Category Archives: Reverse Mortgage

Planning for Long-Term Care (Part 1)

Written by Evan Farr

Are you one of the millions of Americans over age 50 who has not yet started planning for long-term care?

As financially responsible adults, most of us are prepared for some unexpected disasters – we pay for health and property damage insurance, and many of us have taken some steps toward funding for our retirement. But very few of us have prepared for one of the most devastating of unexpected events – the need for long-term care. According to most estimates, more than 60% of us will need long-term care at some point in our lives. If you are a member of the “sandwich generation” – responsible for an older parent – the odds that either you or your aging parent will need such care are even higher, and the costs to your lifestyle, finances, and security can be catastrophic. Consider the following long-term care statistics:

• About 70% of Americans who live to age 65 will need long-term care at some time in their lives, over 40 percent in a nursing home.
• As of 2011, the average cost of a nursing home in Northern Virginia was over $100,000 per year.
• A recent insurance company study found that 46 percent of its group long-term care claimants were under the age of 65 at the time of disability.

Contrast the above long-term care statistics with statistics for automobile accident claims and homeowner’s insurance claims:

• An average of only 7.2% of people per year file an automobile insurance claim.
• An average of only 6.15% of people per year file a claim on their homeowner’s insurance.

The need for long-term care drastically alters or completely eliminates the four principal retirement dreams of elderly Americans:

1. Remaining independent in the home without intervention from others
2. Maintaining good health and receiving adequate health care
3. Having enough money for everyday needs
4. Not outliving assets and income

Unfortunately, the reality is that the majority of Americans make no plans for long-term care. Not only does this lack of planning affect older Americans, but it also often has an adverse effect on the older person’s family, with sacrifices made in time, money, and family lifestyles. The stresses of being a caregiver for an older parent often result in a deterioration of the caregiver’s own physical and emotional health. Because of changing demographics and improved health care, the current generation — more than ever — needs to actively plan for long-term care.

So what are basics of a good Long-Term Care Plan? First and foremost are two critical documents that need to be prepared by an experienced and knowledgeable Elder Law Attorney. These two essential documents are:

• A Financial Durable Power of Attorney containing Asset Protection Powers; and
• An Advance Medical Directive containing a Long-Term Care Directive.

The third essential document, which you can prepare on your own, is a Lifestyle Care Plan.

Part 2 of this article will explain and explore these three critical documents to give you a greater understanding of the need for and importance of these vital long-term care planning instruments.

These essential legal documents, however, are only part of the requirements for a good Long-Term Care Plan. The other important component is a sound financial plan for how to pay for good long-term care. There are three primary ways to plan in advance for how to pay for long-term care: (1) build up your income and life savings in order to be able to self-fund your future care needs; (2) protect your assets by purchasing long-term care insurance; or (3) protect your assets by using an asset protection trust designed to legally protect your assets and allow you to qualify for Medicaid, the governmental program that pays for about 70% of people living in nursing homes. For some families, a fourth way to pay for long-term care is a type of Veteran’s pension benefit called “Aid & Attendance.”

Unfortunately, option 1 (building up your income and life savings to self-fund future care) is not feasible for most Americans, especially in these troubled economic times. Accordingly, Parts 3 through 5 of this series will explain and explore these three methods of paying for long-term care. Part 3 will focus primarily on using long-term care insurance to protect your assets; Part 4 will explore the use of a special type of asset protection trust to protect assets and gain early access to Medicaid; and Part 5 will explain the Veteran’s Aid & Attendance benefit.

There are many things that you can do now to begin to put together a good Long-Term Care Plan. The most important thing you can do is to act now! You may have limited resources in the future or health problems that will prevent you from taking care of the things you can easily take care of today. The Farr Law Firm specializes in long-term care planning and we would be happy to assist you in your preparations. Please visit us at www.virginiaelderlaw.com or call 703-691-1888.

