Category Archives: Age In Place
I have chronicled the ups and downs of the reverse mortgage industry for the past five years. In 2010, I exposed two major problems with the reverse mortgage industry — the “competency problem” and the “expense problem.”
- I praised reverse mortgages in 2007 as a viable way for seniors to remain at home as long as possible in my article, Reverse Mortgage Home Equity Loans.
- I viewed reverse mortgages then as an excellent choice for various reasons, explained in detail in my early-2010 article, Using a Reverse Mortgage to Pay for Home Care.
- By mid-2010, I wrote about what I perceived to be discrimination in the lending industry. I completely explain why that was such a nefarious issue to my clients and the elderly at-large in the article, Huge Problems with Reverse Mortgage Industry.
- Merely a few months later I found myself writing about the “expense problem” in, Reverse Mortgage Rules Changing Again, noting Congress’ plan to increase HUD’s Mortgage Insurance Premium.
- In February, 2011, I reported on the fact that one of the reverse mortgage industry’s largest lenders, Bank of America, had dropped out of the reverse mortgage business in No More Reverse Mortgages, Announces Bank of America.
- Last week I explained how the Farr Law Firm has taken steps to help clients get around the “competency problem,” in The Reverse Mortgage Saga Part 5: “How the Farr Law Firm is Helping Clients Stay at Home.”
- This week I provide an update that may signal an end to the “expense problem.”
All of these problems amounted to the beginning of the end for this national industry, because by February, 2011, Bank of America announced it was exiting the industry. MetLife followed Bank of America’s footsteps as of April 30th, 2012.
Officially, Bank of America exited the reverse mortgage industry due to strategic business reasons.
Discussed in No More Reverse Mortgages, Announces Bank of America, the Bank cited “competing demand and priorities, [requiring resources to be allocated elsewhere.]” However, as the article also explained:
“The Bank of America decision [came] in the wake of bad press related to its conventional mortgage business, and peaked recently when a temporary restraining order was issued January 20 of [2011] against ReconTrust, a subsidiary of Bank of America. ‘ReconTrust is trustee on thousands of loans that are in some stage of foreclosure and approximately 8,920 of such loans have already been directly affected by this injunction,’ reported the Las Vegas Sun. The order was issued based on a woman’s suit against Bank of America for “fraudulently trying to foreclose on her home,” as reported by The Street.”
When MetLife announced its’ plans to exit the industry on April 26, 2012, a press release was issued stating the following:
“MetLife’s entire retail banking business, including mortgages, represented under two percent of [its’] 2011 operating earnings. Given MetLife’s strategic focus as a global insurance and employee benefits leader, [it] decided in 2011 that a bank holding company structure was no longer appropriate.” (Emphasis added)
However, just because MetLife’s retail banking business represented less than two percent of operating earnings in 2011 does not necessarily mean it was a miniscule part of its overall business, or business investments. Was the MetLife decision truly a strategic one, or were there organizational problems beneath the surface of the press release??
After looking into the issue – that is, past the MetLife press release – it seems as if there are no such organizational distractions as may have been the case with Bank of America. According to sources quoted by BusinessWeek, the banking sector of MetLife – including its reverse mortgage services – simply were not profitable enough to continue operations. And the burden of increased regulatory standards may have also played a role, further tipping the scales to exit the industry, suggested The Wall Street Journal. The bottom line is best summed up by Reverse Mortgage Daily, stating that the consensus is that unlike the Bank of America situation (where there were problems, perhaps, behind the scenes, “[The MetLife decision is] just another stop in a bigger exit strategy on the part of MetLife, which has been shedding business lines since last year and recently saw its CEO step down.”
Without Bank of America and MetLife, the national industry may be gone, but reverse mortgages are not, as they are still available through independent brokers. The question thus becomes, whether reverse mortgages, as they currently are now offered, are worthwhile options for seniors who want to remain in their homes for as long as possible? Furthermore, what will these institutions do to help senior citizens that the larger institutions did not? I would say waiving the exorbitant fees is a good start.
The “Expense Problem” and one Lender’s Answer
All one needs to do is take a glance at the graph below to see how the “expense problem” affected many American’s decision-making processes when deciding whether to take a reverse mortgage, starting right around the beginning of the recession in 2009. It is drastic, to say the least. Although my article, Huge Problems with the Reverse Mortgage Industry mainly focused on the “Competency” problem, another lawyer aptly commented on the blog:
“[W]hat really convinced me [a reverse mortgage] was not right for my brother-in-law’s parents . . . were the very high fees charged on the mortgage.”
