Reverse Mortgages & Health Issues

Last year Muriel was diagnosed by the family physician with early stage Alzheimer’s disease. After a quick visit to a local attorney a durable power of attorney was created giving one of the siblings authority to make decisions for Muriel. Peter, the eldest son, hurriedly contacted a mortgage originator via the internet to begin the process. Application documents were signed via mail (sometimes referred to as a “fedex loan” since there is never any actual face-to-face meeting). The loan was then submitted to a major reverse mortgage lender.  After several weeks of waiting, Peter began receiving messages from the telephone call center revealing a delay in processing… and notice that additional documentation would be needed.

The lender wanted explanation as to why 91-yr old Muriel did not sign the loan application herself. When Peter explained that his mom had Alzheimer’s, the lender responded with new requirements.  They wanted a letter from Muriel’s doctor stating (1.) the specific date of her diagnosis, (2.) that she was not currently competent to sign documents on her own behalf and, (3.) that Muriel had actually been mentally competent to execute a power of attorney on the day she signed it. Understandably, her doctor was reluctant to make an official statement on the last item for liability reasons and his letter failed to fully address that question.

Reverse Mortgages & Power of Attorney

Meanwhile, the title company closely examined the power of attorney document signed by Muriel and her son. In the words of the title examiner, it was judged a “poorly crafted document” and the title company was reluctant to accept it. (There are good lawyers and there are not-so-good lawyers – just like reverse mortgage originators). The loan continued to unravel and more delays were introduced. By this time in-home care expenses were in excess of $13,000 per month and Muriel’s family members were out of money.

Often the story ends right here. The result is that Muriel is denied the HECM loan, she has to be admitted to a nursing facility and then the home is sold or eventually taken by the state to cover nursing home expenses. But it need not end like this!  Had Muriel’s family selected an experienced reverse mortgage loan originator, the result might have been different.  Next post we will examine how a professional, experienced reverse mortgage loan originator might have handled this transaction. The impact on Muriel and her family could have been much better if the loan officer had been experienced. The most important decision you will ever make concerning a reverse mortgage is the experience and background of the loan officer you select to work with.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

Subscribe to Reverse Mortgage Information by Email

>>> Subscribe to Reverse Mortgage Information – Click Here <<<

>>> Free Referral to Consultant In Your Area – Click Here <<<

Tweet

FOLLOW US: Twitter.com @BobIrvingCSA

DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. Same applies to tax advice. Always consult an expert on these subjects. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

FOR MY LICENSING & COMPANY INFORMATION: GO HERE

PRIVACY POLICY
We will never share your information with anyone without your permission.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Their $400,000 family home, however, presented a major problem that they struggled to resolve. Martin wanted to retain the home and continue to live there… but he simply did not have the financial resources to buy out his ex-partner. Of course, Sandra’s name was still on the deed and she remained responsible for the mortgage balance. She wanted relief from that financial burden plus fair payment for her share of equity in the home.The only sensible solution seemed to be to sell the home, pay off the mortgage and split the leftover cash.

Their personal financial planner counseled against that option, however.

Fortunately for Mr. & Mrs. Walsh, their planner was knowledgeable and well informed about a popular, unique loan program available to senior homeowners who are 62 years old and own their own home. This situation proved to be an excellent opportunity to make use of a federally insured HECM loan program from HUD often referred to as a reverse mortgage…or a Home Equity Conversion Mortgage.

Here’s how it worked out. The financial planner called in a reverse mortgage specialist to consult and help the Walsh’s understand the pros/cons of the variety of HECM programs. After a thorough analysis of the facts of their situation it was determined that they were qualified and the HECM loan program would provide enough funds to pay off the remaining mortgage in full; cancelling Sandra’s future liability. They also qualified for an additional amount equal to about 50% of the remaining equity in the home… and that was turned over to Sandra at loan closing in exchange for removing her name from the deed.

It was a win/win situation. Martin remained in the home that he loved and Sandra received her fair share of the equity in the home and did not need to worry about any future liability since the mortgage was paid in full.

