1. Do seek out a knowledgeable housing counselor who can discuss reverse mortgage guidelines. Any reverse mortgage counselor you work with should have passed an exam approved by the Department of Housing and Urban Development (HUD), and should continue to get follow-up training as needed.
2. Do compare quotes from several reverse mortgage lenders. Fees can vary at different mortgage lenders, so it’s important to gather as many quotes as you can to find the best deal.
3. Do talk with reverse mortgage heirs who might have to deal with the loan after you die. Keeping family members informed about your plans can help avoid problems and confusion later.
4. Don’t rush into a reverse mortgage just because your friend did. Reverse loans can help supplement your income, but these financial products aren’t for everyone. You may not have enough home equity to make it worth your while to borrow money.
5. Don’t get a reverse home mortgage without having a specific plan for using the proceeds. All money received from a reverse mortgage should be accounted for with a budget or long-time savings plan. Even if you deposit proceeds from a reverse loan in an interest-bearing account, you should take time to investigate the best places to stash money for the long term.
6. Don’t stop paying on homeowners insurance and property taxes. Falling behind on these financial obligations can result in a reverse loan having to be repaid early.

Gather the facts you need to make the right choice about borrowing against home equity. Any decision you make should improve your financial situation so that you can live comfortably in retirement.

You can find copies and variations of this statement all over the Internet, but there is no news release from HUD concerning the HECM Saver, the subject of the release. There is no HECM Saver statement from HUD in the Federal Register. Indeed, there is no HECM Saver program as of this writing though there are certainly hints, rumors and mutterings.

Specifics

“In a telephone briefing to prepare industry participants for upcoming changes to the HECM program,” says the release, “HUD Deputy Assistant Secretary Vicky Bott shared the Department’s plans to implement a new variant of the product, referred to as the ‘HECM Saver,’ that will provide seniors with a reverse mortgage option that significantly lowers upfront costs by virtually eliminating the upfront Mortgage Insurance Premium that is required under the standard HECM option. Bott also reported accompanying changes intended for the existing HECM product, now referred to as a ‘HECM Standard.’ The introduction of the HECM Saver and changes to the HECM Standard are expected to be effective shortly after the new federal fiscal year begins this October.

“The primary difference between the two HECM options will be in the cost of the upfront Mortgage Insurance Premium (MIP) and the amount of the funds, or ‘principal limit,’ available to borrowers. The upfront Mortgage Insurance Premium is charged by the Federal Housing Administration to support its insurance fund. Under the HECM Standard option, the upfront MIP will remain at 2% of the value of the property (or 2% of the maximum FHA loan limit of $625,500, if the property has a value greater than that.) HECM Saver will have an upfront MIP of only .01% of the property’s value, significantly reducing upfront costs.

“This cost saving in upfront fees is able to be achieved because the amount of money available to a borrower, an amount known as the ‘principal limit,’ under a HECM Saver will be reduced, substantially lowering the risk to the FHA insurance fund. Borrowers will receive approximately 10% to 18% less under the HECM saver option, than they would under the HECM Standard option.”

Alas, the HECM Saver program does not exist. It may exist after October 4th, but since possible program details remain unsettled we don’t know what it will actually include or exclude, what it will save or not save, how much it will finance or not finance — or whether the whole idea will be delayed or even dropped. Only when the entire program is finalized and all the details can be considered will it be possible for seniors to evaluate what’s being offered.

The process is similar to creating legislation on Capitol Hill. As an example, in a few days the Wall Street Reform Act magically went from 2,253 pages to the 848-page document signed by the President.

It’s easy to understand that HUD would like to examine its reverse mortgage programs from time to time, that it would like to reduce risk and raise fee income and that it would like input from various stakeholders. No doubt when and if there’s an HECM Saver program we’ll hear all about it. From HUD.

Hopefully — before the final details are completed — HUD will chat not only with those who sell reverse mortgages but also with consumer organizations, those who represent seniors, practitioners of elder law, prospective borrowers and fee-only financial planners.

