Reverse Mortgage Updates & Tidbits April 2019

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The end of 1st quarter 2019 has arrived; here are some interesting new items that have popped up in reverse mortgage lending:

  • The Housing and Urban Development Agency (HUD) increased the recognized home value for a reverse mortgage loan in California from a maximum of $679,650 to $726,525. For homes valued above $726,525 RM proprietary jumbo loans are available with a home value maximum of 4 million.
  • Purchase RM loans are increasing in popularity; however the need to plan early for a RM purchase loan pre-approval, before putting the current home up for sale, is imperative. As with all loans, there is income documentation, credit scoring, and for RM loans the addition of the HUD mandated reverse mortgage counseling, all documentation should be completed with a reverse mortgage loan officer before being caught in the panic of: “Yikes, our home sold so fast, we need to put an offer in on another home, but have no reverse mortgage loan officer          pre-approval letter to go with a purchase offer”.
  • HUD RM rules do not allow for short term rentals of a “granny” unit, formal name: accessory dwelling unit (ADU) if the home owner has a RM loan. However, traditional longer term rentals of an ADU are allowed, such as a 1 year lease. I’ve met with several clients who rely on ADU income from a short term VRBO or Airbnb rental arrangement, and have declined to move forward with a RM credit line loan to further increase their retirement income because they wanted to keep the short term rental option of their ADU. Other clients concluded their short term rental was a hassle; they had trouble with partiers, and the final straw being the need to stick around and not travel in case the short term tenant couldn’t seem to get the heater working. These clients stopped short term renting and used the RM credit line income to supplant the lost rental income. (On March 26th, 2019 the County of Nevada moved to ban the use of ADU’s for short term rentals in Ordinance SR-19-0157 with a few exceptions).
  • The HECM program (“HECM” Home Equity Conversion Mortgage is the formal name for a reverse mortgage loan) is designed to be budget-neutral, without reliance on Congressional appropriations. Recent conservative changes to the RM program have moved it to be self sustaining and generating a positive cash flow.

Hello, for more in depth reverse mortgage information from Shawna McDonald, Reverse Mortgage Loan officer serving Grass Valley, Nevada City, Penn Valley and Alta Sierra, the author of this newspaper article,  visit my website SierraFoothillsReverse.com or better yet call for an appointment, I’m all about anything reverse mortgage !

Shawna McDonald, Reverse Mortgage Loan Officer, for 10 years has specialized exclusively in reverse mortgage loans & successfully completed hundreds of them. She is available by appointment in her downtown Grass Valley office for a no-obligation consultation. If you move forward, TLC guaranteed throughout the loan process. Sierra Foothills Reverse Mortgage (530) 497-3010. NMLS #271335 | CalDRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company CalDRE # 01446165 These materials are not from, and were not approved by HUD or FHA

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Experts: Home Equity and the Reverse Mortgage Can be the Key to Solving the Country’s Looming Retirement Crisis

And Yes, It Finally Did Snow in Grass Valley, Nevada City, Alta Sierra, Colfax and maybe a hint in Penn Valley. Now we all can’t wait for spring !

 

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As Baby Boomers continue to retire en masse without sufficient savings to support their later years, it’s become glaringly apparent that the country is on the brink of a retirement crisis.

Pensions have dwindled, Social Security is insufficient, health care costs are rising and people are living longer than ever before, carrying little resources with them into retirement. But many older Americans do have one major source of wealth at their disposal: their house. And for some, utilizing their home equity could be the answer to their late-in-life money problems.

That’s why some experts are insisting that reverse mortgages – which allow older homeowners to access their home equity and remain in their homes – are an important public policy that must be preserved for future generations.

Alicia Munnell, director of the Center for Retirement Research at Boston College, said tapping home equity is essential to solving the country’s retirement crisis. “It’s very clear that for most middle-income people, their house is their largest asset. In the past, they really haven’t touched this asset in retirement, but we are in an environment where Social Security is providing lower replacement rates, and 401(k) plans have modest balances, and the time will come when the only way people will be able to maintain their standard of living will be to tap their home equity.”

The Urban Institute’s Laurie Goodman agreed that reverse mortgages could help millions of Americans achieve a more comfortable retirement.

Goodman pointed out that nearly 37% f senior homeowners are worried about their finances retirement, while many of them are sitting on a mountain of housing wealth, more than $3 trillion. “Tapping into home equity is a possible solution to the financial strain facing some elderly homeowners,” Goodman said. “The bottom line is that there is enormous untapped housing wealth for this age group and a significant untapped market for the housing finance industry.”

