When Ill-Conceived Rules Go Bad

Laurie MacNaughton ©2016

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.

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What to do about Mom?

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 Breathtaking Irony

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.


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

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Harvard Report Points to Dramatic Senior Housing Shortage

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 need for appropriate housing will radically outpace the availability of appropriate homes.
  • One in four households aged 85 and older spend at least half their income on housing.
  • Housing challenges are particularly severe for older adults with very low incomes – and most household incomes decline after the age of 85.

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.


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Don’t panic – but be prepared: changes a’comin’

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 [506562] 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

Unprecidented Changes Coming to FHA’s Reverse Mortgage Program

Reverse Mortgage guidelines will change dramatically March 2, 2015.

Under current guidelines, age (62 or older) and equity are the basic Reverse Mortgage qualification requirements.

However, starting in March, verification of income, assets, monthly expenses, indebtedness, and an acceptable credit history will be taken into account. New guidelines do permit the factoring in of certain extenuating circumstances.

Needless to say, for many in their retirement years the new rules will make qualifying for a Reverse Mortgage notably more difficult.

Part of the Reverse Mortgage process is completion of an informational counseling session  with an FHA-approved housing counselor. (For an overview of the counseling process, see:  http://services.nrmlaonline.org/NRMLA_Documents/Preparing_For_Your_Counseling_Session.pdf )

Severe congestion is anticipated in counseling availability as the new guidelines draw near. Because an FHA case number cannot be issued until receipt of the Certificate of Counseling, few counseling appointments may be available in the weeks prior to the guideline change.

This means anyone considering moving forward with a Reverse Mortgage may be well advised to complete counseling as soon as possible. To find a counselor near you, FHA’s counselor search site can be accessed at: https://entp.hud.gov/idapp/html/hecm_agency_look.cfm. You may also give me a call and I can provide you with a list of both locally- and nationally-available Reverse Mortgage counselors.

Guideline changes coming in 2015 are the most dramatic in the program’s history, and may put a Reverse Mortgage out of reach for some seniors who previously would have qualified.

If you or someone you know is considering a Reverse Mortgage, now may indeed be the time to move forward.

Call at any time. I always love hearing from you.


Laurie MacNaughton [506562] 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

How the “Back End” of a Reverse Mortgage Works

Laurie MacNaughton and Neil Sweren © 2014

Realtors, home owners, and family members frequently have questions regarding how the “back-end” of a reverse mortgage (or HECM) works. The answer to the question 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 reverse lender provides a written payoff statement. 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 typically 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.

HECM 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.

HECM 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.


Laurie MacNaughton [506562] is a freelance writer and Reverse Mortgage Consultant with Atlantic Coast Mortgage.

She can be reached at 703-477-1183 Direct or Laurie@MiddleburgReverse.com

Forward-thinking – In Reverse

Some analogies are hard to miss. This week two events came together to create just such an obvious pairing.

The first element of the analogy was a piece in the New York Times. The article, with a title that at best sounds like damning with faint praise, is entitled “Love Them or Loathe Them, Reverse Mortgages Have a Place.” Ron Lieber, author of the piece, writes:

[Criticism is easy] when you have enough savings or pension and Social Security income to get by. But given that older Americans’ homes are worth, on average, more than their other combined savings, there is a begrudging inevitability about reverse mortgages. As more people enter retirement in the coming decades with modest savings and no private pension, they’re going to need some of that home equity back during their increasingly long lives. (Emphasis added)

Note what he’s saying: life expectancy has dramatically climbed. Pensions have gone away. Savings may be meager. But the one investment most Americans faithfully fund is their home. And they’re going to need to draw upon that investment in retirement.

Now enter element two of my hard-to-miss analogy: today I met with a delightful couple. Well educated professionals, within the next two years they would like to retire from their careers as contractors with the federal government. They moved to the area 16 years ago and still have 14 years to go on their conventional mortgage.

The math isn’t hard. Their monthly mortgage payment is going to lug their retirement finances. However, if they go into retirement without a monthly mortgage payment their retirement income, investments, savings, long-term care insurance and Social Security will likely be more than adequate to meet their current and future needs.

This couple is very typical of what I call my “Forward-thinking Reverse” clients. They are not in distress. They are not lacking options. They do not see a reverse mortgage as a miracle product. Rather, they have done their research, they have run the numbers, and they have carefully planned for their retirement years.