Not all situations work out this well, of course. But it’s important to understand that the HECM program is no longer strictly for little old ladies trying to exist on $600 per month social security. Savvy financial planners and elder law attorneys have recognized that the program is useful for their clients in numerous ways. It has become an important financial tool for many senior homeowners trying to solve a financial problem.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

Subscribe to Reverse Mortgage Information by Email

>>> Subscribe to Reverse Mortgage Information – Click Here <<<

>>> Free Referral to Consultant In Your Area – Click Here <<<

Tweet

FOLLOW US: on Twitter.com @BobIrvingCSA

DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you.

Reverse Mortgage New Financial Tool

Several years ago, that average borrower was also in serious financial difficulty and the reverse mortgage was about the only rescue option available. Today, however, the younger borrower seems to be using the reverse mortgage less as a rescue option and more as a practical financial tool.

According to a report from one major wholesale reverse mortgage lender an emerging use is to activate the Home Equity Conversion Mortgage (HECM) loan to help supplement retirement income… in order to delay collecting Social Security benefits until age 70.  While a person who starts collecting Social Security benefits early at age 62 might receive $750 per month,  if they are able to wait to age 70 to begin collecting, that amount increases to $1,320 per month.  That’s almost double the amount.

Funds received from a reverse mortgage at age 62 might be very close to that early Social Security payment.  It would enable an individual or a couple to wait before drawing the larger amount at age 70. Remember, also, monthly payments from the HECM loan are not taxable so the net payment could even be greater in some circumstances.

This strategy won’t work for everyone.  But it is important to at least discuss this option with your financial planner and your independent reverse mortgage consultant.  Thinking outside the box just might help to improve your retirement income dramatically.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

Subscribe to Reverse Mortgage Information by Email

>>> Subscribe to Reverse Mortgage Information – Click Here <<<

>>> Free Referral to Consultant In Your Area – Click Here <<<

Background: Reverse Mortgage Details

Doctor Harrison is an 89 year old retired surgeon in frail health living in a very affluent community west of Boston.  He was referred to me by a former loan officer and friend who had been working with him for 3+ years before leaving the reverse business.  I agreed to meet with Dr. & Mrs. Harrison. I explained the available HECM programs, listened to their well thought out needs as expressed to me during our face-to-face interview and took an application.  They were determined to work through MetLife Bank and I agreed with their choice. They had no mortgage to payoff but they had some credit card debt of about $30,000.  The goal was to pay this debt, throw away the credit cards and leave the remainder of their money in a line of credit. They would draw from the line of credit to meet unexpected expenses as needed.  Total available to them was about $410,000… a hefty sum of money. It was unlikely that they would ever use it all… but some money would be needed to supplement monthly cash flow.  When Dr. Harrison passed away or entered a nursing home, much more would be needed.

Interestingly, their son and their lawyer were opposed to the reverse mortgage.  I was to find out later that they may have known more than me about the mental stability of my client.

Competitor Without a Conscience

Several weeks after we started their application, MetLife introduced some new reverse mortgage programs and canceled some old programs with higher margins.  Before I could notify him, Doctor Harrison trolled the internet and discovered the newly introduced HECM Fixed Rate – No Origination Fee & No Service Fee program courtesy of a web-based broker who had less than honorable intentions.  With telephone contact only, that broker quickly sold the 89 year old failing senior that he could do this new program  for him.  So could I, of course,  but I needed to clearly explain the consequences to a client who might be drifting in and out of rationality.  It would be $5,000 cheaper in terms of closing costs and it would get him about $12,000 more.  But it clearly did not meet the goals we had previously discussed.  Sometimes borrowers confuse the total amount of money they can get from a reverse mortgage program with the actual value of their home… as if they were selling; not borrowing.  It’s tempting to elect a program that offers more money up front.