Goodman pointed to an Urban Institute study that revealed there are 920,580 U.S. households headed by someone over 65 that have an annual income at or below $20,000 and a liquid net worth at or below $50,000, but they also at least $100,000 in home equity. “These folks should be looking at using their home equity to help them manage their finances,” Goodman said. “All together, these less than 1 million household have $208 billion in home equity they could be using.”

But they’re not.

Goodman said reverse mortgages have a number of impediments preventing them from mainstream use, including consumer misconceptions and the loan’s high cost and complexity.

But these issues aren’t the only problems. Goodman said there’s a collective reluctance among older homeowners to utilize home equity. “Even if all the structural impediments were removed, behavioral and attitudinal barriers would keep many senior homeowners from tapping their housing wealth,” she said.

Goodman said that even though reverse mortgages have not gained widespread acceptance, they could help both low- and high-income homeowners achieve a more financially secure retirement.

“For low-income retirees or those who are financially burdened but own substantial housing wealth, tapping home equity could obviate the need to cut spending on essentials, such as food, health and medicine,” she said. “High-income households could leverage equity to modify their homes to improve in-home safety and mobility.”

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If you’d like to explore options of using a Reverse Mortgage Loan for tapping into your home’s equity to pay for property taxes, maintenance, increase your retirement income by using a reverse mortgage credit line loan, or paying off an existing loan, whereby you then have no monthly mortgage payment requirement, give me a call to set up a no obligation, no pressure consultation in my conveniently located downtown Grass Valley Office: Shawna McDonald, Loan Officer, 10 Year Experienced Reverse Mortgage Specialist Sierra Foothills Reverse Mortgage Grass Valley l (530) 497-3010. http://www.SierraFoothillsReverse.com NMLS #271335 | CalDRE #00585530 Borba Investments Inc. CalDRE #01456165 Company NMLS #76801 These materials are not from, and were not approved by HUD or FHA   

Reprint from Jessica Guerin, reduced content for brevity https://www.housingwire.com/articles/48212-experts-say-home-equity-is-key-to-solving-the-countrys-looming-retirement-crisis

When it Comes to Reverse Mortgages, Sooner is Better than Later……….. Reprint from The Union Nevada County Newspaper

 

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Happy Fall !   Here is a reprint of an article from the Union Newspaper of Nevada County:

Clients come to me to: establish a reverse mortgage credit line, pay off an existing loan, or purchase a home. I then analyze their qualifications under current RM rules, emphasis on “current”.  Housing and Urban Development, “HUD”, creates RM lending rules. When HUD issues rule changes we receive little or no notice. However, HUD RM program changes do NOT affect a completed loan.

When advising client(s) they qualify for a RM loan, they may chose to “do the loan later”. Upon return my “later” clients are unhappy to learn they no longer qualify, or if they qualify, HUD changes are not advantageous to them, some examples:

  • “Later” clients returned when one of them became dementia incapacitated, in-home care expenses were mounting, but it was difficult to establish a RM credit line loan to pay for expenses because using a power of attorney/conservatorship to initiate a RM loan, once one borrower has become incapacitated, is complicated. It is less complicated to use POA/conservatorship documents to keep credit line funds flowing to pay for expenses when the RM credit line was completed at a point in time when both borrowers had capacity. If one co-borrower remains living in the home with a RM loan, the other co-borrower may reside in assisted living if that need arises; also, the sooner a credit line loan is established, the more advantageous the credit line growth feature becomes.
  • A client wanted to pay off his existing mortgage with an RM loan, eliminating his monthly mortgage payment, thus increasing monthly liquidity. He was initially qualified but decided to wait. In the interim, HUD lowered the lending formula, creating a shortfall of lendable funds to pay off the existing mortgage. Having funds in a retirement account he is able to complete the shortfall to pay off the existing mortgage by bringing funds into escrow, but wishes he had completed the loan earlier.
  • New clients selling their home and wanting to purchase a replacement home with a reverse mortgage waited for a loan consultation until after their existing house was in escrow and a replacement home found, the wait caused a loss of the replacement home to a competing buyer; per newer HUD rules on RM purchase loans, 2-3 weeks advance planning with a loan officer prior to submitting a purchase contract on a replacement home is advisable.

