The Pension Rights Center has come out with tips for keeping track of pension dollars.Pensions are important to seniors because along with retirement accounts, investments and Social Security payments, pensions can be an important source of retirement cash. The catch is that pension payments may not be assured when companies go bust or insufficient read more
Across the country major lenders have begun to reign-in home equity lines of credit (HELOCs). The result is that many homeowners who thought they had a warm and comfy financial lifeline have been left out in the cold.
Imagine that you have a $100,000 line of credit — cash availability secured by your home for emergencies, read more
Given the cost of medical treatment, and given that reverse mortgages are often used to fund such costs, it might be good to know how your local hospital rates.
That has long been an interesting — and perhaps uncomfortable — question for just about everyone. You would like to know that your local hospital does read more
The investment community — those who sell investments — seems to be getting the message that reverse mortgages and annuities don’t mix.
An exceptional article posted with InvestmentNews.com — a site directed toward financial advisers — lays out the issue with great clarity:
“Problems with cross-selling inappropriate products such as annuities or long term read more
U.S. News & World Report has an interesting reverse mortgage article entitled How the Housing Law Affects Reverse Mortgages.
It makes the point that “even after taking out a reverse mortgage, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and read more
How’s your R-Score?
No, it’s not some medical test. Instead it’s an online index of retirement readiness developed by Nationwide Insurance.
The way it works is that you answer a few rudimentary questions about pensions, assets, debts, read more
The state of Massachusetts has launched a reverse mortgage site, www.mass.gov/reversemortgage.
“Reverse mortgages are extremely complicated products and consumers, beyond the required counseling, should make every effort to obtain independent legal and financial advice when considering one,” said Daniel C. Crane, Undersecretary of Consumer read more
A study by the Center for Retirement Research (CRR) at Boston College shows that shows that 61 percent of today’s workers will be at risk for not being financially prepared to retire.
The 17-point increase from the previous Index number of 44 percent –- released in July 2007 — demonstrates how the surging cost of health care is read more
Zillow.com has come out with a housing report which may well impact some senior owners: Not only are home values falling, but in many cases existing loan balances are now higher than property sale values.
Zillow.com looked at 165 metropolitan statistical areas (MSAs) and found that many recent buyers cannot sell for more than read more
Imagine that you have a reverse mortgage with a $200,000 balance. Imagine also that your house has declined in value and is now worth $150,000. How much do you owe the lender? Can you be prevented from moving since since the debt is bigger than the home’s value?
Assuming that you have an FHA-insured reverse mortgage, or a HECM (home equity conversion mortgage) as HUD uses the term, you can never owe more than the house is worth. That’s why the HUD reverse mortgage product is a non-recourse loan. The lender cannot go after you, your spouse or your heirs for any unpaid balance. Since the house is worth $150,000 in this case that’s all the lender can get.
The reverse mortgage borrower’s liability is limited under the FHA program because HUD insures the borrower if the lender does not come up with promised money — and HUD also insures the lender if the full value of the loan is not repaid. When I last checked at the beginning of the year, there had been no borrower claims against HUD while lender claims averaged about $18,000 apiece.
The lender gets to call the loan under certain conditions, most importantly a “maturity event,” an oblique term meaning that the borrower died, moved or sold.
HUD has been insuring reverse mortgages nationwide, including in markets obviously in decline. HUD has to do this — it is a federal entity. The result is that if a borrower with a reverse mortgage in a weak market wants to move, he or she effectively has an instant “buyer” in even the worst markets — the reverse mortgage lender backed by that valuable insurance policy from HUD.
Who wins if the borrower simply wants to move and home values have declined? The borrower got the money, the lender got the fees and HUD gets to write a check to the lender for any unpaid loan balance.
For specifics, speak with an independent adviser such as an attorney who specializes in elder law.
Michelle Singletary, the excellent personal finance columnist with The Washington Post, took a look at reverse mortgages over the weekend and had some interesting points about the new regulations that will go into effect October 1st.
“Under the new law,” says Singletary, “the amount a senior can borrow through a reverse mortgage has been increased to $417,000 nationally. However, that limit could be pushed to $625,000 if the borrower lives in a high housing-cost area. Currently, the amount a senior can borrow varies by county. The range now is $200,160 to $362,790.”
