Making Sense of Reverse Mortgages Information you need to make a good decision!

April 23, 2014

Aging in Place – is there a downside?

Filed under: Uncategorized — Scott Larson @ 12:36 pm

In the reverse mortgage business, one of our “hot buttons” is “aging in place.”
This allows a senior to stay in their home, providing familiarity and comfort,
usually at a significantly lower cost than a move to a assisted living facility.

However, there can be a downside to this strategy, loneliness and social isolation.
In part one of a three part series, author Rachael Adelson explores the topic.

To find out more give me a call or read the article here.

March 13, 2014

Filed under: Uncategorized — Scott Larson @ 2:26 pm

Goodness, life gets busy, (girlfriend moves, daughter buying a house) so I have some good content saved for you


Today is a blog post in Completely Senior (check it out here)  which begins

I’ve seen few things in my life as misunderstood or poorly understood as reverse mortgages, and the more I’ve learned about them, the more impressed I’ve become. In fact, I’ve come to like them so much that at 52, I’m almost looking forward to being ten years older so I can qualify.

He goes on to talk about a couple of scenarios that illustrate how a reverse can be used, when thinking outside the box, to make a dynamic difference in a retirement

His examples are
*  Buying a retirement home with the proceeds
*  Remodeling
* settling a debt (this one is a stretch, but still a good idea)

While there are a couple of issues at the end of the article (doesn’t take into account the October 1 changes to the program) it is still an article well worth reading.



December 2, 2013

Long Term fix?

Filed under: Uncategorized — Scott Larson @ 12:53 pm

Let’s hope so!  The reverse mortgage program had some changes happen on Sept 30, with more coming Jan 14 of next year.  A recent MarketWatch column highlighted some of the changes.

One of the biggest change is a lowering of the amount available to a senior.  The “standard” and “saver” programs are eliminated and one program will be available for everyone Per the market watch article

It will still depend largely on the age of the borrower, the value of the home, and the interest rate.  But under the new regulations, assuming an interest rate of 5%, a 72-year-old will be able to withdraw up to 57.5%, minus fees.  This compares to 67.7% of the home’s value using the standard and 55.4% using the saver.

While this will hurt some borrowers, this should make the program more sustainable in the long run.

The next major change is the Mortgage Insurance Premium or MIP.  This now goes to a two tiered system

A portion of the mortgage costs will now be based on the amount withdrawn.  Borrowers who take out more than 60% in the first year will have to pay a higher up-front mortgage insurance premium (2.5% of the appraised value of the property) than those who withdraw less than 60% (0.5% of the appraised value).  Previously, the upfront fees were 2% for standard reverse mortgages and 0.01% for savers.

This is designed to help make sure that borrowers do not take the entire amount available to them, reserving a portion of the costs to pay taxes and insurance.  This is the biggest issue threatening the  reverse mortgage industry with some estimates of tax and insurance defaults running as high as 10% of outstanding reverse mortgages.

The third change, coming in January begins a new chapter in the reverse mortgage world, qualifying.  This is not qualifying as you would normally think about it with a “standard” mortgage, but rather a residual calculation.

To qualify for a full loan, homeowners must have a certain level of monthly income left over after paying all expenses, including taxes and insurance.  For a single homeowner, this threshold level ranges from $529 to $589, depending on the region in which he lives.  If the borrower falls short of this amount, he will be required to make a cash set-aside, which will either be deducted from payments or charged to a line of credit.

As a loan officer, I want to be able to provide the maximum benefit available to a senior, to allow them to make the choices that help them.  But we do need to make sure the program is sustainable as well.

As the MarketWatch article concludes

We need this program to work well, because people are going to need the money.

For the full article, click here


November 26, 2013

Unintended consequences

Filed under: Uncategorized — Scott Larson @ 11:40 am

I have been thinking about second order effects, the mortgage business, the Dodd Frank Act and ObamaCare.

Sort of a strange mixture at first glance, but hear me out.