 Shawna McDonald, Loan Officer has specialized in reverse mortgages loans for 10 years and is available by confirmed appointment; her local office, Sierra Foothills Reverse Mortgage, is located at 412 E. Main St. Suite N, Grass Valley, (530) 497-3010. NMLS#271335 BRE #00585530 Borba Investments, Auburn, CA Company NMLS #76801 BRE# #01386892 As with all loans, it is required that property taxes and fire/casualty insurance be kept current.

 

Grass Valley Reverse Mortgage Sierra Foothills Reverse Mortgage Information ~ FHA Insurance ~ What is it? Why do I need it?

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One of my recent clients quipped, “Navigating a reverse mortgage loan is like navigating white water rapids” Well if the senior to the left can do it so can you, I provide the “river” navigation!

The most often asked in depth question I address for clients is: what is this required reverse mortgage loan FHA insurance all about? I recently wrote the following article for the Grass Valley home town paper, The Union, and because the editor requires me to limit a topic to 400, give or take, words, I hope this won’t put you too far into advanced sleep mode:

Reverse Mortgage FHA Insurance ~ What is It? Why do I Need it?

Reprint from the Grass Valley Union Newspaper 7/5/2018

The Reverse Mortgage Loan question I am most often asked: Why is FHA (Federal Housing Administration) insurance required and what does it do for me, the borrower?

 A concise answer: FHA Reverse Mortgage Loan Insurance provides 2 important protections for borrowers: #1 protection is the borrower will receive loan payments as agreed upon by the loan terms regardless of the financial viability of an individual lender;  #2 protection is the borrower will never owe more than their home is worth. Let’s more fully explore each protection:

 #1 Protection:  Loan proceeds are guaranteed: RM borrowers can opt to receive their loan proceeds as a lump sum, a line of credit, or ongoing installments. The FHA insurance guarantees loan proceeds will be disbursed to the borrower as agreed upon under the terms of the loan. In the event the lender goes out of business, the borrower’s funds will then come directly from FHA. In addition, because of FHA insurance protection a RM lender cannot reduce, cancel or freeze a line of credit, which is NOT a protection in place with conventional equity lines of credit, they CAN be frozen or reduced. I always advise seniors to be cautious and understand the difference in protections if they opt to not do a RM loan, and instead pursue a conventional equity line of credit loan.

 #2 Protection: Non-recourse Feature: Because a RM borrower is not making monthly payments on funds expended, the loan balance will grow larger over time. As we saw in 2007, real estate markets can change. In the event the borrower passes or sells, has expended all loan funds, and a downturn in home values has caused the house to be worth less than what is owed, FHA will reimburse the lender directly for any shortfall between the loan balance due and the home’s sale price. Neither the borrower nor their heir’s other assets are at risk to be tapped for repayment of a loan balance shortfall. As with all loans, if the home sells for more than what is owed, the borrower/heirs keep remaining funds, the lender is not entitled to any part of the remaining funds after the loan is paid off. I call FHA insurance a “peace of mind insurance” that is part of the cost of a RM loan, but well worth the protection it provides.

Shawna McDonald, Loan Officer has specialized in reverse mortgages loans and TLC for 10 years. She is approved with 11 of the largest reverse mortgage lenders in the nation, and available by confirmed appointment; her local office, Sierra Foothills Reverse Mortgage, is located at 412 E. Main St. Suite N, Grass Valley, (530) 497-3010. NMLS #271335 BRE #00585530 Borba Investments, Auburn, CA Company NMLS #76801 BRE# #01386892 As with all loans, it is required that property taxes and fire/casualty insurance be kept current.

 

 

 

Reverse Mortgage Line of Credit or Conventional Line of Credit?

Seniors gardening

From Shawna McDonald at Sierra Foothills Reverse Mortgage, located in downtown Grass Valley:  “Hello and Happy Spring to Seniors in Grass Valley, Penn Valley, Nevada City and surrounding areas. “

Spring is finally here and I wanted to share on my blog an article I recently wrote for our local newspaper The Union:

Reverse Mortgage Line of Credit or Conventional Line of Credit?

Two sets of clients consulted me with identical decisions: having retired, they sold large homes, paid all cash for smaller homes and modest remainder funds went to savings. Year one on retirement income went ok, however modest remainder savings for emergencies and little extras proved insufficient, sleepless nights ensued: “What if the roof and car went out?” Their question: Should we do a reverse mortgage credit line loan or a conventional credit line loan, aka a “HELOC”?