When do you plan to retire? Have you saved enough for your golden years or explored options for funding retirement, such as reverse mortgages or postponing retirement?

About 46% of people polled by the Retirement Readiness Index said they will delay their planned retirement age. The survey, conducted by the MetLife Mature Market Institute, found that men were more likely to have thought about whether or not they were financially prepared for retirement. Of those polled 52% said they are behind in their retirement goals and 25% said they were significantly behind. Only 28% said they are on track or already have met retirement goals.

Retirement planning tools

Planning for retirement is not something that happens overnight. Retirement planning should occur throughout your work life and may need to be adjusted as you go along. The MetLife Mature Market Institute has a retirement planning book that can help you prepare even if you don’t have too many years before retiring.

If you are like many Americans who managed to build a retirement savings over your working years, only to find your plans derailed by the economy, it’s important to find the right strategy to boost your retirement income. A housing counselor can review reverse mortgage guidelines with you to determine if borrowing against home equity could help supplement your retirement income. Other alternatives may be available, such as programs for seniors in your community. You can also begin comparing reverse mortgage quotes here.

Reverse loans aren’t your only option for funding retirement, so it’s important to discuss other alternatives that can help. A qualified estate planner can help put together a comprehensive strategy for your retirement years.

Boomers lower home equity

“The recent housing crisis has worsened the already precarious financial condition of many older Americans,” according to the study. States where the home price index fell saw bankruptcy filings more than double as many boomers were left with little or no home equity.

The study, written at the Administrative Office of the U.S. Courts, found that the median age for bankruptcy filers rose to 44.9 years in 2007 from 37.7 years in 1994. People under 25 only accounted for 1.7% of filers in 2007, compared with 4% in 2002.

Can a reverse loan help?

If you are at least 62 and dealing with financial problems, do your best to avoid bankruptcy. Having some home equity could result in you getting a reverse mortgage. Borrowing with a reverse home mortgage should be explored only after you’ve evaluated other options for straightening out problems with money.

Pros and cons of reverse mortgages

The good thing about a reverse loan is that you can use the money for pretty much any purpose. A reverse mortgage also does not have to be paid back until you sell your home, move, or die. Plus, you can never owe more than the property is worth at time the reverse loan is repaid.

On the negative side, reverse mortgages have been known to have high fees. That could change though as the Department of Housing and Urban Development plans to offer a modified Home Equity Conversion Mortgage (HECM) with lower upfront costs. Another drawback is that you gradually strip your home of equity, which could leave you with little property to leave to heirs.

If you are considering bankruptcy, speak with a credit counselor and bankruptcy attorney to explore your options. A qualified housing counselor can also help you learn more about reverse mortgages.

Reverse Mortgage Mailings

The state of Oregon asked the company to include its name in all mailings and remove language that implies the reverse mortgage lender has a relationship with any government agencies. Mailings from Equipoint imply that its program is part of the federal stimulus package. They also feature a picture of financial guru Suze Orman with a quote from her that encourages seniors to consider reverse loans. The state sent a letter to EquiPoint in May and June but has apparently not heard back from the company yet, according to a spokeswoman for the Oregon Division of Finances and Corporate Securities.

Investigate Reverse Loans

The takeaway from all this is that it’s important to find out as much information as you can about a reverse mortgage lender before signing up. Unscrupulous companies can make all kinds of claims to get you to sign up for their products and services. Before doing business with any reverse loan company check out its reputation in your community. Contact your state’s Attorney General to find out if there have been any complaints.

Get HECM Counseling

If you really think getting a reverse home mortgage is a good move, talk with a qualified and reputable housing counselor. You can find a counselor approved to discuss the Home Equity Conversion Mortgage (HECM), the most popular type of reverse loan in the U.S., through the Department of Housing and Urban Development (HUD). No obligation Revers loan quotes from reputable lenders also can be found here.