It was all downhill for me from that point.  The client would not speak to me and refused to meet with me so that I could explain the disadvantages of what the other broker proposed.  My client was placing his trust and risking all equity in his home in someone he had never met… who was giving him very bad financial advice over the phone.  And someone who was solely focused upon how much commission money he would make placing a Fixed Rate HECM loan that required the borrower to take all the money at closing.

Reverse Mortgage Amortization Schedule

This new program clearly did not meet their needs and a simple amortization schedule or projection showed that the cost of this new Fixed Rate HECM program would eat up substantial home equity over the remaining life span of Dr. & Mrs. Harrison.  While initial fees and additional money offered appeared to be a good deal… it clearly was not… for them.  The Adjustable Rate HECM program that I had proposed had an interest rate of about 2.03% vs the 5.49% Fixed Rate HECM proposed by my telephone boiler room competitor.   Worse, Dr Harrison would be forced to take all the cash available at loan closing under terms of this Fixed Rate HECM program and the interest clock, therefore,  would start ticking immediately on the entire amount plus fees.  When you are talking about taking a loan for $437,000 (including fees), the interest compounds rapidly.  The remaining equity in the home would be gone in a flash.

Lost Reverse Mortgage Deal

Sorry, there’s no happy ending here. The faceless phone bank competitor got the deal transferred to him.  I tried to do what was right for the borrower but sometimes, logic and rationality go out the window.  No good deed goes unpunished, as they say.  Unfortunately there are still some loan officers preying upon seniors who are just too smart (or too ill) for their own good.  I’ve lost deals before… but this one hurt because I know that this borrower was not properly served.  The competitor pocketed some very big commission money and moved on to continue dialing for dollars.  He clearly put his own needs before the needs of this client by confusing him and by failing to properly analyze all loan options. We need to rid the industry of these questionable people! They are just as reprehensible as those who steal openly from our seniors. What’s your opinion?

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant

>>> Subscribe to Reverse Mortgage Information – Click Here <<<

>>> Free Referral to Consultant In Your Area – Click Here <<<

Tuition would be about $30,000 per year so Peter and Margaret considered selling their home to provide money for the grandson’s education. Their attorney referred them to me to help them investigate other options such as a federally insured reverse mortgage. I have worked with several of this attorney’s clients over the years so she was comfortable referring them.

Calculating Options

Selling the home, we calculated, would leave them with about $261,000 net after real estate commissions of $17,100. Then, you could add moving costs and future storage costs for some of their household items. Also, they faced the prospect of locating a small apartment nearby where rent payments in the first year alone could be $12,000. Total outlay could easily exceed $35,000

On the other hand, a Home Equity Conversion Mortgage (HECM) on their existing home would yield them between $170,000 to $190,000 cash depending upon the specific HECM program they selected. Fees and closing costs ranged from a high of $13,500 to as low as $5,700… again, depending upon the HECM program they selected. No payments would be due until the last spouse left the home permanently. The only out-of-pocket cost would be the appraisal and the counseling; $425 and $125 respectively.

Decision: Reverse Mortgage

Peter and Margaret decided to remain in the home they loved so much and opted for the reverse mortgage. For them, even though the financial part of the decision would save many thousands of dollars in fees & costs… the real deciding factors were (1.) the realization that they could help their daughter and grandson immediately and (2.) still remain in their beloved home.  An added bonus was (3.) that there would be some extra cash available (over $40,000) to supplement their income if either needed medical attention or if one of them should pass away unexpectedly.

What choice would you have made? Peter and Margaret were certainly not desperate… and they clearly made a choice that cost them less money even though reverse mortgages are often inaccurately portrayed as “outrageously expensive”. In this case, the real estate commission was the expense far more deserving of that characterization. They thought it was an easy decision once the facts were known. They continue to live at home while their grandson benefits from their generosity and they are still around to witness his success. And yes, they agreed to cut up the credit cards and immediately paid off the looming $10,000 balance.

