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Reverse Mortgages

Wed, 03/08/2006 - 9:07am — Karen Stevenson
Description: 

Reverse Mortgage - a loan program to provide one-time or monthly cash payments, a line of credit, or all three, for the equity in an older person's home without selling the home.

Reverse mortgages provide a stream of income for an older person who has most of their equity tied up in a house and who needs cash for day-to-day expenses. A financial institution will provide a series of monthly payments, based on the value of the house, in exchange for all or part of the ultimate proceeds from the sale of the house. Reverse mortgages can also be paid out as a lump payment, by providing a line of credit to be used when needed, or some combination of all of these methods. A reverse mortgage will allow an older person to convert the value of their home into cash, without requiring him or her to sell the house. Reverse mortgages may be available as federally- guaranteed loans through HUD and FHA, or as private market transactions. However, there are a variety of questions consumers need to ask about terms, conditions, and costs, to ensure they are getting the best deal.

Another consideration comes into play if the older person is likely to end up in a nursing home on Medicaid. The home is an exempt asset for purposes of calculating Medicaid eligibility, which means a person who needs nursing home services and who has no other significant source of revenue is likely to qualify for Medicaid services without the need to reduce the value of that asset. On the other hand, since many home and community services are not covered by Medicaid, a low-income older person who is trying to remain at home for some period of time prior to a nursing home admission, could use cash generated from a reverse mortgage to buy that time. There are a variety of other complex issues related to the interplay of Medicaid eligibility and reverse mortgages, which may require advice from someone with expertise in Medicaid law.

Reverse Mortgage - a loan program to provide one-time or monthly cash payments, a line of credit, or all three, for the equity in an older person's home without selling the home.

Reverse mortgages provide a stream of income for an older person who has most of their equity tied up in a house and who needs cash for day-to-day expenses. A financial institution will provide a series of monthly payments, based on the value of the house, in exchange for all or part of the ultimate proceeds from the sale of the house. Reverse mortgages can also be paid out as a lump payment, by providing a line of credit to be used when needed, or some combination of all of these methods. A reverse mortgage will allow an older person to convert the value of their home into cash, without requiring him or her to sell the house. Reverse mortgages may be available as federally- guaranteed loans through HUD and FHA, or as private market transactions. However, there are a variety of questions consumers need to ask about terms, conditions, and costs, to ensure they are getting the best deal.

Disturbing Use of Reverse Mortages May Jeopardize Home Equity

Tue, 04/26/2005 - 12:00am — Karen Stevenson
Description: 
Kelly Green reports in the Wall Street Journal that many seniors are starting to use reverse mortgages to finance anything from vacations to jet skis. As Kelly points out, the danger is that all the equity in the home will be tapped for non-essential needs if the owner's health declines and they need funds to pay for in-home care or home modifications that would enable them to remain independent at home. Legally, of course, you can use a reverse mortgage for anything you like. There are no laws or rules that require you to use the money for something important. The concern raised in this story is that some people may not be looking far enough ahead (or may be fooling themselves about the likelihood that they may have health problems in the future.) View the story on the Wall Street Journal Web Site.
Kelly Green reports in the Wall Street Journal that many seniors are starting to use reverse mortgages to finance anything from vacations to jet skis. As Kelly points out, the danger is that all the equity in the home will be tapped for non-essential needs if the owner's health declines and they need funds to pay for in-home care or home modifications that would enable them to remain independent at home. Legally, of course, you can use a reverse mortgage for anything you like. There are no laws or rules that require you to use the money for something important. The concern raised in this story is that some people may not be looking far enough ahead (or may be fooling themselves about the likelihood that they may have health problems in the future.)

Use Your Home to Stay At Home

Fri, 04/16/2004 - 12:00am — Karen Stevenson
Description: 

At the Joint Annual Convention of the American Society on Aging and the National Council on Aging in San Francisco, representatives of the National Council on Aging and the National Reverse Mortgage Lenders Association reported results of a study into the amount of home equity that could be available to pay for health care or home improvements to keep older adults in their own home. They reported:

Of the nearly 28 million American households age 62 and older, NCOA has found that almost half (48%), or about 13.2 million, are good candidates for a reverse mortgage. The amount that these older households could receive from a reverse mortgage is substantial ? on average $72,128. These funds can go a long way to pay for help at home and for retrofitting the home to make it safer and more comfortable. They could also use it to purchase long-term care insurance if they qualify. In total, an estimated $953 billion could be available from reverse mortgages for immediate long-term care needs and to promote aging in place.
I believe that paying for the cost of remodeling a home to make it more accessible or extraordinary health care costs are uses that might justify the risk of diminishing the biggest and possibly only asset that many people have. Most people want to remain in their own homes as they age, but a significant proportion of the homes they live in need work to be both safe and accessible.