True to the back-and-forth nature of this entire saga, at least one lender is using a tactic to salvage the reverse mortgage home equity loan: no upfront fees! The fees associated with a reverse mortgages have been a long-time sticking point for many people. I received an email late last month from Ernie Castro, Director of Reverse Mortgage Finance for Mortgage Solutions, LTD. In that email, Mr. Castro acknowledged the expense issue:
“Huge upfront fees . . . without a doubt . . . have been the #1 objection to the Reverse Mortgage during my career when discussing the product with financial professionals, elder law attorneys, and CPA’s. Mortgage Solutions has negotiated with one of our lenders a fixed rate Reverse Mortgage with no upfront fees to the borrower…no origination fee, no upfront mortgage insurance fee, no service fee.”
The Reverse Mortgage Lenders Association shows just 73,000 reverse mortgages taken out in 2011, down from a high of 114,000 in 2009. 2012 numbers are not released in full because the fiscal year ends in October, but clearly they are on track to register the worst year since reverse mortgages became very popular in 2007, and the largest 1-year percentage-based decline in history.
What happened? Speaking as an elder law attorney, if I were to chart my enthusiasm towards reverse mortgages for seniors as a way to remain at home longer, it would mirror this chart:
With those fees no longer a deterrent, will the industry come back to life? Perhaps, but only if people are able to jump the “competency” hurdles. If more elder law attorneys provide POA clients with Affidavits of Competency to get signed contemporaneously with the POA signing, then maybe, just maybe, we will see this graph reverse its’ current trend.
A Final Thought (for now)
As everyone knows in these days of financial volatility, market conditions can change quickly and without notice, so for anyone who has previously considered a reverse mortgage but balked at the unattractive fees previously associated with them, now would be a good time to speak with an elder law attorney about how to take advantage of a reverse mortgage if remaining at home for as long as possible is important to you or a loved one.
For even more elder law updates and news stories, please be sure to like our Facebook page and join the discussion! Who knows, we may even feature your comments and opinions in a future blog post!
Image courtesy of FreeDigitalPhotos.net
Credit: (Deirdre O'Neill) / CC BY-SA 2.0
“Presume not that I am the thing I was,” wrote William Shakespeare in the play, 2 Henry IV, reminding us that nothing stays the same.
On the personal side, we all change over time; our families and our other assets grow and shrink.
On the business side, entities both small and large come and go; Internet and technology companies appear out of nowhere and just as often disappear into cyber-obscurity; and the economy has a mind of its’ own. In the wake of the global financial crisis that began in 2007 and the collapse of so many financial giants, it is no surprise that the reverse mortgage industry has recently undergone a major shakedown.
For the past five years, I have chronicled the reverse mortgage industry – starting when its popularity was peaking back in 2007. I exposed two major problems in 2010, leading me to conclude that I could no longer, in good-faith, remain a supporter of the reverse mortgage. Those two problems I shall refer to as the “competency problem” and the “expense problem.”
This week and next week I will add two more articles to my continuing series on reverse mortgages. This week I will explain how the Farr Law Firm has taken steps to help clients get around the “competency problem,” and next week I will provide an update that may signal an end to the “expense problem.”
Here’s a summary of, and links to, my previous articles in this series:
- I praised reverse mortgages in 2007 as a viable way for seniors to remain at home as long as possible in my article, Reverse Mortgage Home Equity Loans.
- I viewed reverse mortgages as an excellent choice for various reasons, explained in detail in my early-2010 article, Using a Reverse Mortgage to Pay for Home Care.
- By mid-2010, I wrote about what I perceived to be discrimination in the lending industry I completely explain why that was such a nefarious issue to my clients and the elderly at-large in the article, Huge Problems with Reverse Mortgage Industry.
- Merely a few months later I found myself writing about the “expense problem” in, Reverse Mortgage Rules Changing Again , noting Congress’ plan to increase HUD’s Mortgage Insurance Premium.
- In February, 2011, I reported on the fact that one of the reverse mortgage industry’s largest lenders, Bank of America, had dropped out of the reverse mortgage business in No More Reverse Mortgages, Announces Bank of America.
The “Competency Problem” Persists: How The Farr Law Firm is “Combating” This Issue
"Combating" the "Competency Problem"
After interviewing dozens of reverse mortgage lenders, it became readily apparent that it is practically an industry guideline to refuse to honor the Power of Attorney (POA) presented for use in connection with obtaining a reverse mortgage: it is systemic. I first discovered this travesty when two of my own clients were sent on scavenger hunts for documents certifying the applicant’s competency when the POA was signed, and a second document certifying the applicant is now not competent, both to be completed by the applicant’s doctor.