Having met with me, a reverse mortgage loan specialist and then independently with a conventional banker, both couples came to the same conclusions; a reverse mortgage credit line was the best option for them. Why? Unlike a RM credit line loan, a “HELOC”, requires monthly payments, is for a fixed period of time, and may require a future reset to a higher monthly payment. Both couples planned to use the proceeds of the HELOC to pay the monthly HELOC payment, therefore, realizing that when the HELOC credit line ran out, they would be forced to sell their homes if they weren’t qualified to refinance and take out more money to keep up with the payments. This risk potential was causing considerable distress, they wanted to age in place in their homes. Additionally, if one or the other passed, due to a then diminished household income and little life insurance in place; the remaining spouse would be required to go through the upheaval of selling the home because of an inability to make the monthly HELOC payment.

A HELOC typically has features which alarm me if used as a financial tool for seniors: A HELOC lender may reduce available HELOC funds or freeze the funds under certain conditions. This is NOT allowed with a RM credit line loan, RM loans are government supervised, insured by FHA and cannot be reduced, altered, or frozen; however, a RM loan does have a higher cost than a HELOC for these safety/insurance guarantees. As with any loan type, keeping current on property taxes and insurance is required.

The RM credit line loan will be titled like any loan, the borrowers remain owners of the home, the lender does NOT own the home, (a common RM myth). Regardless of the remaining amount in the RM credit line, both borrowers or the remainder borrower, if one predeceases the other, may stay in the home for their lifetime(s), sell and keep the remaining equity, or bequeath remaining equity to heirs, as they choose.

Shawna McDonald, Loan Officer, for 10 years has dedicated herself to specializing in reverse mortgage loans, she has successfully completed hundreds of them. Call Shawna to discuss your retirement goals: by private appointment or call for her next seminar date. Sierra Foothills Reverse Mortgage 412 E. Main Street Grass Valley (530) 497-3010. NMLS #271335 | CalBRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company BRE # 01446165 These materials are not from, and were not approved by HUD or FHA

 

 

Purchase Reverse Mortgage or Post Sale Reverse Mortgage?

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I often see clients considering downsizing and selling their existing home to purchase a more modest home.

The decision: “Do I sell my existing home and pay all cash for the replacement home and THEN get a reverse mortgage line of credit or, do a reverse mortgage for purchase on the replacement home?

As well as being a licensed loan officer I am a real estate broker and have known in theory that it is risky to pay all cash on the new home and close escrow ASSUMING the replacement home will qualify for a reverse mortgage post sale, but have not had actual examples until, unfortunately, this year where I had several examples.

I did not meet with the individuals in these examples prior to the purchase of their replacement home; they came in post close of escrow to inquire about taking out a RM credit line. The sale of their prior home did not cover the price of the replacement home, causing them to dip heavily into savings accounts to pay all cash. In doing preliminary research on their properties I had to deliver the bad news: their replacement properties would not qualify for a reverse mortgage and they were shocked.

How could a reverse mortgage for purchase process, rather than paying all cash, have protected these folks? The RM for purchase process protects an individual via the real estate purchase contract contingency clause, giving them several weeks or more to go through the loan qualifying process with a loan officer, appraiser and underwriter working on their behalf to determine if the property and they will qualify for a RM. If the property and they receive loan approval they can confidently close escrow knowing their financing will be in place. However, if going through the process it is determined the subject property or they will NOT qualify for a reverse mortgage, the individual can walk away during the contingency period and not lose their earnest money deposit.

It’s wise to see a loan professional well in advance of selling an existing home and looking for a replacement as there are numerous RM pre-approval steps required.

 

Shawna McDonald, License Loan Officer, has completed hundreds of reverse mortgage loans and is approved with 10 reverse mortgage lenders. She is available by appointment. Sierra Foothills Reverse Mortgage 412 E. Main Street Suite N, Grass Valley, (530) 497-3010. Her website is www.SierraFoothillsReverse.com. NMLS #271335 | CalBRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company BRE # 01446165 These materials are not from, and were not approved by HUD or FHA

 

New Thinking About Reverse Mortgages ~ Younger retirees may benefit from using a reverse-mortgage line of credit as interest rates rise ~

seniors hiking    Rising interest rates could make reverse-mortgage lines of credit more appealing to younger retirees.

A reverse mortgage is a type of loan taken against equity in a home, available to borrowers who are at least 62. It requires no monthly payments, with interest charges instead added to the loan balance and paid only after the homeowner sells or dies. The loan can be taken as a lump sum or as monthly income, or as a line of credit, with no interest charges on unused amounts.

