New Financial Assessment Date Gives Industry Time to Breathe
When the first effective date for the financial assessment was first announced to be March 2015, there was a collective groan in the industry.
It was finally here, that which would determine the eligibility of a borrower based on income and credit, the one thing that set the reverse mortgage apart from all other loans, and the potential implications (good and bad) of this action have yet to determined.
This is why when HUD announced that there would be an extension to the financial assessment of possibly 30 to 60 days, the industry realized it had time to breath, gauge the situation and make sure everyone, from brokers to their computer systems, were correctly set up, trained and ready to go.
Officially, HUD has finally set the new effective date for the financial assessment: April 27, 2015.
An Alternative to Nursing Homes With the Reverse Mortgage
When I recommend and go over the in’s and out’s of reverse mortgages with clients, one of the fears they have is that that the reverse mortgage will become due and payable if their health fails and they need to move into a nursing home.
However, a reverse mortgage is one of the retirement planning strategies that can be used to secure long-term, in home care without having to move from the comfort of your home.
According to data collected by Genworth Financial, Inc., a private room in a nursing home in Florida is more than double the cost of receiving long-term, in-home care. On average, homemaker services and home health aide cost around $40,000 per year while a private room costs, on average, $90,000.
I Went to the Podiatrist for Brain Surgery…
If you needed brain surgery, would you go to the Doctor who happens to be a podiatrist just because you know someone who works there?
A Medical Doctor after all is a Medical Doctor and they can all help people with any ailment, right? ABSOLUTELY NOT!
Now that’s just silly and we all know that to not be the case. Yet people think a mortgage company is a mortgage company and can offer all kinds of mortgages, and this couldn’t be farther from the truth. This is the story about a client who experienced this contrast first hand, but first let’s learn about the differences between the types of mortgages.
Reverse Mortgages and Forward Mortgages (conventional, FHA, VA, etc. that all require payments) are, simply, polar opposites. When a Mortgage Loan Originator takes their 24 hour course to get licensed, the portion of the course and test that comprise the Reverse Mortgage is approximately 1%, simply addressing what a reverse mortgage is and not the details surrounding it.
Changes to the Reverse Mortgage Loan Has Positive Effect
Amid the news that the positive press for the reverse mortgage loans have surged in the past months and FINRA’s declaration that the reverse mortgage is no longer a loan of last resort, individual financial planners are beginning to see the advantage of the reverse mortgage loan as a long term retirement planning tool as well as an alternative way of paying off one’s mortgage and using those funds for other uses.
In the past, misuse of reverse mortgages lead to borrower defaults when they were unable to pay their property taxes and insurance. In addition, because most borrowers received their funds in a lump sum, there were instances where little was left over for unexpected expenses.
In an effort to make the program safer for borrowers, changes were made to the program to make it a more advantageous, long-term retirement planning tool and NOT a loan of last resort.
NRMLA Reissues Ethics Guidance for HECM-to-HECM Refinance After Recent Changes
The reverse mortgage program continues to change for the better, this time making more proceeds for older borrowers.
According to an article published by Reverse Mortgage Daily, at an interest rate of 6% borrowers who are 78 and older will potentially have access to greater principal limits than before.
This change means more money for older borrowers and a greater chance of a HECM-to-HECM Refinance for borrowers who obtained a reverse mortgage before the changes were announced.
While borrower(s) must wait at least 6 months from the closing date of their reverse mortgage in order to be eligible for a refinance, NRMLA once again stresses the importance of maintaining ethical values while speaking with potential clients about the possibility of a HECM-to-HECM Refinance.
New FHA Regulations Created to Protect Non-Borrowing Spouses
Recent changes to the reverse mortgage program have made it a more advantageous retirement planning tool for the future. However, for some borrowers, there was still the lingering question of what would happen to their spouse upon their passing.
Non-borrowing spouses can finally sleep soundly, thanks to the recent changes made by the Federal Housing Administration regarding non-borrowing spouses.
In a recently released mortgagee letter, outlined by Reverse Mortgage Daily, non-borrowing spouses will be able to remain in their homes, after the borrower has passed away, if they were married to the borrower at the time of closing and their status as a married couple was disclosed at the time through a certified letter.
While not an all inclusive solution, it does demonstrate that FHA is making the necessary changes to protect borrowers and non-borrowing spouses. The new regulations will be set forth for new case numbers assigned on or after August 4th.
Consider Every Retirement Planning Option…Including a Reverse Mortgage Loan
A reverse mortgage loan, or home equity conversion mortgage, is a helpful alternative to many seniors, who may need the funds immediately, or are hoping to leverage the home equity they have acquired during their working years to favorably save up for retirement.
The fact of the matter is, the reverse mortgage loan continues to be thought of as a last resort, something to get only if the situation is dire enough. This is, not only a disservice to the program, but a disservice to future clients who may be looking into it as an alternative retirement planning option.
In fact, people may think of the reserve mortgage as a last resort, but no one ever thinks of buying a second home as a last resort or investing stocks as a last resort, they respect it as viable retirement options.
However, are these options sure fire ways to have enough funds to supplement a suitable retirement?
Home Equity Lines of Credit Are Ballooning
Home Equity Lines of Credit may cause a new problem for banks as many reach their 10 year anniversary. This means many borrowers willl have to start paying their principal balance on these loans on top of the interest payments they’ve been paying for the last 10 years.
According to an article published by Reuters, more than $221 billlions worth of these loans will hit the 10 year mark for the next four years in the country’s largest banks such as Bank of America and Citigroup. Most of these loans have about 40% of the line of credit still outstanding.
The biggest problem? Borrowers who took out their home equity line of credit during the housing boom (and subsequent bust) will find themselves unable to complete payments when their payments almost triple and their floating interest rates continue to raise.
The Consumer Financial Protection Bureau May Be Held Accountable…
According to an article published by HousingWire, congressional Republicans put to a vote the Consumer Financial Freedom and Washington Accountability Act, a bill that will bring transparency and accountability to one of the least regulated agency in the federal government.
Lately, the CFPB has come under attack after it announced its plans to spend an estimated $145 million in renovations for offices it doesn’t own. If this does not signal a reckless amount of spending and lack of regulation, I don’t know what will.
The Federal Reserve has even begun an investigation into why renovations who began so modestly have risen up to three times the original estimate.
Reverse Mortgage Changes Offer a New Beginning
- How many times has something in your lives changed? A lot? A little?
- Were you happy with it? Angry?
- What did you do to make it better?
In truth, there are plenty of things those of us in the reverse mortgage industry can do to make the reverse mortgage changes a rewarding endeavor, starting with our attitude. While some have taken to given up and throwing their fists in the air, I’ve taken a more positive approach, seeing the changes as one small step for consumer satisfaction but one giant leap for the reverse mortgage industry as a whole.
Most importantly, the changes are a way to change the “last resort” reputation the reverse mortgage program has gained throughout the years. It’s strange to think that a program that has many options available for homeowners, depending on their personal situation, and can adapt to most situations, was seen strictly as a program to only look into when you’re “forced” to.