The Reverse Mortgage Saga Part 5: “How the Farr Law Firm is Helping Clients Stay at Home”

Written by Evan Farr
Reverse Mortgages rules change frequently

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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:

Portrait of Shakespeare (Deirdre O’Neill) / CC BY-SA 2.0

“Combating” the “Competency Problem” – Free images from FreeDigitalPhotos.net

Senior Homeowners: When does a Reverse Mortgage Make Sense?

Written by Evan Farr

For many seniors the equity in their home is their largest single asset, yet it is unavailable to use unless they use a home equity loan. But a conventional loan really doesn’t free up the equity because the money has to be paid back with interest.

reverse mortgage is a risk-free way of tapping into home equity without creating monthly payments and without requiring the money to be paid back during a person’s lifetime. Instead of making payments the cash flow is reversed and the senior receives payments from the bank. Thus the title “reverse mortgage“.
Many seniors are finding they can use a reverse mortgage to pay off an existing conventional mortgage, pay off debt or help pay for home repairs, remodeling or long term care needs.
False Beliefs

The lender could take my house.” The homeowner retains full ownership. The Reverse Mortgage is just like any other mortgage; you own the title and the bank holds a lien. You can pay it off anytime you like.
I can be thrown out of my own home.” Homeowners can stay in the home as long as they live, with no payment requirement.
Virtually anyone can qualify. You must be at least 62, own and live in, as a primary residence, a home [1-4 family residence, condominium, co-op, permanent mobile home, or manufactured home] in order to qualify for a reverse mortgage.
There are no income, asset or credit requirements. It is the easiest loan to qualify for.
The amount of reverse mortgage benefit for which you may qualify, will depend on your age at the time you apply for the loan, the reverse mortgage program you choose, the value of your home and current interest rates. As a general rule, the older you are and the greater your equity, the larger the reverse mortgage benefit will be (up to certain limits, in some cases).
The reverse mortgage must pay off any outstanding liens against your property before you can withdraw additional funds.
The loan is not due and payable until the borrower no longer occupies the home as a principal residence (i.e. the borrower sells, moves out permanently or passes away). At that time, the balance of borrowed funds is due and payable, all additional equity in the property belongs to the owners or their beneficiaries.
The most popular reverse mortgage plan is the HECM. (Home Equity Conversion Mortgage) Over 90% of all reverse mortgages are HECM contracts.
You must participate in an independent Credit Counseling session with a FHA-approved counselor early in the application process for a reverse mortgage. The counselor’s job is to educate you about all of your mortgage options. This counseling session may charge a fee to the borrower and can be done in person or, more typically, over the telephone. After completing this counseling, you will receive a Counseling Certificate in the mail which must be included as part of the reverse mortgage application.
You can choose 3 options to receive the money from a reverse mortgage:
  1. all at once (lump sum);
  2. fixed monthly payments (for up to life);
  3. a line of credit; or a combination of a line of credit and monthly payments.
The most popular option, chosen by more than 60 percent of borrowers, is the line of credit, which allows you to draw on the loan proceeds at any time.
Keeping money in a reverse mortgage line of credit in most states will not count as an asset for Medicaid eligibility.  It is best to get an opinion from an Elder Attorney in your state.
Tom MacDonald, in his article on “ReverseMortgageconsultant.com”, makes the following statement about Medicaid, Med-Cal or SSI requirements:
No matter how you take your money in a reverse mortgage, it is considered a loan. If you are looking at a financial statement, it is a liability, not an asset. The home is the asset. Many times we refer to the monthly payments incorrectly as monthly income. Neither the IRS nor Medicaid nor any other agency count the funds from a reverse mortgage as taxable income or qualifying income. Think of taking a cash advance from a credit card. It is money you owe to the credit card company. I’ve not see an agency consider the money from a cash advance as income. The funds from a reverse mortgage are similar.
The Medicaid, Medi-Cal or SSI guideline you need to be most cautious of is the cash on hand guideline. Once example is the requirement you have no more than $2,000 in your bank accounts. If you are taking $1,000/mo of payments from a reverse mortgage and spending only $500/mo, it is obvious that you will exceed the $2,000 guideline within a few months. So, when taking monthly payments, take no more than you know you will be spending every month.