My Reward

Frankly, I see this kind of positive outcome almost every day in my business as a reverse mortgage specialist.  This is the reason why I do what I do.  I am always puzzled as to why some poorly informed people think the product is a “last resort”.  We aren’t dealing with widows and orphans here.  The vast majority of my clients are well informed and make very smart choices.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant

>>> Subscribe to Reverse Mortgage Information – Click Here <<<

>>> Free Referral to Consultant In Your Area – Click Here <<<

I’m getting really tired of the constant stream of negativity that seems to dominate media coverage of reverse mortgages.  Enough!  Reverse mortgages are not sub-prime loans.  And loan originators in the reverse mortgage business are not predators springloaded and ready to swindle everyone they meet.  Publicity hungry “experts” and politicians (are you listening, Senator McCaskill D-MO) wrongly dump sub-prime loans and reverse mortgages into the same bucket.  The press perpetuates the myth and repeats horror stories.  Now we hear about the “inevitable next financial implosion – reverse mortgages”.

The occasional bad experience is repeated over and over and over again.  It scares seniors away from a program that is one of the few beneficial things the government is doing for them.  There is a story about the poor little old lady who paid “$20,000 in fees to an unscrupulous lender” that has been repeated for months.  This little old lady apparently had no idea what she was doing when she took out the reverse mortgage some years ago.  Bullcrap!  Let’s hear the rest of the story… but we never do.

Get The Facts

Do some independent investigation.  The facts are simple.  According to a MetLife Institute study, 93% of all reverse mortgage clients report having a favorable experience!  No other financial product can boast this level of acceptance and satisfaction.  Let me repeat – no other financial product enjoys a satisfaction level of 93%.  Let’s start looking for the good news and stop repeating the occasional horror story.

A Non-Horror Story

This week I closed a loan for an elderly gentleman living on a small pension who was in failing health.  He was not destitute, however.  He actually owned other properties and some land.  His attorney called me in and we discussed the pros and cons of a reverse mortgage to enable him to continue to pay increasing home health care costs.  Working with the client, his attorney, a concerned relative and the home care agency – we came up with a plan to provide the needed cash to pay for his home care.  If my borrower did not do the reverse mortgage, he would have lost his home to forclosure and entered a nursing home in short order.   The reverse mortgage was a financial lifesaver and enabled him to live with dignity and far less worry about his monthly cash flow.  He is one of the 93% but you don’t hear these stories on TV or in the press.  Too bad.

Author – Robert H. Irving, CSA
Senior Reverse Mortgage Consultant

Subscribe to Reverse Mortgage Information by Email

Example

I recently completed a HECM loan for a couple aged 59 and 62.  They were referred to me by their attorney who had completed guiding them through a complex bankruptcy.  They had a sizeable conventional mortgage that continued to impact monthly cash flow.  The only way they could do the reverse mortgage was for the younger partner to come off the deed.  But I carefully outlined the dangers of doing this to both homeowners.  In the event of the death of the older homeowner, the reverse mortgage would become due and payable and if the younger partner wanted to remain in the home, she would need to payoff the reverse mortgage balance due.

Insurance Hedge

Given HUD’s new interpretation of the non-recourse feature and arm’s length transactions for heirs or relatives… we knew that it was possible that the survivor would need a large amount of cash to buy the house back should the husband pass away unexpectedly.  They simply didn’t have the money.  So, we recommended term life insurance for the older partner in an amount about equal to what it would take to pay off the loan 9 years from now.  9 years was about 1/2 the life expectancy of the husband as shown on the TALC… and the Amortization Schedule projected the balance due at that point in time.  Term insurance premiums, even at age 62, are reasonable and the product is a great hedge for the surviving younger spouse.  Upon the demise of her husband, she would have the cash needed to remain in the home… if she chooses to do so.  If he survives beyond the 9 years, it may well be possible to rewrite or refinance the HECM assuming property values return to better levels in the future.

Author – Robert H. Irving, CSA
Senior Reverse Mortgage Consultant

Subscribe to Reverse Mortgage Information by Email