As we are witnessing the disastrous rollout of ObamaCare, one of the unintended consequences is that the front line sellers of private insurance, the agents, have been cut out of the picture.  These people have been replaced by “navigators” – newly hired people that are supposed to guide the unfamiliar through the insurance process after 20 hours of training.  Ignore for a moment that these people have not been background checked, and may be working for the next version of the corrupt ACORN housing agencies and look at what has happened to the agents.

They have been discarded.  And they won’t be coming back.

The agents have spent vast amounts of time getting licensed, and learning their business.  They have invested in their careers, have dealt with state licensing agencies, and passed continuing education requirements. I could go on and on about the requirements of the job.   As a result of Obamacare, these experts have had to re-orient their business to other lines of insurance, or leave the field due to government regulation.

Is the mortgage business next?

We have seen incredible changes to the mortgage business over the last 6 or 7 years, some good, some bad, many justified, some just patently stupid.  But during my re-licencing this year (45 hours of continuing education for my brokers license, another 8 for my NMLS) one statement stood out;

LESS than 10% of the Dodd Frank Act’s regulations have been implemented

Less than 10%! only 9 times more regulation to come – woo-hoo! Let’s add another fact.  Currently 95% of mortgage originations are sold to the government.  Want another?  The Consumer Financial Protection Board (CPFB) a non-elected, non accountable is going to be an additional regulator in the mortgage world.

That is a dangerous combination for the mortgage business.

I said earlier that the insurance agents would not be coming back.  That’s my opinion, based on what i see in the mortgage business.  This business, due to regulation, has become much more difficult, for much less reward.  As we get squeezed, other careers become more attractive.  If I was forced out of the business due to regulators/regulation, How likely would I be to return?  I wouldn’t.  If intrusive regulation happened once, it would happen again.  And the industry would lose 25 years of experience…  replaced by a “mortgage navigator” perhaps?  with 20 hours of training?

I am not against regulation – quite the contrary, it is necessary and appropriate.  but we need to have a balance between industry needs, government regulation, and consumer protection, not the government domination that we appear to be moving to.

I love my career, I love my clients, I love the service I can provide.  But if I am forced to leave… I’m not coming back

November 20, 2013

Feels good, but…

Filed under: mortgage,Uncategorized — Scott Larson @ 11:39 am

Not exactly on the reverse mortgage theme, but I had to comment on this article in the Wall Street Journal today.

J.P. Morgan Is Haunted by a 2006 Decision on Mortgages

The justice department fined Chase 13.6 Billion dollars in a settlement for bad behavior during the mortgage crisis.  Now I don’t have a problem with that, for Chase being fined for bad behavior.  They had a bunch of it going on, and they underwrote to bad standards just like the rest of the industry. Then they ignored internal warnings, bundled and sold those poor loans to investors and made big bucks on fees.

That’s bad behavior and should be punished.

But there is more.  Read this paragraph (emphasis mine)

Mr. Dimon, in a statement, said the bank is “pleased to have concluded this extensive agreement” and noted the settlement “covers a very significant portion” of the mortgage-backed securities issued by J.P. Morgan, as well as Bear Stearns and Washington Mutual, two companies J.P. Morgan bought during the financial crisis. On a conference call, however, Mr. Dimon added that J.P. Morgan “simply wouldn’t undertake” a deal like the Bear purchase again. “We never expected this kind of stuff to happen.”

In pursuing the bad behavior, the Feds went after Chase for mortgages they had no part in originating, underwriting or selling.  When Chase stepped in to buy Wamu and Bear, they negotiated with the FDIC to say we (Chase) will take on these banks, but would be “held harmless” for the bad loans. As the old joke says – no good deed goes unpunished.

The Justice Department basically said… too bad, we don’t like big banks and we have the power to make you pay up… In my opinion this is another example of the Obama Administration picking winners and losers, and there will be consequences to this short term “win”

As the WSJ said in another article

The only thing clear from this settlement is there will be no willing buyers during the next crisis.