Image: digitalart / FreeDigitalPhotos.net

Reverse mortgage questions after BofA makes big announcement

Written by Evan Farr

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, I would like to follow up and comment 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 Power of Attorney Problem

My first concern – second-guessing POA documents at the expense and delay of law abiding clients – has hopefully been remedied, at least in Virginia, by way of enactment of the Uniform Power of Attorney Act, codified by Virginia Code Section 26-71.01.  The law creates safeguards to keep the POA flexible yet effective, balancing flexibility with prevention of financial abuse.  Below I have outlined some important changes:
Durability: A POA is now considered automatically “durable” unless it expressly states otherwise.  “Durability” is desirable in most cases, because it allows the POA to remain effective even in the event of incapacity.

Photocopies: Photocopies of an out-of-state POA will be treated as an original.  The purpose here is to encourage acceptance of POA documents both in Virginia and elsewhere.  This public policy underscores the importance of incapacity planning as recognized by the Commonwealth of Virginia.

Protection to Accept: If a notarized document is accepted in good faith, then the person who accepted it is protected from liability so long as they possess no actual knowledge relating to a problem with the POA, or the agent’s authority.  But note: the principal’s signature must be genuine for this protection to be operative.  Businesses are protected so long as they use “commercial reasonableness” with regard to employer-employee communications and POA-related instructions.

Accepting/Rejecting a POA: If a third party refuses to accept a POA and the refusal does not fall within the safe harbors provided by the law, then the third party can be ordered to accept.  More significantly, there is potential liability for costs and fees.  If a third party is presented with a POA, he or she has seven business days to take action.  By taking action, I mean the third party must accept it or request a certification, translation, or opinion of counsel.  After the request is satisfied, five additional days are granted to the third party to accept.

What About 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.”

While the problems associated with POA acceptance may be eradicated if entities abide by the laws and understand its safe harbors, the problems of rising expenses for seniors and the uncertainty of the industry live on.

What is Really Going on with Bank of America?

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.

Not shockingly, the Bank of America ruling is producing conflicting views and will continue to do so until the issue is resolved, as evidenced by some noteworthy public comments.  Some are calling for more responsibility on the part of borrowers, echoing rhetoric that has been commonplace since the start of the recession: “Pay your obligations and you would not have these problems. I am tired of everyone blaming the banks,” one person posted.

Mortgage Electronic Registration Systems (MERS) have been pointed to as potential vehicles to commit  alleged tax and recording fee evasion.  This system for recording was “[c]reated by the real estate finance industry, [and] eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” But in response to the consumer-responsibility argument above, one commentator blames seedy practices related to MERS instead:

The big point you are missing is that all of these banks used [Mortgage Electronic Registration Systems] as a method to not pay taxes and recording fees in every county and state in the United States. So even if you are paying your payments on time, you could still have a clouded title to your home because your mortgage and deed of trust were never properly recorded by any of the major banks that used this system.

Chris Dodd (D-CT), Senate Banking Committee Chairman, has been actively searching for answers, as indicated by the November oversight hearing titled, “Problems in Mortgage Servicing from Modification to Foreclosure.”  The purpose of the hearing, according to National Mortgage Professional, was to hear from industry representatives, state representatives, and consumer protection experts on how modifications and unjust foreclosures could have been prevented.

The problems addressed at the hearing: servicers that struggle to meet demand,  cases of lost paperwork, allegations of self-dealing, failure to record transfer and ownership of notes and mortgages, failure to maintain custody of title, and failure to establish or administer mortgage trusts lawfully.

Virginia Updates

Virginia Lawyers Weekly noted on its blog today that  SB 837 remains a possible foreclosure reform bill,  and it would create a civil cause of action against those who knowingly use a false document in support of a foreclosure.  But other bills failed miserably.