At the Joint Annual Convention of the American Society on Aging and the National Council on Aging in San Francisco, representatives of the National Council on Aging and the National Reverse Mortgage Lenders Association reported results of a study into the amount of home equity that could be available to pay for health care or home improvements to keep older adults in their own home. They reported:

Of the nearly 28 million American households age 62 and older, NCOA has found that almost half (48%), or about 13.2 million, are good candidates for a reverse mortgage. The amount that these older households could receive from a reverse mortgage is substantial ? on average $72,128. These funds can go a long way to pay for help at home and for retrofitting the home to make it safer and more comfortable. They could also use it to purchase long-term care insurance if they qualify. In total, an estimated $953 billion could be available from reverse mortgages for immediate long-term care needs and to promote aging in place.

Predatory Lendors Targeting Senior Home Equity

Wed, 05/23/2001 - 12:00am — Karen Stevenson
Description: 

AARP is launching a campaign, called "I didn't know I could lose the house," to let seniors know they are being targeted by predatory lenders. These lenders are convincing older homeowners to sign up for high-cost and unnecessary mortgages on their homes. In many cases, these loans are "subprime" loans, which are loans made to individuals with an impaired credit history who have assets (like a home) which can be used as collateral for a loan. The AARP reports that borrowers age 65 and above were three times more likely to hold a "subprime" mortgage than borrowers under age 35. AARP has set up a web site with more information, and is reminding seniors that reverse mortgages probably make more sense for older people who need to tap into the equity in their homes.

AARP is launching a campaign, called "I didn't know I could lose the house," to let seniors know they are being targeted by predatory lenders. These lenders are convincing older homeowners to sign up for high-cost and unnecessary mortgages on their homes. In many cases, these loans are "subprime" loans, which are loans made to individuals with an impaired credit history who have assets (like a home) which can be used as collateral for a loan. The AARP reports that borrowers age 65 and above were three times more likely to hold a "subprime" mortgage than borrowers under age 35. AARP has set up a web site with more information, and is reminding seniors that reverse mortgages probably make more sense for older people who need to tap into the equity in their homes.

Reverse Mortgage Caps Increased

Wed, 01/10/2001 - 1:00am — Karen Stevenson
Description: 

Seniors can obtain larger reverse mortgages in 2001 because of higher new loan limits. The increases are for two different reverse mortgage products: the federally insured Home Equity Conversion Mortgage (HECM) and the Fannie Mae Home Keeper loan.

Fannie Mae recently announced that its loan limit for single-family mortgages ? which includes Home Keeper loans ? will rise in 2001 from $252,700 to $275,000. The loan limit is 50% higher for Alaska, Hawaii, and the U.S. Virgin Islands. The loan limits also increased in 2001 for the HECM product, a reverse mortgage insured by the Federal Housing Administration of the U.S. Department of Housing and Urban Development (HUD). The HECM loan limit varies by geographic area. In 2001, the highest of the loan limits ? applicable generally to metropolitan areas ? increased from $219,849 to $239,250. The smallest loan ceiling, which generally applies to rural and non-metropolitan areas, increased from $121,296 to $132,000.

A reverse mortgage is a unique loan that enables senior homeowners to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free.

Borrowers can choose to receive the reverse mortgage funds as a lump sum, monthly income (for up to life), or line of credit, or as a combination of monthly income and line of credit. No mortgage payments are due during the life of the loan. Borrowers can use the funds anyway they wish ? for home repairs and improvements, medical costs, in-home care, education, and supplemental retirement income. Borrowers make no monthly payments on a reverse mortgage during its term. The loan becomes repayable when the borrower sells the home or permanently moves out. In addition, the repayment amount can't exceed the value of the home.

To educate consumers about reverse mortgages, the National Reverse Mortgage Lenders Association (NRMLA) has created the Guide to Reverse Mortgages. This free booklet answers frequently asked questions, provides detailed information on the loan origination process, and includes a Code of Conduct for lenders, so that consumers can know their rights when working with a lender. The booklet may be obtained by calling NRMLA at 1-866-264-4466 (toll-free) or 202-939-1792.

Seniors can obtain larger reverse mortgages in 2001 because of higher new loan limits. The increases are for two different reverse mortgage products: the federally insured Home Equity Conversion Mortgage (HECM) and the Fannie Mae Home Keeper loan.

Fannie Mae recently announced that its loan limit for single-family mortgages ? which includes Home Keeper loans ? will rise in 2001 from $252,700 to $275,000. The loan limit is 50% higher for Alaska, Hawaii, and the U.S. Virgin Islands. The loan limits also increased in 2001 for the HECM product, a reverse mortgage insured by the Federal Housing Administration of the U.S. Department of Housing and Urban Development (HUD). The HECM loan limit varies by geographic area. In 2001, the highest of the loan limits ? applicable generally to metropolitan areas ? increased from $219,849 to $239,250. The smallest loan ceiling, which generally applies to rural and non-metropolitan areas, increased from $121,296 to $132,000.