The articles are here and here though with the WSJ, i am not sure if is behind a pay wall

November 11, 2013

Reverse Mortgage Planning

Filed under: Uncategorized — Scott Larson @ 12:39 pm
A good article about some of the changes to the reverse mortgage program
To summarize, the October changes reduced the amount available to most borrowers
the recent changes to the HECM program are a step in the right direction because
they aim to make the loans safer and encourage loan usage as a long-term financial-planning tool,  rather than as a disaster-recovery tool for households already facing significant financial stress.
The key takeaway in the article though is found here
Some planning experts have started advocating the use of HECM credit lines as a backup resource in lieu of a large cash reserve because the latter produces negative returns in the current ultralow interest-rate environment. Harold Evensky, president of  Evensky & Katz Wealth Management, is co-author of a paper published last year
examining how retirees can use a HECM line of credit in bear markets to avoid selling equities.  The strategy extends portfolio life anywhere from 20% to 60%, depending on the scenario specifics.

(Emphasis mine)

If you would like more information, or if you feel that this is something you would like to explore, give me a call.
In the meantime, you can read the article here


November 5, 2013

Helping an Aging parent from Afar

Filed under: Uncategorized — Scott Larson @ 11:06 am

Time Magazine online has some great tips to help with an aging parent.  Their perspective is from her experience which is long distance caregiving, but the principles are the same regardless of the distance.  Even her tip of planning and budgeting for travel can have an application if you have a local parent.  My mother was relatively local when she was in assisted living, but it was still a 3 hour minimum time commitment, and an extra two tanks of gas per month.

They suggest starting with CMS, the federal program,

Learn about sources of financial help. Depending on their situation, your parent(s) may be eligible for sources of financialassistance. As a long-distance caregiver, you can research the types of aid available and help your parents apply. Start with the Centers for Medicare & Medicaid Services (CMS) (the federal agency responsible for Medicare), and SHIP – the State Health Insurance Counseling and Assistance Program, which provides counseling to families on Medicare and Medicaid. Also research other benefits your parent may be eligible for if he or she is a veteran.

I would also suggest you start with your local Council on Aging, or Department of Aging with your city and County (make sure to check both places).  There are often a lot of local programs and resources that are available.  And (surprise) I am going to suggest you consider a reverse for a source of funds… if it is appropriate.

To read the Time article, click here

Thanks to Richard Wexler at Points of Life for bringing this to my attention

October 29, 2013

How Reverse Mortgages can Benefit Older Divorcing Women

Filed under: divorce,financial planning,Reverse Mortgage — Scott Larson @ 9:20 am has an interesting piece in their Personal Finance column by Jeff Landers about “Grey Divorce”  and it’s impact on older women.  There are significant differences that have to be addressed due to the amount of time left to “recover” financially, when compared to a younger cohort.

When considering whether to keep a house affordability is a primary concern, and if a woman is in a position to set up a reverse mortgage when she reaches 62, it may impact her decision whether or not to fight for the house in a divorce situation.  It is only a small part of the divorce decision, but once again a reverse mortgage could be useful tool in the right situation.

One other thing to consider is how the memories will impact the decision to stay.  Having been through a divorce myself, and also when I lost my father, a decision had to be made regarding real estate.  You need to consider if the memories are positive, or if they impact negatively on your willingness to stay in the home.  If the decision is to stay, a reverse mortgage may be a tool to help.

To read the article, click here

October 22, 2013

Reverse mortgages as a financial planning tool

What’s the first thing you think of when your hear the term “reverse mortgage”

Bad?  ripoff?  Wow, Fonzi has gotten old…

What you should start thinking of is financial planning…

The Wall Street Journal recently published an article highlighting a use of a reverse mortgage that I have been recommending for years.  As we learned from the financial crisis, even though you may need money, it is not always the best time to sell your assets. Whether it is stocks or real-estate, the markets move independently of your needs.