A reform with more teeth, SB 798, sought judicial review of foreclosures.  Virginia’s current deed of trust system allows for a trustee to foreclose on a property without supervision of the court.  Don McEachin, D-Richmond was patron, and was unwilling to allow a group created by Gov. Bob McDonnell to control the bill’s future.  Why no trust?  VLW reports that according to at least one consumer lawyer, McDonnell’s group does not represent homeowner or consumer interests, but instead represents banking interests.  McEachin requested an up-or-down vote and the bill is likely going nowhere.

Also going nowhere is SB 838, which relates to the mentioned Mortgage Electronic Registration System flaws.  The bill would have called for stricter recording requirements.

With Bank of America out of the reverse mortgage equation and with the new Uniform Power of Attorney Act in effect in Virginia, only time will tell if the battered mortgage industry as a whole will fully recover in the foreseeable future.  For now, I can only advise individuals to ask as many questions as they can and to potentially consider other alternatives.

Options such as refinancing a mortgage, obtaining a home equity loan, or taking personal loans come to mind as alternatives to a reverse mortgage, but the major drawback to the above three options compared to a reverse mortgage is that they are associated with income and credit score qualifications and must be paid back within a given time period.   I will provide updates as they develop and can only hope reverse mortgages become the efficient, user-friendly tool they once were.

Photographer: Salvatore Vuono

No More Reverse Mortgages, Announces Bank of America

Written by Evan Farr

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

Reverse Mortgage Industry in Trouble?

Written by Evan Farr

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 third 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”  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. 

In a major move, Bank of America has now announced it is backing out of the industry.  Check both this blog and the Virginia blog later today for an update.  For the time being, you can read this series of articles  below:

Using a Reverse Mortgage to Pay for Home Care
Originally posted Jan. 30, 2010
Available Here

Many of my clients ask me how I feel about reverse mortgages, and even more so this past week because of a favorable story that appeared in last week’s Washington Post entitled “Reverse Mortgages are Not the Next Subprime.”  This excellent article was written by the ”Mortgage Professor,” a Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania (incidentally, my Alma Mater), and clears up much of the confusion and myths and fears surrounding the reverse mortgage.  I encourage all of you to read it.  Another good source of information about reverse mortgages is the Federal Trade Commission Fact Sheet.

As a Certified Elder Law attorney, one of my primary goals is to help preserve the dignity and enhance the lives of my elderly clients.  For many of my clients, remaining in their homes as long as possible is one of their highest priorities.  I have been a long-time fan of reverse mortgages because they help my clients do exactly that — remain in their homes as long as possible. 

Why? Because in order to remain in your home as long as possible, you will most likely at some point need some home care.  “Home Care” can be health care and/or supportive care provided formally in your home by health care professionals (typically referred to as home health aides) or by paid or unpaid family members or friends (typically referred to as caregivers).  Often, the term “home care” is used to mean non-medical care, or custodial care, which may be provided by persons who are not nurses, doctors, or other licensed medical personnel.  The term “home health care” typically refers to care that is provided by a licensed health care professional — most often a Certified Nurse Assistant (CNA).  However, the terms are often used interchangeably, and for simplicity in this article I will use the term “home care” to refer to both types of care.

The goal of home care is typically to to allow you to remain at home and age in place, rather than being forced to move to an assisted living facility or nursing home.  Home Care providers render services in your own home. These services typically include a combination of health care services and life assistance services.
Health care services may include services such as wound care, administration of medication, physical therapy, speech therapy, and occupational therapy.  Life assistance services typically include help with daily tasks such as meal preparation, medication reminders, laundry, light housekeeping, errands, shopping, transportation, companionship, and help with the activities of daily living (ADLs), which typically refers to six activities (bathing, dressing, transferring, using the toilet, eating, and walking).