And part of this planning involves a reverse mortgage. “It’s only been in the past year we started to understand what reverse mortgage really was,” the husband told me.

Which leads me back to Lieber’s New York Times piece.

“Many of the people entering or examining the reverse mortgage business now describe their interest in [reverse mortgage] as a sort of conversion. …Michael Gordon, BNY Mellon’s head of retirement and strategic solutions…thinks that many retirees…are unaware of their true asset allocation. After all, their home equity is an asset too,” Lieber writes.

As I’ve said many times, in retirement 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 with your retirement plans or those of your loved ones, give me a call. I always love hearing from you.


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

Reverse Mortgage : A bad idea whose time has come? Hardly.

By all accounts, my dad was a funny guy. Looking every bit the part of the aerospace engineer he was by profession, no one ever expected him to have a piercing sense of humor or the ability to capture just the right turn of phrase – but he had both, and his humor was often profound.

One funny phrase he used occasionally was “a bad idea whose time has come.” He did not say this often, but an example of something fitting into this category might have been the Stuxnet software worm, if he had lived long enough to see it.

So why in the world do I bring this up?

This past week I received a call from a private wealth advisor who referred a client. While on the phone the wealth advisor said, “I always thought a reverse mortgage was a bad option people turned to when they were desperate. But during this month’s advisors’ meeting, reverse mortgage was suggested as a potential element of a well-rounded, long-range retirement plan.”

Bingo, my friend.

And more than ever, right now there are truly profound reasons to consider a reverse mortgage.

First is this: few financial experts anticipate interest rates will stay low. With a reverse mortgage, there is not a monthly mortgage payment, so that’s not how rates figure in. However, interest rates impact how much money the client receives – and even a small rate increase negatively impacts how much money the homeowner can access. In fact, if rates go up to 4.06% – which for much of history would be a modest rate – there would be a 26% drop in funds available to someone aged 68. That’s a hefty reduction.

A second consideration is that a reverse mortgage may enable a senior to delay drawing Social Security until age 70, when benefits are maximized. Most of us have seen the charts and know how much money we walk away from if we start drawing benefits at 62; less well-known are strategies available to help avoid an early draw.

A third thing to consider is this: there is an automatic growth rate associated with a reverse mortgage line of credit. This, in my opinion, is the least-known element of a reverse mortgage – and that’s a darn shame.

Each month, the unused portion of a reverse mortgage credit line grows bigger. This means that if you establish a line of credit now and let it sit until you need it, month over month the credit line will be bigger than it was when you originated.

Right now, more than ever, a reverse mortgage is a good option – whose time has come.

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 with your retirement plans, give me a call. I always love hearing from you.


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


Weekly Scenario

Steven E. Shane, Esq. | © 2014 Offit Kurman, Attorneys At Law | Used by permission                                

Question:  My son lives across the country but is my health care agent.  He has a copy of my advance medical directive.  I’m concerned that if I am admitted to the hospital suddenly, or there is a medical crisis, he may not be able to quickly deal with the situation.

Answer:  An advance medical directive gives instructions as to the type of medical care you would like to receive in the event you cannot express those wishes yourself.  The document can also give another person the ability to make medical decisions for you.

The document, however, is not helpful if it is locked away at the bank or in your attorney’s office.  One solution [for dealing with this problem] is with a new app called “My Health Care Wishes.” This app allows one to import and store important health care documents on a smartphone so they are accessible when needed.

So in this scenario, your son could keep the information on his smartphone.  If there were an emergency, you would have a “My Health Care Wishes” wallet card stating your son has your medical proxy documents.  He would access and send that document quickly, and then have the authority to speak with the medical facility and make decisions.

Two other apps available are DocuBank and MyDirectives.  I have also seen articles which advise using a phone or tablet to simply store documents in a cloud-based storage system.

Comment:  One issue to be wary of is the security of these legal documents.  My hope is that these apps have worked on the security issues, but I can’t comment on whether that has actually taken place.

As always, if you have any questions or would like to learn more, please let me know.

Steven E. Shane                                            
Principal Attorney                                              
Attorneys At Law

8171 Maple Lawn Blvd. | Suite 200 | Maple Lawn, MD 20759 | 301.575.0300


Please note the above material discussed is intended to provide only general information.  Do not, under any circumstances, solely rely on this information as legal advice. Legal matters are often complicated.  For assistance with your specific legal problem or inquiry please contact me directly.