I described why these steps were creating an “insurmountable roadblock” for some clients in detail in my May 5th, 2010 article, Huge Problem with Reverse Mortgage Industry, because I believed then – and still do today – that these practices are not only unfair, but illegal and discriminatory. However, because of this unfair practice, the Farr Law Firm has made adjustments to its’ Incapacity Planning services in order to help our clients navigate these obstacles.
How is the Farr Law Firm Helping?
When our clients come in to sign their Incapacity Planning documents (including their POA), we provide them with an Affidavit of Competency to give to their doctor to certify competency as soon as possible after the document signing, thus satisfying the first major “competency” hurdle. Of course, it is the responsibility of the client to actually go to the doctor and get the affidavit signed, but having the affidavit ready to hand to the doctor to sign helps the client get it done.
For clients with borderline competency who might wind up needing to use a reverse mortgage, we provide them with an Affidavit of Competency for their doctor to complete prior to the document signing.
Why Reform is Still Needed
Most people want to remain at home, as long as possible, before entering a nursing home for long-term care. A reverse mortgage is a great tool to accomplish this desire, because in most cases significant in-home health care will become necessary at some point. In-home caregiving is not cheap, and thus adequate funds are needed to ensure one can be hired. Although our firm has taken steps to get around the “competency” hurdle, most attorneys have not, and even though our current efforts will be helpful for clients signing our documents today, they are no help for clients who come to us or other attorneys with an old POA and no Competency Affidavit. So once again, I implore you to visit HUD’s Housing Discrimination Complaint Website and file a “lending discrimination complaint” if you believe you have experienced discrimination. If enough people cry foul, perhaps HUD will outlaw arbitrary, harmful “scavenger hunts.”
Stay Tuned for Next Week
Next week I will provide an update that may signal an end to the “expense problem.”
Image Credits:
“Combating” the “Competency Problem” – Free images from FreeDigitalPhotos.net
When it comes time for a child or parent to begin making plans for the beloved but aging senior in their life, the myriad of choices, paths, options and steps to take can seem endless and overwhelming–so much so that many dejectedly assume that nursing home care is the only option. But this isn’t always true! While some healthcare needs will eventually require the long-term care that a nursing home can provide, for others the goal is to stay in the comfort of their own home as long as possible. Fortunately, it IS possible to receive care at home and obtain Medicaid benefits. Medicaid application for a nursing home and for home-based care are somewhat different processes, but we regularly handle both at our Firm. In fact, home-based care is slowly becoming more popular with our clients as a means of staying in their comfort zone for as long as possible.
With this in mind, the Farr Law Firm is excited to announce a new relationship with American Care Partners @ Home Inc., a locally owned and operated at-home care agency based in Falls Church and serving the Northern Virginia area. This group offers a wide array of in-home care services, from a few hours of care a day to 24-hour round-the-clock supervision; from something as basic as simple companionship to assistance with household chores and errands. American Care Partners is unique in that their staff of physicians will conduct house calls to their patients right in their own homes, at no additional charge–“the 1940′s are back!” is what they say! And best of all, America Care Partners @Home Inc. are Medicaid approved and we look forward to working with them to attain the best possible care for our clients under Medicaid.
Another home-care company that we often recommend is HomeWell Senior Care, a nationwide organization with a very successful branch here in Virginia. HomeWell was founded by a caregiver in 1996 and focuses on “maintaining independence with quality home care for seniors.”
We at the Farr Law Firm enjoy working with these companies because they have a complete understanding of the Medicaid billing process, which makes things run smoothly. We strive to make the process of finding the best possible care for your loved one as stress-free and streamlined as possible for you and your family, and American Care Partners @ Home Inc., and HomeWell Senior Care are our integral partners in achieving that goal. If you have a parent or spouse in need of home-care, please contact the Farr Law Firm at www.farrlawfirm.com or by calling 1-703-691-1888 for your complimentary initial consultation. We can help you determine your financial options for long-term care and create the best possible care plan for your loved one.
For more information about American Care Partners @ Home Inc., visit them online at www.americancarepartnersathome.com or call at 703-261-4146.
For more information about HomeWell Senior Care, check out their website at www.homewellseniorcare.com or call 1-888-9-SENIOR.
