Reverse Your Mortgage

Reverse Mortgages - They said I can never owe more than my home value, HUD clarifies what is true when your reverse mortgage comes due.

For years, reverse mortgage originators have been telling borrowers that reverse mortgages are "non-recourse". They could never owe more than their house is worth at the time the loan is paid back.  The Merriam-Webster Dictionary defines non-recourse as being or based on an agreement in which the lender has no right of recourse to the borrower's assets beyond stated limits.  

HUD recently clarified what "non-recourse" means in regards to an FHA reverse mortgage. If the estate of the borrower wants to retain the property the reverse mortgage must be paid in full.

Repayment is required if all borrowers move out of the home permanently or fails to live in the home for 12 months in a row.If the property is sold to repay the reverse mortgage, it may be sold for at least the lesser of the unpaid loan balance or 95% of appraised value.

There are a couple of other details in the repayment of a reverse mortgage that should be noted. When the home is sold, it must be an "arms-length" transaction. For instance there should be no relation between the buyer and seller, the selling price needs to be consistent with the current open market. Any costs paid by the seller should be customary.

Repayment is required when a "Maturity"  or a default event occurs. Defaulting on a reverse mortgage is rare. One thing to keep in mind when getting a reverse mortgage is the borrowers need to be able to afford to pay their property taxes, insurance and maintain their home.  If they do not they will be in default and the loan could be called due. If there is a doubt that this is the case, serious consideration should be taken to either sale or make other arrangements.

A reverse mortgage borrower can also default on a reverse mortgage by declaring bankruptcy or abandoning their home. The loan may also become due if you rent your home, change your home's title (does not include putting it in a living trust), change the zoning or add any debt to the home. It is very important that a consumers do their homework and do business with an experienced reverse mortgage professional.

Even though reverse mortgages have been around for years, they have yet to hit the height of their maturity. With the boomer's just turning 62 and the average age of a reverse mortgage borrower just 73, we have another decade before this industry and product hits its stride and full potential. I can for see this product and others becoming as common as IRAs. It won't be "if" I get a reverse mortgage for the boomer's, it will be "when". As it stands today, there are strict rules against cross selling insurance and financial products with reverse mortgages. With the aging of America and the largest asset most people have being their home, it only makes sense that the future holds hybrid equity products for retirement, home care, life insurance and more. The FHA reverse mortgage industry at the most is in it's infancy stage.

If you have a reverse mortgage question, call Angella at 866-949-7030 or log onto www.reverse-your-mortgage.com 

HECM Loan Limit Increase Proposed in Economic Stimulus Plan

A draft of the economic recovery bill released by the House of Representatives contains a provision that will increase the HECM reverse mortgage loan limits for the rest of 2009. It would bring the loan limit to $625,500. The increased limits are only being proposed for 2009 because of the emergency economic stimulus package. In order for the new limits to become permanent it would have to be proposed in a housing bill.

The temporary proposal is currently in committee and then will go to the House of Representatives for debate and vote. It then must go through the Senate for debate and vote.

Associations Urges HUD to Increase Reverse Mortgage Limits

The Housing and Economic Recovery Act increased county by county loan limits for HECM reverse mortgages. Legislators believed that it meant the national loan limit would be at the maximum amount of $625,500 after January 1, 2009. However, because of the way the legislation language reads, HUD lawyers interpreted that they could choose between the high cost area limit of $625,500 & the Freddie Mac base limit of $417,000. What this means for reverse mortgage recipients is if the home value is upward of $417,000, the proceeds of the reverse mortgage are only based on $417,000. It is not based on the full value of the home.

HUD choose the lower limit because they felt that if the higher limit was used it would discourage the development of proprietary reverse mortgage products. This is interesting. Although the reverse mortgage program is not new, it is still a very young program and has yet to hit the main stream at full steam.   The FHA's initial purpose was to help lower income Americans purchase and afford homes. By insuring loans, FHA created stability in the market. It encouraged borrowers to borrower money and lenders to lend money for housing. Once a stabilized market was established the secondary market developed and more loan products developed. This is also the purpose of the FHA insured reverse mortgage HECM program. The challenge today is our nation is in a state of serious economic instability. It needs FHAs continued support and even its expanded support of the higher limits. Even last year, when the industry had twelve or more proprietary products, there were still none that made sense for homes that fell between the $362,790-$650,000 range. Proprietary reverse mortgage products on the market did not borrower enough proceeds to help these homeowners and did not start making sense unless your home was valued at $650,000 or more.