Fees Reduced for Reverse Mortgages Used to Buy LTC

Wed, 12/13/2000 - 1:00am — Karen Stevenson
Description: 

The Senate passed HR 5640 and it is going to President Clinton, who is expected to sign it. Among other things, this bill adds a provision that up-front premiums for reverse mortgages will be waived if the all the proceeds are used to purchase "qualified" long term care insurance that covers the mortgagor or members of the household residing in the mortgaged property. The full text of this provision is reproduced below:

(1) IN GENERAL- Section 255 of the National Housing Act (12 U.S.C. 1715z-20) is amended by inserting after subsection (k) (as added by subsection (a) of this section) the following new subsection:

(l) WAIVER OF UP-FRONT PREMIUMS FOR MORTGAGES TO FUND LONG-TERM CARE INSURANCE-

(1) IN GENERAL- In the case of any mortgage insured under this section under which the total amount (except as provided in paragraph (2)) of all future payments described in subsection (b)(3) will be used only for costs of a qualified long-term care insurance contract that covers the mortgagor or members of the household residing in the property that is subject to the mortgage, notwithstanding section 203(c)(2), the Secretary shall not charge or collect the single premium payment otherwise required under subparagraph (A) of such section to be paid at the time of insurance.

(2) AUTHORITY TO REFINANCE EXISTING MORTGAGE AND FINANCE CLOSING COSTS- A mortgage described in paragraph (1) may provide financing of amounts that are used to satisfy outstanding mortgage obligations (in accordance with such limitations as the Secretary shall prescribe) and any amounts used for initial service charges, appraisal, inspection, and other fees (as approved by the Secretary) in connection with such mortgage, and the amount of future payments described in subsection (b)(3) under the mortgage shall be reduced accordingly.

(3) DEFINITION- For purposes of this subsection, the term `qualified long-term care insurance contract' has the meaning given such term in section 7702B of the Internal Revenue Code of 1986 (26 U.S.C. 7702B)), except that such contract shall also meet the requirements of--

(A) sections 9 (relating to disclosure), 24 (relating to suitability), and 26 (relating to contingent nonforfeiture) of the long-term care insurance model regulation promulgated by the National Association of Insurance Commissioners (as adopted as of September 2000); and

(B) section 8 (relating to contingent nonforfeiture) of the long-term care insurance model Act promulgated by the National Association of Insurance Commissioners (as adopted as of September 2000).'.

(2) APPLICABILITY- The provisions of section 255(l) of the National Housing Act (as added by paragraph (1) of this subsection) shall apply only to mortgages closed on or after April 1, 2001.

The Senate passed HR 5640 and it is going to President Clinton, who is expected to sign it. Among other things, this bill adds a provision that up-front premiums for reverse mortgages will be waived if the all the proceeds are used to purchase "qualified" long term care insurance that covers the mortgagor or members of the household residing in the mortgaged property. The full text of this provision is reproduced below:

(1) IN GENERAL- Section 255 of the National Housing Act (12 U.S.C. 1715z-20) is amended by inserting after subsection (k) (as added by subsection (a) of this section) the following new subsection:

$1.1 Trillion in Home Equity Available for LTC?

Wed, 10/04/2000 - 12:00am — Karen Stevenson
Description: 

In the latest issue of Contemporary Long Term Care, Jim Moore discusses the amount of home equity that seniors have which might be available to pay part of the cost of their long term care needs. He uses government statistics that show that 77% of people age 75 and older own their own homes, most of them debt-free, and that 70% of these people are either widows or widowers, divorced, or were never married. Combining that with statistics which show that the average home equity of this age group is $110,000, he calculates that $1.1 trillion is tied up in home equity for a group which might be ready to move out of an overly-large family home and into seniors housing. He cites a $1,000 "affordability" gap between the income of most seniors and the cost of seniors housing and care, and concludes that many of them could use this home equity to stay in a facility of their choice, rather than allowing the equity to be spent down by Medicaid on the cost of their care in a nursing home.

In the latest issue of Contemporary Long Term Care, Jim Moore discusses the amount of home equity that seniors have which might be available to pay part of the cost of their long term care needs. He uses government statistics that show that 77% of people age 75 and older own their own homes, most of them debt-free, and that 70% of these people are either widows or widowers, divorced, or were never married. Combining that with statistics which show that the average home equity of this age group is $110,000, he calculates that $1.1 trillion is tied up in home equity for a group which might be ready to move out of an overly-large family home and into seniors housing. He cites a $1,000 "affordability" gap between the income of most seniors and the cost of seniors housing and care, and concludes that many of them could use this home equity to stay in a facility of their choice, rather than allowing the equity to be spent down by Medicaid on the cost of their care in a nursing home.