She adds that “the law reduces fees on this type of loan. It cuts the origination fee to 2 percent of the first $200,000 borrowed and 1 percent for any amount after that. The maximum origination fee can’t exceed $6,000. The fee is currently capped at 2 percent of the loan limit or of the home’s value. The law does allow for the cap to adjust, based on the annual percentage increase in the consumer price index.”
Interestingly, she does not ask why HUD insurance premiums remain unchanged but does note that the new law requires a study of reverse mortgage costs.
“Except for title, hazard, flood or other such insurance products,” she explains, “lenders are prohibited from requiring borrowers to purchase insurance, annuities or other similar products as a condition for a reverse mortgage. The law also restricts lenders who are originating reverse mortgages from working with, employing or providing incentives to other professionals trying to sell seniors other financial products as part of the application process.
“The housing act includes a provision for reverse mortgages partly because of concerns that seniors were inappropriately — and sometimes fraudulently — being sold other financial products.”
For the full story, please see: Help for Seniors Who Have Reverse Mortgages
The state of Mississippi has come out with an online Resource Guide to Combating Senior Financial Abuse in Mississippi. While some of the information is state-specific in the sense that laws to combat predatory lending and other types of fraud differ by jurisdiction, the Guide itself has a lot of generic information of value to seniors.
According to the Mississippi AG, “there are usually three reasons why financial elder abuse happens:
“Need or greed –- People who take advantage of elders usually have financial problems or act out of greed.
“Opportunity –- Offenders often have opportunities to obtain an elder’s money or property by pressuring or otherwise influencing them or taking advantage of the trust, discretion or power that has been given to them.
“A sense of entitlement –- Offenders also usually have a false sense of entitlement or, in other words, they believe that they “deserve” the money as the future heir or because they believe that older people in general don’t really need all their money.”
Of particular interest is the material discussing reverse mortgages. The Guide has a balanced review of reverse mortgages, including pros and cons.
For the complete guide, press here.
Larry Morris writes and says regarding the new reverse mortgage offering from SECU in North Carolina, “I like some of the bells and whistles, but find it interesting that in their brochure, they are comparing a fixed SECU Reverse Mortgage at 6.75% with an adjustable HECM Reverse Mortgage at 6.75%. So they are just looking at fees, not the reality of where the CMT currently is and historically has been. It will be interesting to see how much of their members money they can loan before they realize they are in the Real Estate business. Watch them invest their pension dollars in this as well…”
Credit unions, of course, are a source of financing outside the orb of commercial banks. They have different, and from a consumer perspective, often better economics. When the North Carolina State Employee’s Credit Union (SECU) says it will offer a reverse mortgage with “a fixed, stable rate of interest, a simple interest accrual method, a low origination fee of 1%, no mortgage insurance and no monthly service fees” you have to assume these folks did not set such fees blindly.
One of the reasons that commercial bankers have tried to close down credit unions is that credit unions exist to benefit members, not management.
In 2005 I gave a speech before ARELLO, the Association of Real Estate License Law Officials and said that “according to The Washington Post there are some 9,000 non-profit, member-owned credit unions nationwide. Banks want credit unions to convert and become for-profit mutual savings banks. Why? According to the Post, credit unions are ‘low cost’ competitors who have ‘exerted a downward pressure on the fees banks charge.’” (See: Banks Look to Make Converts of Credit Unions, Feb. 11, 2006)
“Now you might think that the National Credit Union Administration, the federal regulator, would have some say in the conversion process. Nope. The Post reports that under a 1998 law the ability of the NCUA to block conversions was simply eliminated.”
I would expect that if SECU’s low-cost reverse mortgage concept spreads that the obvious result would be an effort to eliminate the ability of credit unions to originate reverse mortgages by changing the law. In some eyes, that’s a lot easier than meaningful competition in the marketplace.
Great minds think alike — largely.
Kiplinger’s headline tells us that “seniors Get a Gift from the New Housing Law” while TheStreet.com headline explains that “Senior Homeowners Get Lift From Housing Bill.”
Kiplinger notes that “homeowners age 62 and older will now be able to tap a greater amount of their home’s equity. The maximum amount for a reverse mortgage has been upped nationwide by more than a quarter of a million dollars, to $625,500. That flat limit replaces the old rule that set limits from $200,160 to $362,790 depending on where the borrower lived.”