Many homeowners wait until well beyond 62 to take a reverse mortgage, because generally the older the borrower is the more he or she will be qualified to borrow.

In recent years, though, more financial advisers have warmed up to the idea of homeowners taking a reverse-mortgage line of credit when they are as young as 62, as a way to boost their nest egg. The key to this strategy is that the credit line grows over time, by amounts tied to the course of interest rates, and the unused portion can be converted to a substantial monthly income years later. And today, with inflation and interest rates widely expected to rise, these credit lines could be particularly valuable.

“Now is an exceptionally good time to be considering adding a [reverse-mortgage] credit line to the retirement blueprint,” says Shelley Giordano, chair of the Funding Longevity Task Force at the American College of Financial Services. Interest rates are low, which increases the credit limit on reverse mortgages, she notes, and if rates rise over the life of the loan, that will add to the growth of the credit line. Since interest rates tend to rise alongside inflation, the growing line of credit would provide an inflation hedge, she says.

Running the numbers

“Research has shown that setting up a line of credit as soon as possible, age 62, in order to let it grow and only tapping into the line of credit when needed can substantially improve the long-term sustainability of a retirement-income portfolio, meaning you can make your money last longer,” says Jamie Hopkins, associate professor of taxation at the American College of Financial Services.

The strategy—called a standby reverse mortgage, or SRM, by some—has been pushed in financial journals by a number of academics, starting with a 2012 paper by Barry H. Sacks, a tax attorney in San Francisco, and his brother Stephen R. Sacks, a professor emeritus of economics at the University of Connecticut. They recommend drawing from the credit line when investments like stocks and bonds are down, so the homeowner enjoys a steady income and gives other investments time to recover, allowing them to last longer.

They said the strategy was successful in 1,000 Monte Carlo simulations, which run calculations over and over while varying key factors like interest rates and investment returns. Not only did it improve the borrower’s chances of enjoying steady income to an advanced age, it could also produce a larger income along the way, they reported.

Not for everyone

The chief downside: Sums taken through any reverse mortgage, including any amount actually borrowed through a line of credit, reduce the equity available for other purposes—like moving to another home or buying into an assisted-care facility—or for the homeowner’s heirs.

“It may not be best for a short-term play” because of the time it will take for the growth of the credit line to offset the cost, “or if one wishes to leave a home free and clear [of debt] to their heirs,” says Steven Klein, reverse-mortgage director with AmCap Mortgage, in Greenville, S.C.

But over many years, the credit line can grow to be quite large, especially if interest rates rise. Here’s how it works: These credit lines carry adjustable interest rates that typically reset every month or every year. Once the initial credit limit is set—based on interest rates, the homeowner’s age, the home’s value and its location—it grows each year by the current interest rate on the loan plus 1.25 percentage points, which is the loan’s annual mortgage-insurance charge.

For example,  a 62-year-old borrower with a $400,000 home in the Philadelphia suburbs a credit line starting at $200,668, at an initial rate of 5.70%—a 4.45% interest rate on the loan plus the 1.25% insurance charge. If the interest rate doesn’t change, the credit line will grow 5.70% a year, reaching more than $600,000 in 20 years. It could then be converted to a monthly income of nearly $5,000—less if any of the credit has been used—based on standard industry formulas. If interest rates go higher, the credit line would be larger; if they fall, it wouldn’t grow as much.

Taking a credit line at an early age could also mitigate the danger of the home’s value falling, a decline that would reduce the amount of credit available through a reverse mortgage taken later. And the credit line grows regardless of changes in the home’s value. If the home’s value soars, the homeowner could scrap the old credit line and take out a new, larger one against the higher value.

“A reverse-mortgage line of credit can be a saving grace for the baby boomers who simply do not have enough retirement savings” if home equity is ignored, Prof. Hopkins says. “If home equity is incorporated more strategically in the future, we will see vast improvements in the financial security of retirees.”

This is a reprint of an article written by Jeff Brown in February of 2017.

https://www.wsj.com/articles/new-thinking-about-reverse-mortgages-148695516

LEARN ABOUT REVERSE MORTGAGES IN THE COMFORT OF MY GRASS VALLEY OFFICE…WE CAN ALSO EXPLORE WHAT YOUR APPROXIMATE QUALIFICATION NUMBERS ARE ALL ABOUT, CALL 530-497-3010 FOR A PERSONAL APPOINTMENT.

~Shawna