The Power of Celebrity

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The New York Times Examines Reverse Mortgage Celebrity Spokespersons

reverse mortgage newsThere may be a window of opportunity in the wake of President Trump’s call to overhaul regulations for financial institutions and housing agencies. The National Reverse Mortgage Lenders Association (NRMLA) submitted several requests to HUD to update and refine the non-borrowing spouse provisions of the Home Equity Conversion Mortgage, and improve the rules for HECM purchase transactions. An opportune moment indeed as HUD has asked for inputs to identify regulations that impose an undue burden.

The addition of non-borrowing spouse protections was a welcomed change that provided protection for the spouses of HECM borrowers not named on the loan and removed a thorn in the side of the HECM industry that buoyed claims of reverse mortgages unfairly punishing widows and widowers in their most painful and vulnerable hours. While several tweaks have been made in recent years, NRMLA has asked for improvements addressing conflicting language in HECM loan documents and provide protection to non-borrowing spouses.

While getting a reverse mortgage is complex, unwinding the loan can be even more complicated for surviving non-borrowing spouses, heirs and services

Reforms Sought for Non-Borrowing Spouses

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NRMLA Submits Requests to Reform NBS Policies

reverse mortgage newsThere may be a window of opportunity in the wake of President Trump’s call to overhaul regulations for financial institutions and housing agencies. The National Reverse Mortgage Lenders Association (NRMLA) submitted several requests to HUD to update and refine the non-borrowing spouse provisions of the Home Equity Conversion Mortgage, and improve the rules for HECM purchase transactions. An opportune moment indeed as HUD has asked for inputs to identify regulations that impose an undue burden.

The addition of non-borrowing spouse protections was a welcomed change that provided protection for the spouses of HECM borrowers not named on the loan and removed a thorn in the side of the HECM industry that buoyed claims of reverse mortgages unfairly punishing widows and widowers in their most painful and vulnerable hours. While several tweaks have been made in recent years, NRMLA has asked for improvements addressing conflicting language in HECM loan documents and provide protection to non-borrowing spouses.

While getting a reverse mortgage is complex, unwinding the loan can be even more complicated for surviving non-borrowing spouses, heirs and services

Economist Claims Annuities ‘Safer” than HECM

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Syndicated Columnist Recommends Cross-Selling Strategy…with a Twist

 

reverse mortgage newsJust as the reverse mortgage suffered much negative media coverage and hand-wringing from financial pundits, so have annuities. If an annuity sounds familiar to reverse mortgage professionals, it should. Annuities were the financial product most often associated with what many considered a questionable and unethical practice- the cross-selling of financial products investing the proceeds into annuities.Surprisingly, one columnist and economist recommends taking out a traditional mortgage and investing in an annuity.

An annuity is a contractual agreement between an investor and typically an insurance company. A lump sum is invested and then can be ‘annuitized’ or paid out over a period of time, deferred until a later date for full withdrawal, or rolled over into another investment. There are four basic types: immediate, fixed, indexed and variable. An immediate annuity converts a lump sum premium investment into an immediate stream of payments over a specified period of time, usually over one’s lifetime. This is often referred to as a Single Premium Immediate Annuity (SPIA). A fixed annuity guarantees a declared interest rate. The indexed annuity is a variant of the fixed but credits interest based on the percentage growth tied to marked indices such as the S&P500 or the Dow Jones Industrial Average (DJIA). Variable annuities invest funds into mutual funds or other market investments that can be subject to loss of principle in many instances.

Syndicated columnist Laurence Kotlikoff opens his column with the statement, “HUD fails to mention a clear-cut and, to me, far safer way, at least for older people, to tap home equity.” But is Kotlikoff’s ‘way’ truly a safer option? Let’s examine his suggestion more closely.

“HUD fails to mention a clear-cut and, to me, far safer way, at least for older people, to tap home equity. This entails taking out a long-term fixed mortgage on your home and using the proceeds to purchase a fixed annuity payment.