Although some home care is provided by family members for free, most family caregivers need to be paid, and these payment arrangements should always be made pursuant to a written caregiver contract (prepared by an Elder Law Attorney) between the caregiver and the care recipient.  Because home care is quite expensive, having the proceeds from a reverse mortgage is often one of the  only ways that elders can afford to pay for appropriate home care. According to The 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, the 2009 national average hourly rate for home health aides increased by 5.0% from $20 in 2008 to $21 in 2009. The national average hourly rate for homemaker/companions increased by 5.6% from $18 in 2008 to $19 in 2009.

Most of my clients, when they start out needing home care, will typically start with receiving 4 hours of care 3 days a week, which costs about $1,000 per month and is easily affordable for many people.  But over time, most of my clients progress to the point of needing upwards of 12 hours per day of home care, costing over $7,000 per month, and very few people can afford to pay for this type of care without eventually tapping into their home equity via a reverse mortgage.

The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which completely protects your ability to remain in your home. So long as you pay your property taxes and homeowners insurance, and maintain your property, you can remain in your home forever. If the reverse mortgage lender fails, any unmet payment obligation to the borrower will be assumed by FHA.
According to the Mortgage Professor’s article mentioned in my first paragraph, in 2009 about 130,000 HECMs were written, and feedback from borrowers has been mostly positive. In a 2006 survey of borrowers by AARP, 93% said that their reverse mortgage had a mostly positive effect on their lives.
For many of my clients, a reverse mortgage is the best way, and often the only way, for them to be able to afford to remain at home, despite the fact that reverse mortgages are expensive to obtain.  However, reverse mortgages are not for everyone, as there are other programs that may be able to help you remain in your home.  For instance, many of my clients are eligible for the Veterans Aid and Attendance benefit or for home-based Medicaid, or can be made eligible for these benefits through our process of Asset Protection.

Whether you own your home outright or in a Revocable Living Trust or in my proprietary  Living Trust PlusTM Asset Protection Trust, if you think a reverse mortgage might be the solution you need, please contact me for a free consultation so I can evaluate your specific situation and advise you as to whether a reverse mortgage is your best option for allowing you to live comfortably in your home.



Huge Problem with Reverse Mortgage Industry
Originally Posted May 5, 2010

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.

 Reverse Mortgage Rules Changing Again
Originally Posted September 10, 2010

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.
Now, having already maimed itself with the power of attorney fiasco, the reverse mortgage industry seems intent on digging its own grave.   According to Stephen Pepe, JD, a Reverse Mortgage Consultant with MetLife Bank, there are big changes coming soon to the HECM Reverse Mortgage programs, changes which for many seniors are going to significantly increase the expenses of obtaining a reverse mortgage after October 4, 2010, while also making the reverse mortgage counseling process “much longer and more involved due to significant changes in HUD’s HECM counseling protocol.”
In an email sent to the members of the National Academy of Elder Law Attorneys, Pepe explained as follows:
“Congress and HUD have made some significant changes to the Home Equity Conversion Mortgage (HECM) reverse mortgage program that take effect on October 4, 2010. These changes impact any applicant that does not have an FHA Case Number assigned to his or her HECM application before that date.”

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.

Working with Elder Parents in Planning Financially for their Long Term Care

Written by Evan Farr

You may be taking care of elderly parents now or looking at that possibility in the near future. According to a report from USATODAY/ABCNews/Gallup Poll, 41% of baby boomers are helping take care of elderly parents by providing personal help or financial assistance or both.

If financial planning and long term care planning have not been done previous to the need for care, the burden falls on the caregiving family member. Decisions about how care will be paid for, who will be responsible for managing the estate as well as how the long term care will be given can cause stress and contention among family members.

It is best for parents and all family members to be involved in planning for future financial needs.  The financial resources being used today could change drastically with the occurrence of a stroke, illness or onset of dementia. In order to plan financially for long term care, you need to know what the costs are now and what they will be in the future.

Every year MetLife does a survey of long term care costs. Their 2010 survey shows that the average daily rate for private nursing home is $229 which is up from $219 in 2009. Assisted living monthly base rate cost rose to $3,293 in 2010 from $3131 in 2009. Home health aids average $21 an hour.

