Worcester & Middlesex County Estate Planning & Elder Law

New Laws for Reverse Mortgages in New York

Budget legislation recently signed by the governor of New York introduced an important new preforeclosure notice, specifically addressing defaults triggering reverse mortgage foreclosures affecting senior homeowners, while also making a technical fix to changes governing preforeclosure notices and settlement conferences for reverse mortgages that were signed into law in 2017.

Reverse mortgages are loans that allow homeowners aged 62 and older to use their home equity while remaining in their homes. It can be an important resource for seniors who don’t have enough income to cover their living expenses, explains New York Law Journal in the article, "Residential Foreclosures: Reverse Mortgage Foreclosure Protections."

There’s been a spike in reverse mortgage foreclosures, many triggered by “property charge” defaults that could be resolved if the default is brought to the borrower’s attention. However, reverse mortgages had been excluded from New York’s preforeclosure 90-day notices and mandatory settlement conferences.

The new legislation in New York now provides for a special preforeclosure notice to be used just for reverse mortgages. The notice gives detailed information about the asserted reverse mortgage default and discloses basic information to reverse mortgage borrowers at risk of foreclosure, along with the other information provided to conventional mortgage borrowers. It also has a list of possible grounds for a lender’s assertion of a default specific to reverse mortgages.

The new reverse mortgage-specific notice lists the following possible claimed defaults that can trigger a reverse mortgage foreclosure:

• failure to occupy the home as a principal residence;
• failure to submit required annual certificate of occupancy;
• death of the named borrower;
• failure to pay property taxes (with a requirement to detail property taxes advanced by the mortgage servicer);
• failure to maintain homeowner’s insurance (with a requirement to detail any insurance procured and paid for by the mortgage servicer);
• failure to pay water or sewer charges (with a requirement to detail any such charges advanced by the mortgage servicer); and
• failure to make required home repairs.

Similar to the 90-day notices for conventional mortgages, the new law also requires a lender asserting a default based on failure to pay property taxes, water and sewer charges, or to maintain homeowner’s insurance, to specify that the homeowner can cure the alleged default by making a specified payment.

The notice gives senior homeowners additional important information, like the right to dispute the asserted default by contacting the servicer; the availability of possible grants, loans, or repayment plans that may permit homeowners to cure defaults on property charges; and programs available to permit nonborrowing spouses to remain in their homes following the borrower’s death and extensions available for seniors over 80 with long-term illnesses.

Reference: New York Law Journal (May 11, 2018) "Residential Foreclosures: Reverse Mortgage Foreclosure Protections"

Could a reverse mortgage here in Massachusetts be right for your situation? Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com.

Is a Reverse Mortgage the Right Call for You?

Seniors are living much longer these days, and many face the prospect that their financial resources will grow thin. If you’re one of these folks, a reverse mortgage could be part of your retirement plan.

A reverse mortgage lets you take tax-free cash equity out of your home, as you continue to live in it. You don’t make any mortgage payments, and the loan doesn’t affect your Social Security income or Medicare benefits.

But, as The Observer News warns in the recent article, "Reverse mortgages can be a key component in retirement planning," there are pros and cons.

Many people like reverse mortgages because it’s really a loan option that can help homeowners ages 62 and older with equity in their homes enjoy a more comfortable retirement. You’re still able to live in your home and retain the title.

You can also receive cash at the closing and open a line of credit to access the rest, as needed, after a year. You receive monthly payments for a set period or for your lifetime. You can also choose any combination of these options.

Even if you have an existing mortgage, you may still qualify.

However, there are some disadvantages. Because you’re not making payments and receiving income, the loan balance increases as interest and fees accumulate. In addition, because your equity is decreasing, there’ll be less of an inheritance to leave your heirs. While they can still inherit your home, they must first pay any outstanding balance that you owe.

The reverse mortgage must be for your primary residence, and if you permanently move away or no one on the title is living in the home, the reverse mortgage is due immediately.

The closing costs and fees on reverse mortgage loans are significantly higher than on conventional loans. These are deducted from the loan proceeds and are offset by the fact that you’re not making mortgage payments.

Reference: The Observer News (February 15, 2018) "Reverse mortgages can be a key component in retirement planning"

A reverse mortgage isn't for everyone. We can help you sort it out. Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com.