Using a HECM Instead of Long-Term Care Insurance

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One Financial Planner Suggests Two LTC Insurance Alternatives

reverse mortgage newsIf you were to eavesdrop on a typical meeting with someone in their 50’s with their financial advisor, chances are you would here the sensible advice to purchase long term care insurance. This practical recommendation is rooted in the fact that nearly 70% of those aged 65 and older will need long term care services at some point in their lifetime. However skyrocketing long term care premiums has one financial planner recommending alternatives.

George Gagliardi is a certified financial planner focused on creative solutions to help preserve and grow his clients’ assets. A recent MarketWatch article shows that Gagliardi is skeptical of traditional retirement advice when it comes to protecting his client’s assets from the ravages of health emergencies and long-term care costs. Long term care costs are not the only threat, the other is the risk of exploding premium rates.  Federal employees participating in the long-term care insurance program learned this harsh lesson in 2016 when their premiums jumped 126%. Two choices were offered- pay the higher premium and retain your current coverage or pay the same premium for less coverage. A spike in premiums had a direct impact on a senior’s cash flow and quality of life.

Few financial planners stray from conventional recommendations and approaches to asset management and preservation. Unfortunately, conventional wisdom yields typical results. Gagliardi takes a different approach favoring two alternatives: hybrid long term care policies and the Home Equity Conversion Mortgage.

Retirees Conflicted on Home Equity

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Despite challenges many reluctant to tap equity in retirement

 

reverse mortgage newsOlder American homeowners find themselves beset by a variety of retirement landmines- exploding medical costs, uncertain markets and income security. Despite these challenges, retirees remain conflicted about tapping their home equity.

Mortgage and financial professionals are well aware that the baby boomer generation is less adverse to mortgage debt than the generation that preceded it. A recent New York Times article cites the seismic shift of how older American’s managed mortgage debt. The Federal Reserve reports that home-secured debt held by those aged 65-74 was only 18.5 percent in 1992, 32 percent in 2004 and 42 percent in 2004 as reported by the 2013. The percentage of those holding mortgage-related debt into retirement is expected to continue to rise as an estimated of 10,000 baby boomers turn 65- each day.

Despite the widespread acceptance of leveraging debt among boomers, retirees financial needs and uncertainty about tapping into home equity remain. The conflict between the need to fund aging in place and tapping into home equity through a mortgage is addressed in Jamie Hopkins recent column in Forbes.

“American retirees are facing a laundry list of retirement challenges. The only certainty is that

Misspent Money, Scams, Personal Stories & More

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The roundup of weekly HECM news

 

What do strippers, casinos, and groceries have in common? It’s bad enough to be forced to foot the bill of your own company’s audit and financial monitoring. Reverse mortgage servicer Ocwen Financial paid over $44 million dollars to cover the costs of monitoring services to Fidelity Information Services as part of their agreement with the state of California for its investigation of claims that Ocwen did not produce the required paperwork related to the state’s Homeowners Bill of Rights. The servicer alleges the auditor burned through the budgeted money allocated for a two year period in just 11 months, paying for strip clubs, casinos, liquor, and groceries. They also claim that FIS auditors watched videos on company time, left without clocking out, and inflated daily hours worked and mileage expenses. F.I.S. flatly denies the allegations. The auditing firm’s contract was terminated by the court under a new consent order.

download-1Fraud comes in all shapes and sizes and it wasn’t from a loan officer or financial professional. Court papers allege a Chicago contractor, Mark Diamond, of scamming more than $10 million in a repair scheme that targeted older homeowners . In all there are an alleged 122 victims- most women, African-American and in their 80’s.

The Trump Era & The HECM

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Good News for HECM, Not So Much for Housing Programs

budget2President Donald trump embodies the essence of a political wrecking ball in Washington D.C.- a city known to cling tightly to political traditions of governing and supporting long-standing social programs, despite our ballooning deficits.

While the President weathers opposition from both Democrats and Republicans alike, his administration’s draft 2018 budget for the Department of Housing & Urban Development reflects populist sentiments of a smaller, efficient government with parsimonious allocations for social program spending. Many feared the populist agenda would gut essential HUD, programs, and more specifically, the Home Equity Conversion Mortgage program.