Evan H. Farr, Certified Elder Law Attorney
“Getting old is not for sissies” goes the quote. Perhaps one of the biggest challenges people face as they age is a seemingly inevitable and impending change to their living situation, whether it be due to health concerns, financial circumstances or both. This feared transition may not be so inevitable after all. With the right plan, seniors can qualify for Medicaid, take advantage of today’s latest elder care technologies, and protect the assets which otherwise could be drained by the catastrophic costs of long-term care.
Most people are familiar with care options such as In-Home Care, Assisted Living, and Nursing Homes. But now, a fourth option is gaining popularity: Aging-in-Place . . . a care option that allows individuals to continue living independently in their own home without the need for a live-in caregiver.
TabSafe
Drug compliance is the most common issue for those living alone. For those with memory issues, pill-reminder services and gadgets can issue daily visual and audio alerts to take medication, dispense the correct pills at the right times, and can even send a confirmation message to a caregiver once the medication has been dispensed. If a dosage is missed, an alert is sent to the caregiver and appropriate action can be taken. The TabSafe is one such product; you may visit their website here.
Falling is the leading cause of injury and death among those ages 65 and older.[1] For those with a high fall risk, monitoring devices like eNeighbor use unobtrusive sensors to monitor a resident’s daily routine. If the resident were to fall and not be able to get up or reach the phone for help, the device would trigger a phone call to a list of contacts as well as a 24-hour call center.
HomMed Genesis
“Remote monitoring” is an in-home technology that measures vitals such as heart rate, body weight, blood pressure, and blood glucose levels–making it useful to patients with a variety of health concerns, from cardiovascular disease to diabetes. Check out the HomMed Genesis.
These latest technological advancements are not necessarily cheap. One of the goals we at the Farr Law Firm seek to accomplish through our Level 4 Planning is to protect assets from the disastrous expenses of long-term care, so that some of those assets can be used to enhance the standard of living with goods and services not covered by government financial assistance, such as the ones I’ve described. Of course, if Aging-In-Place is not the ideal option for you, we can help you prepare for and decide on your other long-term care options.
If long-term care planning is a relatively new subject area for you or your family, I suggest you take a few moments to watch this segment from the National Business Series.
If you have been contemplating you or a loved-one’s long-term care options, we can provide the solutions that you may be looking for. Achieving long term peace of mind is an invaluable asset that we are honored to assist you with. Please do not hesitate to call us at 1-800-399-FARR to schedule a free, initial consultation.
Images from: http://www.TabSafe.comhttp://www.hommed.com/Products/Genesis_DM.asp Resources: Centers for Disease Control and Prevention
The Farr Law Firm’s Levels of Planning
Required Disclaimer:
*Virginia has no procedure for approving certifying organizations
Since 2007, my opinions on reverse mortgages have been mixed. Today, I re-examine my previous articles and prior concerns, due to Bank of America’s monumental announcement Friday that it is exiting the reverse mortgage industry.
Initially, I was strongly optimistic about the use of reverse mortgages by senior citizens. However, over the past year I have been forced to retract much of my praise due to problems (and possibly discrimination) faced by some of my own clients.
In my first article, back in 2007, I explained why I thought (at the time) that many seniors ought to familiarize themselves with the basic advantages of a reverse mortgage. My second article came almost three years later in early 2010, in which I took the previous article a step further. Using a Reverse Mortgage to Pay for Home Care expounded upon the possible benefits to seniors who elect to take advantage of a reverse mortgage. But my enthusiasm was short-lived.
My feelings towards the reverse mortgage industry turned for the worse by the time I wrote my third article, Huge Problem with Reverse Mortgage Industry, in which I stated my concerns with a seemingly industry-wide practice of second-guessing the legitimacy of crucial power of attorney (POA) documents. I wrote about how two of my clients’ agents, both of whom used a different reverse mortgage lender, were met with a lender’s refusal to honor the POA needed to commence the application process. They were told to go on what could be referred to as a scavenger hunt – to obtain a letter declaring the mental competency of the applicant when the POA was signed, and a second letter stating the applicant is now not mentally competent. By the end of the article, I concluded that because of the arbitrary and capricious roadblocks imposed by the reverse mortgage lender in connection with the use of the POA, a child acting as the parent’s agent may be more likely to sell the home and place the parent in a nursing home. This result is a far cry from the user-friendly tool I anticipated.