Reverse Mortgage Rules Change Again

The government is changing the loan's insurance costs and reducing how much applicants can borrow—and the window for borrowing under the old rules is closing fast.

The federal government is again modifying the reverse mortgage rules. These changes impact the cost of insurance and borrowing limits, which create a mixed bag for borrowers.

Kiplinger’s recent article, entitled "New Rules for Reverse Mortgages," explains that upfront mortgage insurance premiums will be a flat 2 percent for every loan.

This change means some applicants will pay more, and others will save. If you qualify to take up to 60 percent of the eligible loan amount in the first year, with the remainder available the following year, your upfront cost will increase 1.5 percent from the previous 0.5 percent. For those who qualify to take more than 60 percent in the first year (usually in cases where an outstanding mortgage must be paid off), the upfront cost drops by half a point, from 2.5 percent.

In addition, the ongoing insurance costs will decrease for all borrowers. The annual premium will drop from 1.25 percent to 0.5 percent, which over time could have a significant impact. The lower ongoing cost may offset much or all the higher upfront cost.

The calculation for maximum loan proceeds is also being adjusted: The adjustments will impact most new borrowers and will cut potential proceeds by 10 percent to 12 percent. The new rules drop the percentage of the home value that’s available to borrowers at most ages and at most interest rates. The older you are and the lower the interest rate, the more proceeds you get. However, most will now qualify for less than before the changes.

These changes, which went into effect on October 2, are the latest government effort to secure the federal Home Equity Conversion Mortgage program and alleviate worries about the health of its insurance fund.

Most reverse mortgages are federally backed HECMs, and the government will pay for any gap if the house sells for less than the loan’s balance.

These changes are raising costs all around, while at the same time lowering borrowing power. That combination could make reverse mortgages unattainable for some seniors. Observers say it’s not just applicants on the edge who may no longer be able to use reverse mortgages: The rule changes also diminish the “standby strategy.” That means creating a reverse mortgage line of credit as a reserve that a retiree can use if and when it’s needed. The upfront costs will now be higher. The lower ongoing insurance cost may be helpful to some, but the savings may be lessened due to the fact that you don’t pay the annual premium on the untapped line of credit. You pay only on any balance you’ve accrued.

Reference: Kiplinger (September 11, 2017) "New Rules for Reverse Mortgages"

Interested in a reverse mortgage? Check in with us first. Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com. 

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Reverse Mortgage Questions? Ask an Elder Law Attorney - Worcester & Middlesex County Estate Planning & Elder Law

Reverse Mortgage Questions? Ask an Elder Law Attorney

For reverse mortgage specialists looking to build a referral network, local elder law attorneys can be a smart resource.

Elder law attorneys work with seniors and their families to plan for long-term care needs. In many instances, this includes assisting with their future housing options.

Reverse Mortgage Daily’s recent article, "How Elder Law Attorneys Can Become Key Reverse Mortgage Partners," explains that the National Association of Elder Law Attorneys (NAELA) has 4,500 members nationwide. Although the organization says it doesn’t have an official position on reverse mortgages, many of its members take advantage of exclusive access to webinars and other online resources about the product.

An elder law attorney’s work requires him to find solutions to a client’s problem, and a reverse mortgage can be part of the answer.

Sometimes a reverse mortgage is the only way that a senior can maintain his or her independence, live at home, and cover home care or other services. Part of the elder law attorney’s job is helping the client see if a reverse mortgage is a good choice.

Just like any other investment, there are right cases and wrong cases for a reverse mortgage. An elder law attorney’s job is to explain the pros and cons of the reverse mortgage in the broader scheme of the planning process. The senior would meet with his or her financial advisor—independent from a mortgage consultant—to discuss whether that specific type of investment vehicle is a good fit for them.

Some folks get what’s termed “depression” mentality. They purchased their home years ago and they couldn’t wait to pay off the mortgage.  However, they’re now advised to put a mortgage on their home.

Some will heed good advice and some will not, but that’s their call.

Reference: Reverse Mortgage Daily (September 18, 2017) "How Elder Law Attorneys Can Become Key Reverse Mortgage Partners"

It’s critical that they have all of the information and are presented with all of the options so they can make an informed decision. We can help. Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com. 

