was old? Today I know seventy-year-olds who have started second careers, who run marathons, or who take ten days off work to volunteer in health clinics in Kibera.

It’s just a different world we live in – different opportunities, different expectations, different needs.

But there are attendant challenges in this new world.

No matter how gifted, how fit, how determined, at some point most people either have to slow down or just plain want to. But here’s the thing: if you’re still paying on your home, the first fruits of your monthly income go right back out the door to pay the mortgage. Also, like everyone else, most people in their 60’s or 70’s saw steep investment losses during the recession, losses that are harder to recover the older you are.

Added to the mix are these facts: boomers, in general, had babies later, and many are still footing kids’ college tuitions in the years when previous generations were saving for retirement. People also relocate more often, and later in life, so by the time they retire many people haven’t lived in their home 30 years.

If we had a magic wand, most of us would get rid of our mortgage debt. If granted three wishes, we’d gain back what our 401k lost – and add to it a mound of gold. If we had a genie, we’d have her undo that adverse health event. But needless to say, most people will have to look to other solutions.

Last week I met with a retired medical doctor. In addition to running a thriving medical practice, he had taught at one of the nation’s preeminent universities – until he suffered a stroke three years ago. “I never thought I’d be in a position of worrying about money,” he said to me.

“I have a substantial amount of equity in my home, so I tried to get a line of credit to help with cash flow. But I was told I couldn’t qualify because I’m no longer working. I really didn’t see this coming.”

Fortunately, the loan officer at his bank understood reverse mortgages. She gave the retired doctor my name – and it looks like he’ll be able both to get rid of his monthly mortgage payment and establish a line of credit for use in the future.

“When [the loan officer] first said ‘reverse mortgage’ I just about had another stroke,” the doctor told me. “I really thought she was nuts, because I was under the impression the bank owned the house with a reverse mortgage.”

His comment was one I hear so often it made me want to print up a cue card. It would say the following:

No – the bank doesn’t own the house.                                                                                                                                No – you don’t have to move if you use up your line of credit.                                                                                             No – the kids don’t have to pay back the reverse mortgage.                                                                                              Yes – you can sell the home and move if you want to.                                                                                                      Yes – you can always call me even after your loan closes.

A reverse mortgage is a home equity loan for the years when having a monthly mortgage payment can be a back-breaker. It can be a miracle for adult children struggling to bankroll their parents’ longevity. It can make aging in place possible.

A reverse mortgage is not a fit for everyone – just as homeownership is not a fit for everyone.

But as I’ve said many times, 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-insured reverse mortgage might help during retirement, give me a call. I always love hearing from you.

Laurie

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