In my most recent article, Reverse Mortgage Rules Changing Again, I reported on more problems – this time on new laws which would increase expenses for seniors including an increase in the Mortgage Insurance Premium. Today, besides followomg up on these concerns, I also think it necessary to offer my thoughts on a tell-tale strategic move, announced by Bank of America on Friday, that it will withdrawal from its once-thriving reverse mortgage business.
The Expense Issue
In my last article, I quoted a Reverse Mortgage Consultant with MetLife Bank, noting that “HUD’s ongoing Mortgage Insurance Premium will be increasing from 0.5% to 1.25% (a 150% increase!), and that the size of new HECM reverse mortgages will shrink anywhere from 1% to 5% depending on the applicant’s age.”
Unfortunately, this issue persists. According to Money Watch, “[L]ast year’s annual audit . . . revealed that the [Federal Housing Administration] had fallen below the 2 percent capital reserves required by Congress.” As a result, the FHA proposes to increase the mortgage insurance premium from 1.75% to 2.25%, and will seek approval to raise the annual mortgage insurance premium from its 55% level. This affects millions of Americans, as the above article notes that the “FHA has become the only lender available for many Americans. Over the past few years, FHA has gone from insuring around 3 percent of loans to more than 25 percent.”
Bank of America’s Exit from the Reverse Mortgage Industry
Doug Jones, Consumer Sales and Institutional Mortgage Services executive for Bank of America Home Loans said the Bank made a “strategic decision to exit the reverse business due to competing demand and priorities that require investments and resources [to] be focused [elsewhere].” At least for existing Bank of America Reverse Mortgage customers, this decision will not affect their service, as Jones explained, “[Bank of America] fully understand[s] the critical sensitivity of ensuring that our senior customers are provided with the same level of excellent customer service that we have provided in the past.”
Bank of America Home Loans entered the Reverse Mortgage Business five years ago in 2006 and grew quickly after its acquisition of Countrywide Financial and Reverse Mortgage of America, but that growth has now been hampered by bigger problems within the bank.
“What’s really going on here?” The Bank of America decision comes in the wake of bad press related to its conventional mortgage business, and peaked recently when a temporary restraining order was issued January 20 of this year against ReconTrust, a subsidiary of Bank of America. “ReconTrust is trustee on thousands of loans that are in some stage of foreclosure and approximately 8,920 of such loans have already been directly affected by this injunction,” reported the Las Vegas Sun. The order was issued based on a woman’s suit against Bank of America for “fraudulently trying to foreclose on her home,” as reported by The Street. According to a motion filed by the bank, “[The order] has created enormous upheaval and confusion in the foreclosure process across Nevada and immediate review is required.” The order forbids the foreclosures of thousands of Nevada properties until a hearing takes place, scheduled for February 28. Is the Bank allocating resources away from reverse mortgage operations in order to ensure that its larger, conventional mortgage business does not falter amidst this corporate crisis?
To give credit where credit is due, this past September, Bank of America became the first loan servicer to voluntarily suspend foreclosure sales in the United States while it evaluated its procedures. As a result, it promised to improve its “staffing, customer impact, and quality controls,” reported Mortgage Professional Magazine.
With Bank of America out of the reverse mortgage equation, only time will tell if the battered reverse mortgage industry as a whole will fully recover in the foreseeable future. I will provide updates as they develop and can only hope reverse mortgages become the efficient, user-friendly tool they once were.
Image Credit – Photographer: Filomena Scalise
As Halloween approaches this year, I can’t help but draw an analogy between the nights I spent meandering my neighborhood as a kid looking for handouts, and our current economic times. I recall my grade-school friends and I operating our minds at their collective capacities, as we planned the best streets to target and the best routes to take to get from house to house most efficiently. Some of the parents surpassed expectations and gave out the good stuff — like king size candy bars! Others doled out the less-desirable treats, such as candy corns, smarties, or the dreaded raisins. Some neighbors, when they were gone for the evening, left out giant bowls of candy for us trick-or-treaters to help ourselves. Other neighbors were always gone, and their houses completely dark. But fortunately for us candy-loving kids, most or our neighbors participated in the fun of Halloween. In fact, many of our neighbors offered a variety of different candy to choose from each year. We never knew how much candy we’d wind up with at the end of the night, or how much of the “good stuff” we’d have in our bag.
Similar to the unpredictability of household Halloween generosity encountered by children, the Federal Government is providing the public with what can appropriately be called a “mixed bag” of economic solutions. It might just depend on what house, or rather, what state you live in.
