Category Archives: Reverse Mortgage
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.
A 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.
“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:
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:
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.
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.
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.
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 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.
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. Evan H. Farr on Google +
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.
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:
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 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: 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.
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.