For older homeowners the present reverse mortgage program is utilized to pay-off existing balances and supplement income to replace diminished retirement incomes and pensions. Older homeowners are increasing in numbers while retirement incomes and benefits are decreasing. It is FHAs job to continue to help create a market for these loans so they can help homeowner's help themselves. The increased limits to $417,000 and the HECM for home purchase are steps in the right direction. With out continued and expanded support homeowners who are unable to obtain a HECM are forced to sell their homes or face foreclosure. No new legislation is needed; HUD just needs to make an administrative decision to implement the higher limits. Both the National Reverse Mortgage Lenders Association (NRMLA) and AARP are urging HUD to make these changes. AARP has listed raising the HECM home value limit to $625,500 in their top legislative priorities for 2009. NRMLA president Peter Bell submitted a HECM issues paper to key officials from the Presidential Transition Team working on HUD matters. Our government has no choice but to develop policy to help citizens help themselves. Without smart policy, not only will we face an economic recession but we will face a retirement crisis that will affect the quality of the lives of older Americans to their detriment at monstrous levels.

If you have a reverse mortgage question, call Angella Conrard, Reverse Mortgage Advisor at 866-949-7030 or log onto www.reverse-your–mortgage.com

New Years Resolution – Plan for Long Term Care

“According to some sources, 60% of us will need long term care sometime during our lives. It is important for all of us to prepare for that day when we will need to help loved ones with elder care or we will need elder care for ourselves.”

“It is simply a fact of life to prepare financially for unexpected disasters by covering our homes, automobiles and health with insurance policies and to provide funding for our retirement. But no other life event can be as devastating to our lifestyle, finances and security as needing long term care. It drastically alters or completely eliminates the three principal retirement dreams of elderly Americans, which are:

1. Remaining independent in the home without intervention from others
2. Maintaining good health and receiving adequate health care
3. Having enough money for everyday needs and not outliving assets and income

Yet, it is our experience that the majority of the American public does not plan for the devastating crisis of needing elder care. This lack of planning also has an adverse effect on the older person's family, with sacrifices made in time, money, family lifestyles and even affecting the family's or caregiver's medical and emotional health.” National Care Planning Council “ The 4 Steps of Long Term Care Planning”

Because of changing demographics and potential changes in government funding, the current generation -- more-than-ever -- needs to plan for long term care.

If you have spent time helping a parent or loved one cope with a disability resulting from aging, you know the frustration of balancing what you feel they need to do and what they want to do. Communication is strained at times, because after all, you are the child and they the parent, yet physically and mentally the rolls have changed.

When you make directives, assignments and arrangements in advance of needing elder care, then everyone involved can follow the prearranged care plan.

As an example, Jefferson Simpson wrote in his care plan that if dementia or Alzheimer's inhibited his mental abilities to communicate or recognize his surroundings, he wished to be in a respectable facility and only asked that he be visited and brought chocolates. To his children this request seemed silly at the time, but when his mental capacities did diminish, the instructions were there. No one had to wonder if they should try to take care of Father Jefferson at home and how they would do it. Without quilt or question they placed him in a respectable facility that took care of his needs. All they had to do was make loving visits, and of course they brought chocolates.

In order for Jefferson's simple request to happen, he had made financial, legal and personal long term care plans years before.

What do you want your children or friends to do on your behalf?

When it comes time for them to help, what if you can't say what you want because of a physical or mental disability? This is where a written long term care plan comes into effect.

 

Do you have a financial plan or long term care insurance? Retirement savings can disappear quickly when used for care services.

 

Where is your paperwork; insurance policies, living will, medical directives, Armed Services discharge or disability papers? Is there someone designated to know the location?

 

What are the legal documents that are needed for power of attorney, estate planning and disbursement of assets? When do they have to be completed?

 

What types of care services and facilities are available and what are the costs?

 

What will government programs pay for and how do you qualify?