 

Senators Question HUD Rules on Reverse Mortgages

Advocates for the elderly persuaded federal housing officials two years ago to offer more rights and protections to the spouse of a borrower, who takes out a reverse mortgage and later dies.

There’s a concern that a subtle wording change in the Trump administration’s proposed budget request for the Department of Housing and Urban Development (HUD) could undo some of the protections for the spouse of a borrower who takes out a reverse mortgage and then passes away. It could mean increasing the chances that a surviving spouse who didn’t sign the mortgage documents could lose his or her home in a foreclosure.

The New York Times recently published an article, "2 Senators Question Effects of a Reverse Mortgage Proposal." The article reported that two U.S. senators sent a joint letter to Ben Carson, the Secretary of HUD, and Mick Mulvaney, the director of the Office of Management and the Budget. They sent the letter two months ago to get some clarity on the proposed wording in the budget request. Senator Marco Rubio (R-FL) and Senator Catherine Cortez Masto (D-NV) asked whether the agency was seeking to reverse the previous change in policy.

There’s been no response from HUD about its intent for reverse mortgages, which allow the elderly to use the equity they’ve built up in their homes. That is causing concern, because reverse mortgages are seen as crucial in helping an aging population plan for retirement. Before the change in policy two years ago, a surviving spouse who hadn’t signed the mortgage frequently had to pay what was left on the loan in full or risk being evicted in a foreclosure. The two senators say the old policy is a “loophole” that had “compounded the stress faced by widows and widowers at a time when they were already grieving the loss of their spouse.”

The specific language in question is a proposed change in the National Housing Act that says, in regard to reverse mortgages, that a mortgagor “shall not include the successors and assigns of the original borrower under a mortgage.” The phrase is in a section of the Act providing the types of reverse mortgages eligible for insurance guarantees from the Federal Housing Administration, a division of HUD.

The revised wording can be read as suggesting that a surviving spouse isn’t necessarily entitled to stay in the home.  However, at the same time, Trump’s budget proposal includes a new line that would give the Secretary of HUD broad discretion to determine if a loan is payable after the death of the borrower.

“HUD’s proposed changes to reverse mortgages included in the last budget raised concerns that the administration may be seeking to undo hard-fought existing protections,” Senator Cortez Masto said in an emailed statement on Tuesday. “I hope the administration can make clear that they’re not looking to push seniors out of their homes after the death of their spouse.”

HUD extended the protections to surviving spouses after several lawsuits and negative news coverage about spouses being thrown out of their homes after the death of a partner. Some experts say that with home prices increasing again and a growing number of baby boomers reaching retirement age, there will be renewed interest in reverse mortgages, as the elderly look to supplement their living expenses.

Reference: The New York Times (August 8, 2017) "2 Senators Question Effects of a Reverse Mortgage Proposal"

Could a reverse mortgage be right for you? Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com. 

The Fine Print About Reverse Mortgages

You don’t usually have to pay back a reverse mortgage until after you die, but at what real cost?

A reverse mortgage is a mortgage you can take out when you’re 62 years or older. This plan lets you stay in your home as you age. The Federal Trade Commission says that it’s turning your equity into cash without having to sell your home. However, the FTC warns that reverse mortgages can be tricky, so you need to do your homework.

wfmz.com’s article, "Life Lessons: Reverse mortgages: When are they dangerous," reports elder law attorneys have had adult children come to their offices wondering how they were named in a foreclosure lawsuit, when it was the mother’s reverse mortgage.

When parents pass away, their homes are commonly inherited by their children. In the case of parents with a reverse mortgage, however, the children could also be named in a foreclosure. This can come as quite a shock to adult children. Seniors also may not understand that they have to keep paying for the upkeep of the home.  If you’re married and there’s just the one name on the mortgage, it could also spell trouble for your spouse.

The rules state that if you’re out of the house for a year, the reverse mortgage company is allowed to foreclose. In addition, a reverse mortgage may not provide enough cash to assist you, especially if you need around-the-clock at-home care costing as much as $12,000 a month. Despite these dangers, a reverse mortgage still may be right for you.