Politico obtained a copy of the Trump administration’s preliminary HUD budget revealing plans to gut $6 billion from several programs including the outright elimination of the Community Development Block Grant, neighborhood initiatives, and a housing program for veterans. Despite these unpopular cuts, the HECM program was spared and even strengthened.

Two changes stand to liberate the HECM – the removal of the annual cap and the erosion of the unchecked powers of the Consumer Financial Protection Bureau…

Financial Assessment Accepted by Industry

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The origins of the now-accepted HECM Financial Assessment

Screen Shot 2017-05-18 at 10.19.25 AMDespite it’s initial chilly industry reception the HECM Financial Assessment has been accepted- so said HUD’s Phil Caulfield. During his remarks at the NRMLA western regional meeting in Huntington Beach Caulfield emphasized the importance of the assessment stating “if we hand’t done this, there probably would be a HECM program. It’s that important”.

Necessity is the mother of invention. Several factors contributed to the genesis of the Financial Assessment, but the two most notable were lenders seeking to reduce the risk of paying delinquent property charges before or during the prolonged foreclosure process, and the reputation risk of issuing loans to borrowers who would likely default on property charges and the subsequent public fallout from the resulting foreclosure.

In October 2011, FHA issued guidance that HECM lenders could consider an applicant’s credit history and financial capacity- perhaps in response to pressure from lenders seeking a public statement. The largest HECM lenders weighed whether to launch their own financial assessment guidelines in the hopes that other lenders would follow suit. MetLife was the first to venture into the uncharted waters of HECM underwriting in November 2011.  

Equal Disclosure Requirements for All

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Older borrowers deserve to know their options before getting a traditional mortgage

Whether it is due to over-regulation, the sheer size of our housing bureaucracy, or crony capitalism, the mortgage marketplace is not a level playing field, especially when it comes to traditional and reverse mortgage lending. Despite the creation of the Consumer Financial Protection Bureau and other agencies created to protect consumers in the wake of the housing crash and questionable lending practices, problems remain.

reverse mortgage newsChief among those problems is the continuing lack of disclosure to older borrowers who cannot afford to choose the wrong mortgage option.

A level playing field in the mortgage marketplace is a noble concept that would place each player in a position to have an equal chance at succeeding abiding by the same set of rules. Unfortunately, such an aspiration is highly impractical in the mortgage marketplace as loan product features and risks vary wildly. Regardless, perhaps improved disclosure requirements should be required for traditional mortgage lenders, brokers and loan officers, just as HECM professionals will be required to disclose “all HECM products, features, and options that FHA insures.” Such a requirement may have prevented an 82 year old woman with a meager income and a part-time job from being placed into a 30-year mortgage- who a short time later lost her job and is now facing foreclosure. 

When No Advice is Worse Than Bad Advice

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Professionals not providing all options can have devastating consequences

“Failing to provide a client with viable options can be just as damaging, if not worse than providing poor advice”

Screen Shot 2017-05-05 at 10.19.24 AMSuch is the case in a recent post I read on LinkedIn from Florian Steciuch. He wrote “ My definition of heartbreak – meeting with an 82 year old client who was given a 30 year mortgage when she bought her new town home last year. Recently she lost her part-time job, now has Social Security of [sic] $1300 with a mortgage P+I of $700. She already missed her property tax payment. She provided a down payment of 50% – this is a prime example of why the FHA HECM for Purchase was a far superior loan option. She would have had NO mortgage payment. She was not offered this option because her bank did not offer it. 80 year old home owners should not be taking on the risk of 360 months of mortgage payments if they have a substantial down payment.”

Perhaps this 82 year old would have averted disaster had she read an article similar to Jack Guttentag’s, aka ‘The Mortgage Professor’ latest contribution in the Huffington Post, “Purchasing a House with a HECM Reverse Mortgage: How to Do It Right”. Guttentag opens stating “Purchasing a house with a HECM reverse mortgage has the great advantage that it does not impose a monthly payment burden on the borrower.”