Social Security and Supplemental Security Income recipients will not receive an increase in 2011 because there has been no increase in the federal Consumer Price Index. Read the Social Security News Release Here (released October 15, 2010).
Though the federal Social Security Administration is not able to provide an increase for its beneficiaries because of long-standing federal law that ties Social Security and Supplemental Security to the Consumer Price Index, other federal agencies, and some state agencies, are doing what they can to help alleviate the financial struggles of the elderly and disabled.
One prime example: the federal Administration on Aging and the Centers for Medicare and Medicaid Services (both part of the U.S. Dept. of Health and Human Services) recently awarded more than $2 million in grant funding to the Virginia Department for the Aging and the Virginia Department of Medical Assistance Services, the latter being the Virginia agency that runs our state’s Medicaid system. Read the Commonwealth of Virginia Press Release Here (released October 6, 2010).
This grant funding to Virginia’s Medicaid system comes with high hopes and great expectations. The over $2 million in funding will be used to bolster services for two key underprivileged groups – the elderly and the disabled – by alleviating burdens in the following areas:
• Prescription drug coverage
• Long-term care services
• Transition support from nursing homes to community based services
• In-home support services for sufferers of Alzheimer’s disease
In providing these much-needed funds to Virginia for the improvement of Virginia’s Medicaid program and the development of additional services for the elderly and the disabled, the Federal Government has demonstrated its continuing commitment to improving and strengthening the Medicaid system throughout the United States. As Senator Rockefeller wrote in 2005, on the 40th anniversary of the Medicaid program, ”taking care of our most vulnerable people is a moral obligation . . . our representative democracy has a responsibility to do for the future what we have repeatedly done in the past: protect, preserve, and strengthen Medicaid.”
Medicaid is what pays for the vast majority of nursing home care in the United States. With both the Federal Governemtn and the Virginia State Goverment now strenghtening the Medicaid program, smart long-term care planning (i.e., Medicaid Asset Protection Planning) has never been as important as it is now. According to the Virginia Department for the Aging, the population of elderly adults in Virginia will double in less than 20 years — to the point where one in five residents of Virginia is expected to be aged 65 or older.
A statistic I cited in a previous article demonstrates the importance of Medicaid Asset Protection Planning — about 70% of Americans who live to age 65 will wind up needing long-term care at some point in their lives. For the more than 40% who will require long-term placement in a nursing home, the cost of such care will be financially devastating without a smart Medicaid Asset Protection Plan focused on structuring assets in a way that protects those assets while allowing earlier Medicaid eligibility.
For most seniors over age 65, Medicaid is the equivalent of government-subsidized long-term care insurance, just as Medicare is governement-subsidized health insurance. But remember — the fact that Medicaid is “government-subsidized” does not mean that it’s a “handout.” On the contrary, it’s your tax dollars that fund the Medicaid program, just as it’s your tax dollars that fund Medicare. It’s also important to note that the Federal Government and Virginia State Government both encourage Americans to engage in smart Medicaid Asset Protection Planning — for example: there are laws that protect spouses of nursing home residents; there are laws that encourage Americans to engage in Medicaid Asset Protection by purchasing Long-Term Care Insurance “Partnership” policies; there are laws that allow the exemption of certain types of assets when applying for Medicaid; there are laws that permit individuals to qualify for Medicaid even after transferring assets to a spouse, or to a disabled family member, or to a caregiver child. To smartly plan and protect assets while accelerating qualification for Medicaid is no different than planning ahead to maximize your income tax deductions in order to minimize your income taxes. It is no different than taking advantage of tax-free municipal bonds. It is no different than planning your estate to avoid estate taxes (which, incidentally, a lot more people are going to be doing again next year when the Federal Estate Tax returns with a vengeance – with an Exemption Equivalent Amount of only $1 million – but that’s for another article . . . ).
At a time when much federal spending leads to controversy, Medicaid is an example of the government legitimately promoting the best interests of society. Similar to how my mom always made sure I ate a well-balanced dinner before embarking upon my annual October 31st sugar binge, our Federal Government and State Government are truly looking after the citizens of America (even in these gloomy economic times) by directing funds to programs that benefit and protect our most fragile citizens — the elderly and disabled.
The Farr Law Firm specializes in Family Protection Planning (i.e., Estate Planning, Incapacity Planning, and Medicaid Asset Protection Planning), and we are here to help you. If you have not yet done your Family Protection Planning, I encourage you to call us to take advantage of a free consultation to determine the planning solution that’s best for you and your family.