For a wealthy, or even not so wealthy, retired borrower, this can obviously present a problem.  Your assets need to last as long as possible and you would like to wait for the market to recover before selling your assets…

You are 62 and you were just laid off.  Social Security is available to you but you know that if you can wait until age 65 that your social security will be substantially higher…

You don’t mind selling the assets, but you want to shift the tax burden of that transaction into next year…

You want to balance out your interest payments with the sale of an asset without harming your cash flow

These are all examples of where a reverse mortgage can be used as a financial planning tool to help buffer the winds of financial change.  Setting up the reverse as a line of credit allows a senior to make a choice of where to draw the assets they need, without impacting their cash flow.

“Retirement is really about cash flow,” says Martin James, a certified public accountant in Mooresville, Ind. in the WSJ article

Traditionally financial planners recommended a home equity line of credit for this purpose, but many homeowners were taught a hard lesson when their credit lines were cancelled by the bank, in spite of perfect payment records, or even though they carried no balance!  One of the benefits of a reverse mortgage is that the line of credit cannot be cancelled.  Then add an additional benefit of no payments being required and you have an incredible planning tool.

This has been studied by financial planners at Texas Tech University.

The researchers used what they called a “standby” reverse-mortgage strategy, meaning the reverse-mortgage line of credit served as a source of readily available cash when retirees’ portfolio values dropped below the level where they could meet their goals.

Using a portfolio worth $500,000 and a home value of $250,000, among other assumptions, the researchers found that using a reverse mortgage’s line of credit significantly improved the chances the portfolio would last through the retiree’s lifetime, because it reduced the risk of having to sell investments when they had fallen in value.

We’ll cover this more later, but maybe now the first thing that crosses your mind when you hear reverse mortgage is… Maybe I should learn more…

To read the WSJ article click here


October 16, 2013

Nightmares are no longer available

Filed under: Uncategorized — Scott Larson @ 9:32 am

My brother brought an article to my attention about a reverse mortgage that was a nightmare situation for a family in New York.  This loan, done in 1997 (16 years ago) truly was a nightmare with two extremely costly provisions, a 50/50 equity share, and a required purchase of an annuity.

So first off… THIS IS ILLEGALhas been for years!

But take a look at the article, this is what can happen when you are dealing with unscrupulous people that are more interested in the money than the senior.

My irritation with the article, at least the main one… well one of the main ones… is near the end;

Reverse mortgages, even today’s friendlier versions that offer upfront counseling, can be hazardous to elderly borrowers’ financial health and potentially costly for their heirs.

Getting old is hazardous to a seniors financial health…  you have to buy things… like food, or prescriptions,  or pay taxes.  Any bill is “hazardous” when you don’t have additional income coming in.

and, yes… reverse mortgages can be costly… but let’s compare a reverse mortgage in the “real world…  Mortgages are costly… selling a home is costly… getting in-home care is costly…

And finally, we should not be worrying about the heirs.  Let the heirs fend for themselves!  And please… Don’t hear what I am not saying... I am not saying that we should not try to preserve the seniors estate… what I am saying is that the senior should use their own money for their own benefit first.  They worked for it, they earned it, they should use it if they need it!

My other irritation is… whoever sold these products should be prosecuted to the full extent of the law!   I am not absolving the senior, and their family from responsibility – I have never seen a mortgage signed by accident – but this is another reason you should fully investigate the people that you are working with.

And finally the conclusions

Just as a car build in 1997 is not as good as a current one, a 1997 reverse is not the same as one that is being offered now.  Protections and regulations have made this a much better option – Not for everyone to be sure – but a good option when it is appropriate.  It is a financial tool.  Just like a hammer that can be used to build a house, or to commit a murder, when it is appropriate it is a good thing.

And finally… use someone you trust.  if it is me, great, if it sis someone else, great – but make sure that the person know what they are talking about and don’t push you to make a decision.  Also make sure that your friends, family, attorney, financial planner – someone you trust in your life is helping you.  if the reverse mortgage rep does not want to talk with them, answer their questions, find another rep!



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