 

There is a lot you can do now to put together a plan for your own long term care. You may have limited resources in the future or health problems that will inhibit your ability to take care of things you could do now. For example.

 

James and Cindy want to be able to stay in their home as they age. In order to do this, when they were in their 40's they took out a long term care insurance policy that will pay for home care if it is needed. The policy will also pay for nursing home costs as a care option. With taking the policy at a younger age and in good health the monthly payments are low. Extra funds can now be put away for retirement without worries of having to deplete savings for care costs.

 

Or consider Sarah's following experience:

 

After taking care of her own parents for many years, Sarah realized the importance of making, in advance, a plan and preparations for herself. She saw all of her parents' assets dissipated in order for her father to qualify for Medicaid nursing home coverage. She didn't want the same thing to happen to her. She took the time to create her own plan on paper-- expressing her wishes for her own care. A trip to her attorney provided all the legal documents and estate planning she wanted to be in place to insure care for her and an inheritance for her children.

 

There is much to learn about long term care and there are a lot of new services and programs available to draw from.

 

The National Care Planning Council has gathered together an overall review of government and private long term care services both on the Council website, www.longtermcarelink.net and in their book The 4 Steps of Long Term Care Planning.

The 4 Steps of Long Term Care Planning provides comprehensive information about long term care planning. The design also allows you to record personal information, family agreements and directions on 20 planning sheets at the back of the book. Using this book as a single-source repository for information and directions makes it much easier for you or your care coordinator to carry out your wishes when the need for care occurs.

Associations Urges HUD to Increase Reverse Mortgage Limits

The Housing and Economic Recovery Act increased county by county loan limits for HECM reverse mortgages. Legislators believed that it meant the national loan limit would be at the maximum amount of $625,500 after January 1, 2009. However, because of the way the legislation language reads, HUD lawyers interpreted that they could choose between the high cost area limit of $625,500 & the Freddie Mac base limit of $417,000. What this means for reverse mortgage recipients is if the home value is upward of $417,000, the proceeds of the reverse mortgage are only based on $417,000. It is not based on the full value of the home.

HUD choose the lower limit because they felt that if the higher limit was used it would discourage the development of proprietary reverse mortgage products. This is interesting. Although the reverse mortgage program is not new, it is still a very young program and has yet to hit the main stream at full steam.   The FHA's initial purpose was to help lower income Americans purchase and afford homes. By insuring loans, FHA created stability in the market. It encouraged borrowers to borrower money and lenders to lend money for housing. Once a stabilized market was established the secondary market developed and more loan products developed. This is also the purpose of the FHA insured reverse mortgage HECM program. The challenge today is our nation is in a state of serious economic instability. It needs FHAs continued support and even its expanded support of the higher limits. Even last year, when the industry had twelve or more proprietary products, there were still none that made sense for homes that fell between the $362,790-$650,000 range. Proprietary reverse mortgage products on the market did not borrower enough proceeds to help these homeowners.

For older homeowners the present reverse mortgage program is utilized to pay-off existing balances and supplement income to replace diminished retirement incomes and pensions. Older homeowners are increasing in numbers while retirement incomes and benefits are decreasing. It is FHAs job to continue to help create a market for these loans so they can help homeowner's help themselves. The increased limits to $417,000 and the HECM for home purchase are steps in the right direction. With out continued and expanded support homeowners who are unable to obtain a HECM are forced to sell their homes or face foreclosure. No new legislation is needed; HUD just needs to make an administrative decision to implement the higher limits. Both the National Reverse Mortgage Lenders Association (NRMLA) and AARP are committed to urge HUD to make these changes. AARP has listed raising the HECM home value limit to $625,500 in their top legislative priorities for 2009. NRMLA president Peter Bell submitted a HECM issues paper to key officials from the Presidential Transition Team working on HUD matters. Our government has no choice but to develop policy to help citizens help themselves. Without smart policy, not only will we face an economic recession but we will face a retirement crisis that will affect the quality of the lives of older Americans to their detriment at monstrous levels.

If you have a reverse mortgage question, call Angella Conrard, Reverse Mortgage Advisor at 866-949-7030 or log onto www.reverse-your–mortgage.com