I’ve written several times over the years on the topic of Reverse Mortgages. My first article explained the concept and requirements of a Reverse Mortgage and how seniors can use a reverse mortgage. My second article, entitled Using a Reverse Mortgage to Pay for Home Care, explained how the Reverse Mortgage can be used as a tool to help seniors stay in their homes and age in place. My most recent article, entitled Huge Problem with Reverse Mortgage Industry, raised a nationwide alarm about how the reverse mortgage industry is “shooting itself in its collective foot” (and, I believe, discriminating against disabled and incapacitated adults) by routinely second-guessing the legitimacy of every power of attorney document and therefore imposing unnecessary obstacles for, and sometimes turning away, the very people who need a reverse mortgage the most — those frail elders who are unable to care for themselves but wish to remain at home and age in place rather than being forced to sell their homes and move into a long-term care facility. Here’s the link for the ElderLawAnswers article which picked up on my concerns and confirmed the enormous scope of this problem.Specifically, Pepe says that HUD’s ongoing Mortgage Insurance Premium will be increasing from 0.5% to 1.25% (a 150% increase!), and that the size of new HECM reverse mortgages will shrink anywhere from 1% to 5% depending on the applicant’s age.
However, Pepe also points out that homeowners will soon have a second HECM reverse mortgage option, called the “HECM Saver.” According to Pepe, the HECM Saver is a smaller and less expensive reverse mortgage. Under the HECM Saver, a reverse mortgage applicant will gain access to significantly less money, but in return, says Pepe, “HUD will waive its pricey Initial Insurance Premium, saving the applicant up to $12,510 in initial costs.”
Pepe did not mention whether HUD will be waiving or reducing the ongoing Mortgage Insurance Premium, so I’m guessing it won’t be.
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I Used to Like Reverse Mortgages.
I have, in the past, praised the use of Reverse Mortgages as a way for seniors to pay for Home Care so they don’t need to leave their home and move into a long-term care facility. See, for example, my January 30th, 2010 blog posting on this subject at:
http://blog.virginiaelderlaw.com/2010/01/using-reverse-mortgages-to-pay-for-home-care/
Now I Don’t.
Unfortunately, I must now retract my praise, as we have lately been running into a huge problem with the reverse mortgage industry. It seems that most, if not all, reverse mortgage lenders are now routinely second-guessing the legitimacy of every Power of Attorney document (POA) presented for use in connection with obtaining a reverse mortgage, creating an unnecessary and sometimes insurmountable roadblock for elderly clients who are incapacitated and need a reverse mortgage to be able to afford the home care or home modifications necessary to remain at home and age in place.
Here’s Why.
Here’s what’s happened to two of my clients recently, using two different reverse mortgage lenders: when the Agent under POA tried to commence the reverse mortgage application process, the reverse mortgage lenders refused to honor the POA unless the Agent (1) obtained a letter from the applicant’s doctor or former doctor stating that the applicant was mentally competent when the POA was originally signed (i.e., a ”competency letter”) AND (2) a letter from the applicant’s doctor stating that the applicant is not now mentally competent (i.e., an ”incompetency letter”).
Instead of honoring the well-established legal presumption that all adults are competent to sign legal and contractual documents unless proven otherwise (similar to the legal presumption in criminal law that all persons are innocent unless proven guilty), the leaders of the reverse mortgage industry are taking the law into their own hands and reversing the time-honored presumption of competence by essentially presuming that all reverse mortgage applicants were incompetent at the time of signing their Powers of Attorney, and forcing the families of these now-incompetent applicants to prove that these applicants were competent when they signed their Powers of Attorney, often years prior to ever applying for a reverse mortgage. Worse yet, the reverse mortgage lenders are acting as judge and jury for these applicants, as the lenders are deciding whether to accept the “competency letter” and the “incompetency letter” from the applicant’s physician, assuming these letters can even be obtained.
When I questioned the loan officer in one of these cases, the reply was as follows: “We have discussed this issue with several of our lenders and they all require a doctors’ letter if we are using a poa where someone is incompetent, no matter their age. They want to make sure the person was competent when they signed the poa, and that the person can no longer handle their financial affairs. I understand you would never allow someone to sign a legal document who wasn’t competent but we sometimes run into poas which were printed off the internet.”