TheStreet.com says that “now there will be a higher borrowing level on FHA reverse mortgages — with $625,000 of home value as a cap, and a $417,000 borrowing limit. Fees will be capped at 2% of the first $200,000 borrowed, and 1% on the balance — with an absolute maximum of $6,000 in fees.”
Both stories are good, but the Terry Savage column on TheStreet.com is the better of the two because it goes into far more depth about reverse mortgages generally.
For the full story, see:
Seniors Get a Gift from the New Housing Law
and
The North Carolina State Employee’s Credit Union (SECU) has come out with a reverse mortgage product which is truly unique: “The Credit Union loan offers a fixed, stable rate of interest, a simple interest accrual method, a low origination fee of 1%, no mortgage insurance and no monthly service fees!”
It will be interesting to see whether the North Carolina idea is financially viable and, if so, whether it spreads to other states.
The release below speaks for itself. If you’re in a state other than North Carolina and belong to a credit union, you might want to share the release with local CU officials.
State Employees’ Credit Union Rolls out Consumer-Friendly Reverse Mortgage
RALEIGH, N.C.–(BUSINESS WIRE)–State Employees’ Credit Union (SECU) is pleased to announce a consumer-friendly reverse mortgage designed to help senior members utilize the wealth in their homes in the best manner. Setting it apart from other industry-standard reverse mortgages, the Credit Union loan offers a fixed, stable rate of interest, a simple interest accrual method, a low origination fee of 1%, no mortgage insurance and no monthly service fees!
Many older homeowners have a large amount of equity in their homes but still have a need for more income on a monthly basis to balance their budget. In some cases these homeowners do not qualify for typical home equity loans and need another option in order to stay in their home or help pay for home healthcare. One alternative is a reverse mortgage loan. A reverse mortgage is a loan against a residence to provide cash to assist with living expenses, typically in the form of a lump sum or fixed monthly disbursement to the borrower. Borrowers must be 62 years of age, utilize the home as their primary residence and receive consumer education on the product from a NC certified reverse mortgage counselor.
Phil Greer, Senior Vice President of Loan Administration states, “SECU investigated the reverse mortgage marketplace and we saw numerous opportunities to provide this important product to our members, reducing the typical costs being assessed. Through reduced fees, a fixed rate of interest and a simple interest accrual method, we will provide the member with an enhanced use of their equity. This will result in more funds being made available to the member in order to assist with their day-to-day living expenses. The features of the SECU reverse mortgage are very consistent with our ‘Do the Right Thing’ philosophy.”
SECU sought assistance from various senior-affiliated organizations in designing a beneficial reverse mortgage product. To provide additional guidance and financial education on reverse mortgages, SECU also published a booklet for members to learn about the product. The booklet is available via the SECU website at www.ncsecu.org.
Mary Reca Todd, Manager of Supportive Housing for the NC Housing Finance Agency, comments on the helpfulness of certified counselors, “A reverse mortgage can be a useful financial option for some older homeowners who need to supplement their retirement income to help pay for essential needs. Since each homeowner’s situation is unique and reverse mortgages differ significantly in payment options and fees, it is important to receive face-to-face counseling with a certified reverse mortgage counselor prior to applying for a loan. Certified reverse mortgage counselors in North Carolina are trained to provide consumers with information on reverse mortgage products and other services available to older adults that will help them make informed financial decisions.”
Mark Pearce, Deputy Commissioner of Banks for the State of North Carolina, adds, “If you are considering a reverse mortgage, you should shop around and talk to a counselor to make sure you are getting the product that is right for you. Reverse mortgages are complex products and choosing the wrong one can cost you thousands of dollars and even possibly your home.”
Ed Regan, Executive Director of the NC Retired Governmental Employees’ Association, remarks, “Seniors in the market for this type of product can be extremely vulnerable. There are media ads promising ‘too good to be true’ products that are ultimately not in the best interest of the borrower. Consumer education is crucial in making sure the older population does not fall victim to what could become the next frontier for mortgage scams. We are pleased SECU has developed a consumer-friendly product to assist NC’s retired state employees.”
Jerrie J. Lattimore, Administrator of the Department of Commerce’s North Carolina Credit Union Division, reinforces, “I strongly encourage all North Carolinians considering a reverse mortgage to investigate the available options, consult with family members and compare products in the marketplace.”