Planning financial needs can be very difficult, considering you do not know when long term care will be required or how long it will be needed. You can determine what will be needed in certain living situations. Staying in your home for care will require Professional Home Care assistance, travel accommodations to doctor appointments, help with shopping, meals, medical supplies and medication and possibly a 24-hour attendant. Even if a family member is doing most of the care, eventually professional care will be required or a move to a nursing home facility will be necessary.

When evaluating your present income and assets consider how they would work for future needs.

  • What are my care options?
  • What type of long-term care can I afford?
  • Do I have long term care insurance?
  • Are there assets I can sell?
  • If I stay at home how will I pay for care?
  • Do I have to sell the house to pay for other living arrangements?
  • Are there other financing alternatives?
  • Do I have life Insurance or the means to pay for a funeral and burial?
  • Will my spouse be cared for financially?
  • Should I do Medicaid planning?
  • Do I have the legal documents that may be needed?

An article by Thomas Day, Director of the National Care Planning Council, titled “Paying the Cost of Care,” reviews some of the financial options that can be used.

“Tangible assets that might produce enough income to pay for long term care might include investment property such as rentals, commercially leased property, land, a farm, second home or a business…”

“Some individuals are heavy into real estate and short on cash. If the intent was to cash out of the investment at some future point, then a sale is warranted. But, it seems a shame to sacrifice in early years to establish an investment only to throw it away to long term care. It would make more sense to use income from the investments to buy long term care insurance.”

Long term care insurance is one option for paying for care. Long term care insurance helps pay for the care you need when you can no longer care for yourself. It can protect your family’s financial future and your own investments. There are qualifications that need to be met with health and age. This type of insurance is more expensive the older the person and almost impossible to get if age related illness has already occurred.
Senior Financial Planners, Elder Law Attorneys and Veteran Benefits Consultants can assist you in evaluating your needs and future planning.

Senior Financial Planners are expert in working with seniors and their families to set up long term care plans.  They usually work with an Elder law Attorney and Care Manager (Professional) to give you all options and resources for care.

Elder Law Attorneys help with Medicaid Planning and Asset protection as well as legal documents needed for final requests.

If staying in your home is a desired option, a Reverse Mortgage can supply the funds to pay for home care.
Another option for veterans who served during a time of war is the Aid & Attendance Benefit.  This benefit provides extra income up to $1,949 to help pay for home care, assisted living and medical costs. It will also pay for widows or widowers of the Veteran. To learn more about qualifications for these benefits contact a Veteran Benefit Consultant in your area.

Knowing your needs and financial resources is paramount before making any long term care decisions. Working together, both parents and family members can ease the stress and burden of elder care needs.

Reverse Mortgage Rules Changing Again

Written by Evan Farr
money-question-markI’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.
 
Now, having already maimed itself with the power of attorney fiasco, the reverse mortgage industry seems intent on digging its own grave.   According to Stephen Pepe, JD, a Reverse Mortgage Consultant with MetLife Bank, there are big changes coming soon to the HECM Reverse Mortgage programs, changes which for many seniors are going to significantly increase the expenses of obtaining a reverse mortgage after October 4, 2010, while also making the reverse mortgage counseling process “much longer and more involveddue to significant changes in HUD’s HECM counseling protocol.”
 
In an email sent to the members of the National Academy of Elder Law Attorneys, Pepe explained as follows:
 
“Congress and HUD have made some significant changes to the Home Equity Conversion Mortgage (HECM) reverse mortgage program that take effect on October 4, 2010. These changes impact any applicant that does not have an FHA Case Number assigned to his or her HECM application before that date.”

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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Huge Problem with Reverse Mortgage Industry

Written by Evan Farr

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.