I mentioned this travesty to other elder law attorneys around Virginia and around the country and it seems that this is a universal problem that many seniors across the country are running into. One attorney shared with me that she checked with a reverse mortgage loan officer who has worked for two different reverse mortgage companies, and was advised that this is the policy with both of these reverse mortgage lenders. According to this attorney, the loan officer acknowledged that this may take the reverse mortgage tool off the table for many seniors as 1) obtaining the required letters is burdensome and may be costly; 2) doctors are much more willing to render an opinion about incompetency versus competency; and 3) the legal assumption is competency when signing contractual documents, unless there were red flags or actual knowledge to the contrary.
Why is This Such a Huge Problem?
How does this policy eliminate the reverse mortgage as a tool for many seniors? Let’s look at a typical scenario — the type of situation I see every day. Let’s say you’re 85, you’ve just had a major stroke, and you’re no longer able to care for yourself. You either need a live-in caregiver in order to remain in your home or you need to go into a nursing home. Before your stroke, you had made it clear to your children that, like most elders, you never wanted to go to a nursing home, but would prefer to live out your life at home, with in-home care as needed. The problem is you can’t afford a live-in caregiver because your only income is Social Security, and you have no assets other than the equity in your home.
Your daughter, acting as Agent under the POA you gave her 3 years before your stroke, has two options:
Option 1: Your daughter can sell your home and place you in a nursing home. This option would be quite simple. POAs are routinely accepted in connection with the sale of homes, without being questioned and second-guessed by title companies and settlement attorneys or the purchaser’s mortgage lender, so your daughter would have no problem selling your home. As for admitting you to a nursing home, that’s also no problem — POAs are used every day to sign admission documents to nursing homes and other long-term care facilities.
Option 2: Your daughter can take out a reverse mortgage and draw out the equity in your home each month to pay for a live-in caregiver. Your daughter and all your other children would all prefer to honor your wishes and allow you to remain at home with a live-in caregiver. But wait . . . your daughter tries to get a reverse mortgage and is met by obstacle after obstacle. Even though your daughter can easily sell your house and move you into a nursing home using your perfectly valid Power of Attorney, the reverse mortgage lender will NOT accept the POA unless your daughter (1) obtains a letter from your doctor or former doctor stating that you were mentally competent when the POA was originally signed AND (2) obtains a letter from your current doctor stating that you are now incompetent. Unfortunately, your doctor from 3 years ago (when you signed the POA) died two years ago; no one took over his medical practice, and your old medical records are therefore not available, so there is no doctor who can write a letter stating that you were competent 3 years ago when you signed the POA. Or maybe you were so healthy that you hadn’t been to a doctor for 5 years prior to your stroke (or maybe you’d never been to a doctor prior to your stroke), so there are no medical records from 3 years ago and therefore no doctor to write a letter stating that you were competent 3 years ago when you signed the POA.
The End Result?
Because of the arbitrary and capricious roadblocks imposed by the reverse mortgage lender in connection with use of your Power of Attorney, your daughter is forced to choose Option 1 — selling your home and placing you in a nursing home.
In my view, the reverse mortgage industry is effectively shooting itself in its collective foot with this unfair policy, as they are turning away the very people who need a reverse mortgage the most — those frail elders who are unable to care for themselves but wish to remain at home and age in place rather than being forced to sell their home and move into a long-term care facility.
Illegal Discrimination in Lending?
Additionally, in my view, this practice by the reverse mortgage industry constitutes illegal discrimination in lending, as the reverse mortgage industry is essentially discriminating against disabled and incapacitated adults by imposing obstacles that are not imposed on able, competent adults.
Discrimination in mortgage lending is prohibited by the federal Fair Housing Act, and HUD’s Office of Fair Housing and Equal Opportunity actively enforces those provisions of the law. According to HUD, The Fair Housing Act makes it unlawful for a mortgage lender to refuse to make a mortgage loan based on “handicap,” defined as ” a physical or mental impairment which substantially limits one or more of such person’s major life activities.”
What to Do? Forward This Article and File Complaints.
If you or your loved one has experienced this type of discrimination, I encourage you to visit HUD’s Housing Discrimination Complaint Website and file a ” lending discrimination complaint” – either online, by phone, or via mail. If you’re a fellow Elder Law Attorney and you’ve had clients who have experienced this type of discrimination, please forward this article to your clients (by either forwarding this article via email or directing them to this article online at: http://blog.virginiaelderlaw.com/2010/05/huge-problem-with-reverse-mortgage-industry) and encourage them to visit HUD’s Housing Discrimination Complaint Website and file a complaint.
If HUD and the reverse mortgage industry start getting enough complaints about this issue, perhaps they will reverse their position so that the reverse mortgage can once again be a useful tool for the elders that need it most.
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