A reverse mortgage would be a good option, if a person insists on staying in the home and they have a family caregiver.

There are also Medicaid programs that may help pay for nursing home care as well as waiver programs through Medicaid that may help pay for assisted living and home care with the ability to keep your home and can leave it to your children or spouse.

Reference: wfmz.com (January 24, 2017) "Life Lessons: Reverse mortgages: When are they dangerous"

If you have more assets, talk to an elder law attorney to develop a plan that protects those assets. For example, in some states you can pay a relative to be your caregiver. Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com.  

Photo courtesy of freedigitalphotos.net

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Reverse Mortgage Answers

What is a reverse mortgage?

A reverse mortgage is a special type of loan that allows a senior homeowner to convert part of their home’s equity into cash or income, without having to make regular monthly mortgage payments. The loan is repaid when the borrower no longer lives in the home. The borrower can’t default on the loan or be forced to move, as long as they live in the home, pay the property taxes and insurance, and maintain the home.

The Daily World, in "Reverse mortgages—your questions answered," explains that in order to qualify, the homeowner must be 62 years of age or older and pass a credit check. The home also has to be used as the primary residence.

With a reverse mortgage, the homeowner retains the title and ownership during the life of the loan and can opt to sell the home at any point. The home can have an existing mortgage. Many borrowers apply the reverse mortgage funds to pay off any existing mortgage and eliminate the monthly mortgage payments.

The amount of money one can receive from a reverse mortgage is determined by the following: (i) the age of the youngest spouse; (ii) the value of the home; and (iii) the current interest rate.

The money from a reverse mortgage can be received in a lump sum, in monthly payments, or through a line of credit. It can also be any combination of these options.

Reverse mortgages are insured by the Federal Housing Authority and the Department of Housing and Urban Development (FHA/HUD). If something happens to the lender, HUD takes over the loan and become the reverse mortgage servicer.

The fine print:  It is important to understand that because the borrower makes no monthly payments, the interest on the reverse mortgage loan will accumulate over time, increasing the balance due. Depending on when you sell or move, you may have little or no equity left in the home. However, today the law protects the borrower and their heirs from ever owing more than 95 percent of the market value of their home at the time the loan becomes due.

Reference: The Daily World (November 18, 2016) "Reverse mortgages — your questions answered"

Could a reverse mortgage be right for you? Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com.

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Changes Made to Reverse Mortgage Process

A recent change added two steps to the process of obtaining a reverse mortgage.

The goal of the change in the reverse mortgage process is to reduce defaults on reverse mortgages by making sure borrowers have the wherewithal to pay property taxes or home insurance.

A recent article in the Houston Chronicle’s, "Mortgage: What reverse mortgage financial assessment means to you," discusses the steps to determine reverse mortgage eligibility.

First, conduct an assessment of your finances, especially your credit history and income; then set aside part of the mortgage proceeds (based on that financial assessment) to help cover estimated tax and insurance payments over the expected life of the youngest borrower. These changes are effective for reverse mortgages issued on or after April 27, 2015.

These requirements are designed to decrease the default rate on reverse mortgages. Roughly 12 percent of reverse mortgages were in technical default in 2014, so borrowers hadn't paid taxes or insurance or both. In addition, borrowers had no proceeds remaining from their reverse mortgages.

A recent 2016 study from Boston College found that the new rules could reduce reverse mortgage default rates by as much as half.

The financial assessment includes an analysis of the borrower's credit history, including any foreclosures, defaults, late mortgage payments, and late payments for property charges.

Research reveals that a prospective borrowers' credit scores are big predictors of their likelihood to default on reverse mortgages. It examines income from employment, self-employment, Social Security, alimony, child support, military income, pensions, and retirement accounts. If the lender sees the borrower isn't willing or able to make tax and insurance payments, a portion of the mortgage proceeds will then be set aside to cover these future costs.

Reference: Houston Chronicle (Sept. 16, 2016) "Mortgage: What reverse mortgage financial assessment means to you"

Reverse mortgages aren't for everyone. But if you'd like to look into them, give us a call at (978) 342-1914 or visit us at www.dellamonaca.com. 

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Reverse Mortgages Give You Tax-Free Cash

Although reverse mortgages have been available since 1987, they still only account for about 1 percent of the total mortgage industry.

Reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs), are government-insured loans. These loans let qualified senior homeowners convert illiquid home equity into available tax-free cash.

The Fifty-Plus Advocate says in "Top ways to use a reverse mortgage" that when used properly, a reverse mortgage may be the solution to living an independent, fulfilling life. A reverse mortgage lets you retain full control and ownership of your home. You are still obligated to maintain the property and to pay real estate taxes and homeowner's insurance, but you can stay in your home for the rest of your life. You also can sell your home at any time without a penalty, and any profit from the sale after paying off the reverse mortgage belongs to you. In many instances, properties held in a trust or life estates are eligible.

For qualified borrowers, the unique aspect of a reverse mortgage is that you don't have to make a monthly mortgage payment. That's what's thought of as the "magic" of a reverse mortgage. You can elect to receive a lump sum of cash, a monthly check for life, or a line of credit to be used if needed—all with no monthly payment for as long as you live in the home.

In addition, your home doesn't have to be free and clear, which can help seniors with a mortgage who are struggling to make the required monthly payment—impacting their quality of life. A reverse mortgage allows you to see a significant increase in monthly cash flow, which can reduce financial stress. However, even if you don't need cash or a monthly tax-free income, a reverse mortgage can be used as an estate-planning tool to protect against unexpected life events and to prepare you for the unknown.

Reference: Fifty-Plus Advocate (April 26, 2016) "Top ways to use a reverse mortgage"

Reverse mortgages aren't for everyone. There are strict guidelines and protections. Speak with a qualified estate planning attorney. Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com. 

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Is a Reverse Mortgage the Way to Go?

Homeowners age 62 and older may be tempted by the offers for reverse mortgages as a solution to financial stresses. The celebrity spokespeople seem so warm and caring and it seems like a simple solution to an overwhelming problem. While reverse mortgage might be a reasonable solution for some seniors, for many it is a bad financial decision, for a number of reasons.

Every year, the Better Business Bureau receives a lot of complaints about reverse mortgages.  As these complaints show, there are many problems and issues with reverse mortgages, and they also illustrate many seniors who turn to reverse mortgages as a solution do not actually understand the process or the long term results.

A recent article in The (Appleton WI) Post Crescent, titled "Be cautious before taking on reverse mortgage," says that some consumers don't know that a reverse mortgage is actually a loan that leverages their home’s equity. It's actually one of the most expensive forms of credit a person can get, with very high origination fees, high interest charges, and insurance premiums topping those of most other types of loans. Typically, a reverse mortgage origination fee can be up to $6,000, and the initial premium for federal insurance is set at 2 percent of the home’s value.

Repayment of a reverse mortgage loan isn't required until the borrower dies or moves out of the home, but this is where problems arise. If the borrower moves into a nursing home or assisted living facility and leaves behind a nonborrowing spouse, child, or grandchild, they’ll also need to move out of the house.

The article explains that there are seniors who apply for a reverse mortgage because of financial difficulties, which can include property taxes or insurance payments. Here’s part of the fine print: Property taxes, insurance, upkeep, and maintenance are still the borrower's responsibility. If the borrower fails to do any of these, he or she will be in default, and the lender can foreclose.

When is a reverse mortgage a good idea?

The No. 1 benefit of a reverse mortgage is that a senior can remain in the home while at the same time receiving a steady cash flow. The best reverse mortgage candidate is an individual age 62 or older who lives alone and has significant equity in the home (or doesn’t have a mortgage). Also, this person isn't planning on leaving the home to their heirs and is healthy enough to stay in the home for a long time without going into an assisted living facility.

The article says that if you're thinking about a reverse mortgage, forget about those celebrity spokespeople on TV! Talk with an experienced elder law attorney before signing anything.

Lastly, watch out for scammers who want to take advantage of seniors. That includes anybody with too-good-to-be-true interest rates, real estate deals, or investment ideas. 

Reference: The (Appleton WI) Post Crescent (June 20, 2015) "Be cautious before taking on reverse mortgage"

Talk with a qualified elder law attorney. It’s critical to do so first, to see if a reverse mortgage is right for your situation. Give us a call at (978) 342-1914 or visit us at www.dellamonaca.com.