In basic terms there are several debates going on at once.

First there’s the question of when benefits should occur; that is, what is “full retirement” age. The Social Security Administration has a list of ages and full-retirement benchmarks, retirement dates which currently run between age 65 and age 67.

But, there’s now a proposal to raise the full-retirement age to 70.

House Minority Leader John Boehner (R-OH) told the Pittsburgh Tribune-Review that he would like to see the retirement age increased to 70 — but only for people who will not retire for at least another 20 years. Such an extension would reduce financial strains on the system, but is age 70 the new 65?

The initial reaction to Boehner’s suggestion was both hot and heated for the most part, but think of it as the first shot for a change which is more modest, say making the new full-retirement benchmark age 67.5 or 68. Financial necessity as well as demographic realities may make such a change inevitable. Moreover, the general increase in the full retirement standard from age 65 to 67 serves as a precedent that can be followed with limited political liability — especially if the change is deferred for several years.

Privatization

What’s far more controversial is the idea of sacking Social Security altogether. No one says that outright of course, but that’s precisely what’s meant by “privatizing” the system.

The idea would be to dump Social Security in exchange for accounts invested in the stock market. This would be great for Wall Street — think fees — and likely great for stock values — think of more dollars chasing a relatively small number of stock issues. However, not everyone wins with the stock market. It’s foreordained that large numbers of seniors would not see stock market profits and dividends which would be sufficient to support them in old age. How such individuals would fare without the safety net of Social Security is unknown — and very unappealing.

Reverse Mortgages

In the new world of changing economics, where the US economy is not destined to robustly expand every year and where full employment is less certain than in the past, those who wish to do well in their later years need to supplement government programs with their own savings and investments.

This can be accomplished in large measure with private pensions and various investments. For those with real estate equity, a home can effectively be converted into either a source of monthly income, a lump sum, or with a reverse mortgage a device to pay off an existing mortgage balance. This would end monthly costs for principal and interest — thus increasing the value of income from other sources. Costs for property taxes, insurance and repairs would remain in place.

What’s best for you? There’s no single answer, but look ahead, speak with an attorney who specializes in elder law and consider the use of a fee-only financial planner.

Housing Costs Rise

The survey also found that the number of homeowners without mortgages fell 1.3% to 24.2 million in 2009 from 24.9 million in 2007. The data show that 66% of homeowners have a regular mortgage and/or home equity mortgage, and that 2% have only a line of credit.

It also found that U.S. homeowners pay a median of $1,000 for monthly housing costs. Renters pay a median of $808 for housing costs, but they are more likely to spend a larger percentage of their income on housing (31% vs. 20% for homeowners).

Majority Like Where They Live

People polled also were mostly happy with where they lived. About 70% rated their homes an 8, 9, or 10 on a scale of 1 to 10; 28% rated their homes a 10. People who lived in new construction were the most content with their housing, with 84% rating their homes an 8, 9, or 10; 45% rated their residence a 10.

The survey looks at a variety of topics related to the nation’s housing. It includes data on the features in homes, including air conditioning, types of heating, layout of homes, and availability of special living services for seniors. Not surprising, people who lived in newer homes tended to have more bedrooms and bathrooms.

• Owning a home free and clear is a dream that many people share. Not having a monthly mortgage payment frees up income for other expenses, such as medical bills, hobbies, or travel. A paid off home also can give you a sense of financial freedom. Reverse mortgages don’t have to be repaid until you leave your home, however, so you won’t have to make monthly payments.
• You can apply for a reverse home mortgage at the age of 62, which means that there is a potential to outlive the proceeds of the loan (unless choose to receive monthly payments for life, or tenure). The average life expectancy in the US is 77.9 years, according to the Centers for Disease Control and Prevention. Women on average outlive men. Before borrowing with a reverse mortgage, work with a housing counselor to assess the current state of your finances. It’s important to know exactly how a reverse loan may or may not help you.
• Have you thought about any reverse mortgage heirs who might have to settle your estate? Borrowing against your home equity means that you may have less to leave to your kids. They would have the option to pay off the reverse mortgage if they want to keep the house or sell the home and pocket any profit made in the deal. They also could choose to do nothing and let the reverse mortgage lender take the house.

