Tag: National Reverse Mortgage Lenders Association

America’s Self-Designed Anti-Poverty Program

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

During the Arab Spring we learned the term “waithood,” and following the prolonged economic stagnation in Japan, “parasaito shinguru.” In the US we have long heard much about baby-boomerangs. But from the ever-droll UK comes my personal favorite: “KIPPERS,” or “Kids in Parents’ Pockets Eroding Retirement Savings.”

As you’ve doubtless guessed, these are terms for adult children who have moved in with older parents due to economic pressures and a poor job market. And though many groan at the very thought, data suggest in many cases the trend is anything but toxic.

World-Wide Trends

Around the world pressures are much the same: too many job seekers, too few jobs, and a rising cost of living. In the United States, adult kids are moving home in huge numbers – numbers so large, in fact, that they are setting all-time records. Add to this a rapid rise in life expectancy, and you get dynamics that begin to actually change social order and long-term behavior.

Though this trend presents a big, fat target for negative press, there are interesting things to note:

  •  When two adult generations of the same family live under the same roof, the older adult is the head of the household in about three-quarters of all cases (ibid);

And despite the derogatory – but admittedly funny – term “KIPPERS,” evidence points in a largely different financial direction.

Self-Designed Anti-Poverty Program

In their study entitled Fighting Poverty in a Bad Economy, Americans Move in with Relatives, Rakesh Kochhar and D’Vera Cohn write, “Without public debate or fanfare, large numbers of Americans enacted their own anti-poverty program in the depths of the Great Recession: They moved in with relatives.” The authors go on to say, “…the rise of multi-generational households in the recession could be viewed as the American public’s self-designed anti-poverty program.”

This combined-household trend is not lost on the nation’s builders. In a PulteGroup study released October 2012, Deborah Wahl Meyer, Pulte chief marketing officer, says many new homes now offer an upstairs and a downstairs master suite to accommodate multi-generational families (http://www.prnewswire.com/news-releases/pultegroup-survey-mom-and-dad-anticipate-future-roommates-174552451.html).

At some point, however, there are only so many ways to cut costs and combine expenses.

We’re Not Getting Younger – And Things Aren’t Getting Cheaper

In Six Major Drains On Boomers’ Bank Accounts, Pamela Villarreal of the National Center for Policy Analysis says, “Housing…is typically the largest monthly consumer expenditure” (Financial Planning online journal (http://alturl.com/ionsj).

Villarreal goes on to say that for homeowners between the ages of 55 and 64, “…expenditures on principal, mortgage interest, taxes, maintenance and insurance rose 25%. The portion of income they spend on mortgage interest increased 47%, from 4.3% to 6.3%” over the past two decades (ibid).

The FHA-Insured HECM

With 10,000 baby boomers a day turning 62, and the cost of managed care skyrocketing, the trend toward multigenerational living arrangements is not likely to change in the foreseeable future. Costs are going up, wages are not, and as in other times of uncertainty, families rally together to meet needs.

Many issues surrounding aging do not go away over time. However, for the senior homeowner aged 62 or older, the concern surrounding meeting a monthly mortgage payment is one issue that can be addressed through the FHA-insured HECM. And, if there is sufficient equity in the home, the homeowner can improve cash flow by establishing a non-cancellable – and non-taxable – line of credit.

Incidentally, rates have never been lower. So if you, or someone you know, would like to look into the potential benefits of a reverse mortgage, 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/

You Can’t BUY a Home With A Reverse Mortgage…You Dummy

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

Every once in a while something so odd happens that you spend the next few days…or weeks…or MONTHS – if it’s odd enough – processing the details.

Exactly a year ago I was in the middle of a complex HECM for Purchase transaction. It involved a knotty situation in which a builder had declared bankruptcy before completing construction on a condo, and another builder had finished the project. However, the new guy had never put some of the completed phases to record. I will sum up the details of the situation simply by saying Uncle Sam does not smile upon this business model.

After a couple weeks mucking about for resolution utilizing the obvious channels, such as the homeowners association attorney – whose job description, incidentally, does include this type of thing – I decided to go to the top of the food chain and contact my client’s US Congressman.

Imagine my surprise when I received a mini-lecture from a congressional aide, who stated with great conviction, “You can’t BUY a home with a reverse mortgage. Reverse mortgage is a refi product. So put that in your pipe and smoke it, you dumb Reverse Mortgage Specialist.”

Ok, so maybe he didn’t say this last part. But it was implied.

Well, well, well, Mr. Aide, thank you for THAT helpful input.

So, is that to say you CAN you buy a home with a reverse mortgage?

In a word, yes!

So how does Reverse for Purchase – also known as HECM for Purchase – work? And why do so few people know about it?

The concept of HECM for Purchase could not be more straightforward: the home buyer provides a down payment, the size of which is determined by the home buyer’s age. The HECM loan provides the rest.

That’s it. End of story. You are in your home for the rest of your life – or as long as you want to live in the home as your primary residence – and never make a monthly mortgage payment.

This smells fishy. How can I live in a home and not make payments?

Answer: Not making payments is very different from saying the loan is never repaid. The loan is always repaid – it’s just that you don’t repay it. When you are finished with the home, the home itself repays the debt.

But when is the loan repaid?

Answer: The loan is repaid when the last person on title moves, sells, or dies. In other words, the loan is repaid BY THE HOME once the senior no longer needs the home.

But where does the money come from to repay the loan?

Answer: The home is either sold, and the proceeds from the sale repay the loan, or the family secures new financing and buys the home.

But what if the home has gone down in value and the proceeds from the sale can’t repay the loan?

Answer: The home repays what it can. Any shortfall is made up by the mandatory Mortgage Insurance Premium (MIP).

But what if I want to leave the house to the kids?

Answer: You can still leave the house to the kids: it’s still your house. The kids will need to: 1) line up their own financing, and buy the home, or 2) sell the house. However, they would have to do this anyway if you had a “forward” mortgage…AND they would have to make your mortgage payment every month after you were gone, or risk losing the house.

How long can I stay in my home?

Answer: As long as you want to. As long as you pay your property taxes, keep current on your homeowner’s insurance, and maintain the home, you never have to move. You can, however, move whenever you wish.

Ok, So Let’s Be Blunt: If this program is so great, why don’t more people know about it?

Answer: First, it has not been around all that long: FHA rolled it out just over three years ago. Second, despite a lot of money spent on financial education for seniors, there are still far too many people – like the congressional aide mentioned above – who are very bold in speaking very forcefully about topics they know very little about. And that is very unfortunate.

If you or someone you know needs to move into a home better suited to aging in place, the FHA-insured HECM for Purchase may very well make this possible.

I love answering questions about the financial health and the long-term well-being of our seniors. 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

by middleburgreverselady, posted in FHA HECM, Retirement Planning, Reverse Mortgage

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

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

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?

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

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.”