Using a Reverse Mortgage to Pay for Home Care

Written by Evan Farr

Many of my clients ask me how I feel about reverse mortgages, and even more so this past week because of a favorable story that appeared in last week’s Washington Post entitled “Reverse Mortgages are Not the Next Subprime.”  This excellent article was written by the ”Mortgage Professor,” a Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania (incidentally, my Alma Mater), and clears up much of the confusion and myths and fears surrounding the reverse mortgage.  I encourage all of you to read it.  Another good source of information about reverse mortgages is the Federal Trade Commission Fact Sheet

As a Certified Elder Law attorney, one of my primary goals is to help preserve the dignity and enhance the lives of my elderly clients.  For many of my clients, remaining in their homes as long as possible is one of their highest priorities.  I have been a long-time fan of reverse mortgages because they help my clients do exactly that — remain in their homes as long as possible.  

Why? Because in order to remain in your home as long as possible, you will most likely at some point need some home care.  “Home Care” can be health care and/or supportive care provided formally in your home by health care professionals (typically referred to as home health aides) or by paid or unpaid family members or friends (typically referred to as caregivers).  Often, the term “home care” is used to mean non-medical care, or custodial care, which may be provided by persons who are not nurses, doctors, or other licensed medical personnel.  The term “home health care” typically refers to care that is provided by a licensed health care professional — most often a Certified Nurse Assistant (CNA).  However, the terms are often used interchangeably, and for simplicity in this article I will use the term “home care” to refer to both types of care.

The goal of home care is typically to to allow you to remain at home and age in place, rather than being forced to move to an assisted living facility or nursing home.  Home Care providers render services in your own home. These services typically include a combination of health care services and life assistance services.

Health care services may include services such as wound care, administration of medication, physical therapy, speech therapy, and occupational therapy.  Life assistance services typically include help with daily tasks such as meal preparation, medication reminders, laundry, light housekeeping, errands, shopping, transportation, companionship, and help with the activities of daily living (ADLs), which typically refers to six activities (bathing, dressing, transferring, using the toilet, eating, and walking). 

Although some home care is provided by family members for free, most family caregivers need to be paid, and these payment arrangements should always be made pursuant to a written caregiver contract (prepared by an Elder Law Attorney) between the caregiver and the care recipient.  Because home care is quite expensive, having the proceeds from a reverse mortgage is often one of the  only ways that elders can afford to pay for appropriate home care. According to The 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, the 2009 national average hourly rate for home health aides increased by 5.0% from $20 in 2008 to $21 in 2009. The national average hourly rate for homemaker/companions increased by 5.6% from $18 in 2008 to $19 in 2009. 

Most of my clients, when they start out needing home care, will typically start with receiving 4 hours of care 3 days a week, which costs about $1,000 per month and is easily affordable for many people.  But over time, most of my clients progress to the point of needing upwards of 12 hours per day of home care, costing over $7,000 per month, and very few people can afford to pay for this type of care without eventually tapping into their home equity via a reverse mortgage.

The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which completely protects your ability to remain in your home. So long as you pay your property taxes and homeowners insurance, and maintain your property, you can remain in your home forever. If the reverse mortgage lender fails, any unmet payment obligation to the borrower will be assumed by FHA. 

According to the Mortgage Professor’s article mentioned in my first paragraph, in 2009 about 130,000 HECMs were written, and feedback from borrowers has been mostly positive. In a 2006 survey of borrowers by AARP, 93% said that their reverse mortgage had a mostly positive effect on their lives.

For many of my clients, a reverse mortgage is the best way, and often the only way, for them to be able to afford to remain at home, despite the fact that reverse mortgages are expensive to obtain.  However, reverse mortgages are not for everyone, as there are other programs that may be able to help you remain in your home.  For instance, many of my clients are eligible for the Veterans Aid and Attendance benefit or for home-based Medicaid, or can be made eligible for these benefits through our process of Asset Protection

Whether you own your home outright or in a Revocable Living Trust or in my proprietary  Living Trust PlusTM Asset Protection Trust, if you think a reverse mortgage might be the solution you need, please contact me for a free consultation so I can evaluate your specific situation and advise you as to whether a reverse mortgage is your best option for allowing you to live comfortably in your home.