You can get more information about reverse mortgage guidelines by talking with a housing counselor. You can also search for reverse loan quotes here.

1. Downgrade your lifestyle. Consider selling your money-guzzling home and moving to a less expensive place. Doing so can save you money on monthly housing payments, utilities, and maintenance services such as lawn care. You can still be a homeowner, but if you have an empty nest and really need to make your dollars stretch further, it may be time to give up the McMansion. If you’ve been thinking of tapping your existing home equity by getting a Home Equity Conversion Mortgage (HECM), the proceeds can be used to purchase a less expensive home.
2. Focus on relationships and experiences. Instead of always splurging on big-ticket outings, look for free or low-cost activities that allow you to make new friends and spend quality time with family. Also consider volunteering or finding other ways to give back in your community. A recent MetLife Mature Market Institute study found that people who have meaning and purpose in their lives tend to be happier no matter their age.
3. Get help from a qualified debt counselor or housing counselor. A debt counselor can help you address any spending issues your have that may be keeping you a slave to debt. A housing counselor can discuss a variety of options that may improve your finances, including reverse mortgages, refinancing, loan modifications, and local community programs aimed at helping seniors.

Putting together an action plan to embrace frugality can help reduced stress related to money. It also can help you stay focused on the ultimate goal of enjoy a comfortable retirement.

I bring this up because most of those who reach retirement age depend on Social Security for part of their income, along with private pension dollars, dividends, interest, rents, royalties, and work — either part-time or full-time.

How you get income upon retirement greatly influences any decision you might make regarding reverse mortgages. For some individuals a reverse mortgage can be a sensible financial decision, especially if it replaces a mortgage that requires monthly payments for principal and interest with a loan which does not. For others, a reverse mortgage won’t be the right choice.

Social Security

The Social Security system was established in 1935 and from day one had its critics, some of whom had legitimate gripes. For instance, the original program was a benefit for those who reached age 65 but life expectancy in 1930 was 62 for women — and 58 for men. Today, of course, people live a lot longer and millions get benefits.

The latest gripe is that the Social Security system will have a $41 billion shortfall this year. That’s not a good thing for an insurance program if true, but is it true?

Michael Hiltzik, writing in the Los Angeles Times, says the $41 billion shortfall claim is statistical nonsense.

“The old age and disability trust funds,” says Hiltzik, “which hold the system’s surplus, grew in 2009 by $122 billion, to $2.5 trillion. The program paid out $675 billion to 53 million beneficiaries — men, women and children — with administrative costs of 0.9% of expenditures. For all you privatization advocates out there, you’d be lucky to find a retirement and insurance plan of this complexity with an administrative fee less than five or 10 times that ratio.” (See: The myth of the Social Security system’s financial shortfall, August 8, 2010)

But what about the $41 billion?

Hiltzik explains that “this year and next, the program’s costs will exceed its take from the payroll tax and income tax on benefits. That’s an artifact of the recession, and it’s expected to reverse from 2012 through 2014. The difference is covered by the program’s other income source — interest on the Treasury bonds in the Social Security trust fund.

“That brings us back to this supposed $41-billion ’shortfall,’ which exists only if you decide not to count interest due of about $118 billion.”

Figuring out the economics and finances of retirement is difficult. The public should have faith that the Social Security system will be in place when needed — and there should be real numbers to prove it.

When looking at Social Security — or when considering reverse mortgages — just remember the old expression, “nullius in verba” — take nobody’s word for it. Make sure you do your own research and look for the options which work best for you. As a start, speak with fee-only financial planners and attorneys who specialize in elder law.