About SECU
SECU is a non-profit financial cooperative owned by its members. SECU has been providing the employees of the State of North Carolina and their families with consumer financial services for over 70 years. Currently serving more than 1.4 million members, SECU provides services through 218 branch offices, 980 ATMs, two call centers and a website — www.ncsecu.org.
Should you sell your life insurance policy? You should buy a life insurance policy just to have something to sell? How does such an arrangement compare to a reverse mortgage as a way to raise cash?
Writing on Newsday, Saul Friedman says “We were among the first, more than a year ago, to call your attention to “life settlements.”
“That’s a new and, to my mind, a potentially unsavory business now referred to as “Stranger Owned Life Insurance” (SOLI), wherein you sell your life-insurance policy to an investor for more than its cash value. Or, closer to fraud, you are advised to buy a big policy in order to sell it to the highest bidder, and you name the investor as beneficiary.”
Reminds me of the old Groucho Marx show, You Bet Your Life….
“For cash-strapped older people on fixed incomes,” says Friedman, “it’s tempting to sell a long-held policy in order to get some cash and quit paying premiums, rather than turning it back to the insurance company for its cash value and going without insurance. But taking out an FHA-insured reverse mortgage on the equity in your home is safer, and you continue to own your home.”
Friedman says it’s better to borrow against a universal life-insurance policy because unlike the sale of an insurance policy the proceeds from a loan are not taxable income. This is similar to a reverse mortgage because, again, there are no taxable proceeds because the tax derived from a reverse mortgage is loan money and not sale money.
Friedman mentions two companies that make loans against insurance policies, for those who want to look into this further.
And for those who really want to look into this further, please speak with your insurance broker and an attorney who deals with elder law before signing anything with anyone.
For the full story, see: Gray Matters: SOLI: a stranger is your beneficiary
With a jobs shortage and huge number of adult children living with their parents, there ought to be a way to get the youngsters out of the house. And now, thanks to the new FHA reform bill, there is.
As a parent you can always give a gift to a child to help them buy a home. But a “gift” is something that you don’t get back and doesn’t pay interest, not an option for a lot of families that are not among the rich and famous.
Under the new FHA package, however, there is a delightful option: You can give the children a loan and it will count as “cash” for FHA downpayment purposes.
This is likely to be a better idea for most parents than an outright gift. You can structure the loan as you like, maybe not requiring payments or interest for awhile, or maybe not requiring repayment after so many years. And you can forgive the debt in your estate, if you want.
Given that so many couples wind up in divorce court, a loan rather than a gift may well be practical and prudent alternative to an outright gift.
Loans, of course, should be in writing, with all terms plainly spelled out. An attorney or legal clinic can help with the paperwork and specific advice.
SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE.
Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended to read as follows:
“(9) CASH INVESTMENT REQUIREMENT. –
“(A) IN GENERAL.—A mortgage insured under this section shall be executed by a mortgagor who shall have paid, in cash or its equivalent, on account of the property
an amount equal to not less than 3.5 percent of the appraised value of the property or such larger amount as the Secretary may determine.
“(B) FAMILY MEMBERS.—For purposes of this paragraph, the Secretary shall consider as cash or its equivalent any amounts borrowed from a family member (as such term is defined in section 201), subject only to the requirements that, in any case in which the repayment of such borrowed amounts is secured by a lien against the property, that –
“(i) such lien shall be subordinate to the mortgage; and
“(ii) the sum of the principal obligation of the mortgage and the obligation secured by such lien may not exceed 100 percent of the appraised value of the property plus any initial service charges, appraisal,inspection, and other fees in connection with the mortgage.
“(C) PROHIBITED SOURCES. — In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before,
during, or after closing of the property sale:
“(i) The seller or any other person or entity that financially benefits from the transaction.
“(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).
This subparagraph shall apply only to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008.”
Homeowners: Find a reputable lender near you!
Peter G. Miller is a syndicated real estate and personal finance columnist who appears in more than 100 newspapers nationwide. His columns for Realty Times are carried by thousands of websites. Author of The Common Sense Mortgage -- a book with unit sales well into six figures -- Mr. Miller has been featured on such media outlets as Oprah, The Today Show, NPR and CNN.
Mr. Miller's work also appears on such sites as RealtyTrac and Mortgage Lenders Plus, and he has been a long-time columnist with the leading magazine for real estate brokers, the Real Estate Professional.
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows (image attached).
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