Me thinking out loud.

An objection that I often run into with Seniors as it relates to a reverse mortgage has to do with fear of loosing the home.  If you’ve done any reading at all on the subject matter, you already realize that the presence of FHA insurance via the HECM program completely eliminates the possiblity of somone who is alive and living in the home from loosing it unless he or she refuses to pay property taxes or to make an insurance claim to fix major damage. Of course, someone has to do those things, regardless.

That having been said, I want to descibe a situation that occured in my life over the course of the past few years.  My mother-in-law began to experience failing health in 2002.  By the time 2006 rolled around, her health came ot the point where she needed full time care.  We were lucky enough to be able to afford that full time care in the form of an upscale nursing facility, and then for her last year, at home care, until she passed away in May of this year.

We were not forced to seller her home in order to qualify for Medicade to pay for her nursing care.  As you probably know, Medicare is good for 90 days.  Most would be fortunate to only have 90 days of tenure in a nursing home.  To qualify for Medicaid, you must be broke.

Now, in my mother in law’s situation, the net cost of her care in conjunction with the past 2 years in the stock market (which was our funding source), we are presently down approximately $500,000. 

You read that figure correctly.  Between Carlyl Place here in Macon & the uncovered portion of her medications, we ran a little under $10,000 per month for an extended period, and it actually was cheaper to have nurses come into the home for the period after that.  The financial markets were able to take care of the rest.

Where does that leave me an my wife?  Well, between these events and the essential failure of the forward mortgage system in our country (which had always provided our means of making a living), we are very nearly dead broke.  So, if either of my parents (currently in their 70s) have to go in the nursing home, we are dead in the water.

Now, a typical nursing home stay would be cheaper than our experience… let’s say 4k / month with uncovered medications.  Even at that level, what happens when a senior is faced with that prospect and he or she does not have a few million dollars in the bank or really good long term care insurance? 

Well, as you may have heard, some nursing homes will take a home in trade.  In lieu of that, Medicaid will kick in if they can prove that they are destitute.  Money and property cannot be transferred to children in order to qualify (as many mistakenly believe).  Under limited circumstances, Medicaid will allow a spouse to stay in that home as long as other factors are met… like a very minimal checking account balace at the end of each month.  But eventually, Mecicaid is going to require that the house be sold to help recoup money paid out for a nursing home stay.  In other words, you have to be broke to qualify.

Now let’s enter a reverse mortgage at, say, age 65, and there still aren’t millions of dollars in the bank, and there still isn’t really good LTC insurance that was bought years in the past.  What happens then?

The way I see it, the average senior has the upside benefit of a much better life style and less worry about money in those youger years.  But, if it comes to Medicaid and the same senior having to be dead broke in order to qualify, the situation is exaclty the same… EXCEPT the government doesn’t get back the money that the senior was able to spend from the proceeds earlier in life.

Bottom line?  Unless a senior has rich children or lots of money in the bank, HE OR SHE HAS ALREADY LOST THE HOUSE if a nursing home gets involved… they just don’t know it yet.  If that is the case, and especially if money is tight, why not close a reverse mortgage and free up money to make this part of life more pleasurable?  If the government gets the house anyway, he or she ends up with thousands of dollars that nobody but the government would ever see.

No class action law suits here…

This subject may very well be too complex to post on my blog, but I find it fascinating.  If companies were unafraid of frivolous law suits, the subject would never be a factor.  But, that is not the world in which we live. 

As it turns out, those who have looked at the growth rates of open HECMs (those set up with a line of credit feature), it appears that there is a very small amount of money being scammed by servicers each month.  But, it is the very formula set for that LOC growth by HUD that causes the anomaly. 

If you are interested in this subject as an attorney or a borrower, you may need to read it 2 or 3 times to understand what is going on.  And, you will have to have a thourough understanding of how LOC based HECMs work before any of it will make sense.  At the end of the day, no class action law suits would ever make it through based on “missing” dollars in LOC growth.

Enjoy:

http://reversemortgagedaily.com/2009/08/03/are-reverse-mortgage-credit-lines-really-shrinking/

Bad News and Good News

Both of these items are time sensitive.

First… the bad news.  It looks like the government, one way or another, is going to cut funding to FHA to help support the reverse mortgage guarantee program.  A house appropriations bill passed the last week in July which could cut net proceeds by an unknown amount, and the Senate is now kicking around a version of the same bill that would reduce proceeds by approximately 5%. 

One possible solution which would keep the net available cash at close almost unchanged would be for HUD to reduce the up front portion of the FHA guarantee insurance, and then increase the annual portion.  Friday evening, I searched dilligently for such verbiage in the Senate version of the bill, and I could not find that this potential solution is presently in consideration. 

What’s my prediction?  Expect at least a 5% reduction, and expect it to go into effect in October.

Here is a quick story from an industry source on the matter (also including more links) published just last week:

Senate & House Appropriations

 

Some good news, however,  is that a nationally known and respected organization, the National Council on Aging (NCOA), is temporarily waiving their $125 fee for the required reverse mortgage counseling by a HUD approved source. They, as most counseling firms, will do that counseling over the phone with an appointment. So, while I am not allowed to point anyone in the direction of any particular counselor, I don’t think there would be any problem with posting a link to a public news story on the internet, right? It looks like they are going to pull the plug on waiving the fee on September 30:

NCOA News Story

 

So, do you know any seniors that need or are considering a reverse mortgage to help pay for health expenses, home repair expenses, or just to provide a safety net?  Between this potential guarantee reduction and an increasing interest rate environment (which we all expect), NOW would be the time for that senior to take action.  Waiting will very likely decrease the amount that a senior will receive from the process.

Agents, all of this is also affects the HECM for purchase program.  So, if you have any seniors downsizing or moving to your area to be close to children, etc., now is the time for them to act.