What if home values continue to decline? Reverse mortgages have helped people capture the value of their home during a declining market. People that took out a reverse mortgage three or more years ago received equity from their homes that has now evaporated. So if a reverse mortgage makes sense for someone today it might be time to move forward to lock in the value.
While several large banks have left the reverse mortgage industry and many people are misinformed about the product now might be a good time to investigate how this program can be a valuable tool.
Often times the most valuable asset people have are their homes. For people over 62 the reverse mortgage allows them to tap into this asset. Home equity has been falling since its peak in 2007. Despite this decline the National Reverse Mortgage Lenders Association estimates there is $3.2 trillion in equity sitting out there that is untapped.
The Time is RIGHT
While reverse mortgages continue to be used by a tiny percentage of eligible homeowners it might be a good idea to talk to your financial planners or family members and lock into the program.
1. If you have a home that's worth more than $417,500 the temporary loan limit of $625,000 is set to expire at the end of 2011.
2. The future of the program is uncertain, all government programs are subject to deletion.
3. The reverse mortgage can provide funds necessary for anyone who is laid off or having financial difficulty in this weak economy.
4. Look at the reverse mortgage as a way to lock in the home's current value and protect the equity
Earlier this year Ginnie Mae, which purchases reverse mortgage-backed securities, tightened the standards for these loans. Loan volume has continued to fall since it's peak in 2008.
With the introduction of the new financial assessment due out in the coming weeks it is going to become more difficult for those "in need" seniors to receive a reverse mortgage. This assessment will try to evaluate whether or not the borrower will be able to continue to pay their property taxes, homeowners insurance and maintenance on their homes before they grant the loan.
Who Qualifies?
The homeowner(s) must be at least 62 or better and the home must be their primary residence. They can not be delinquent on any federal debts but can have a small mortgage on the home that will be paid at closing. All the criteria for the loan is based on home value so the guidelines for this loan are not the same as a conventional loan. However, HUD counseling or reverse mortgage education is a mandatory requirement for the loan. This helps the borrower understand the loan and avoid being taken advantage of by an unethical lender.
There are two types of loans to choose from. The fixed rate provides the largest amount of equity you can receive from the reverse mortgage but all the proceeds must be taken at closing. Thus you begin paying interest on that amount as soon as the loan funds. This loan makes sense if you have a large mortgage or other debts that need to be paid. The second is the adjustable rate loan that provides you with many options such as tenure (a dollar amount for the rest of your lift) term (a set amount for a number of years) a line of credit that actually grows in value or a combination of any of the programs. The line of credit is a great way to have money accessible to pay taxes, medical bills etc. without having to pay it back. It also grows by 4% which is the opposite of the market value of the home. All the proceeds from the reverse mortgage are TAX FREE!!!!
As long as one of the homeowners remain in the home the loan is not due and payable. Not until the last borrower leaves the home by death or disability does the family need to start looking into selling or refinancing the home. Once that event occurs the loan must be repaid, with interest. Any money remaining after the loan is satisfied goes to the borrowers or their heirs.
An example of the application of this product was a 77 year old lady in Arizona that took out a reverse mortgage to purchase a home for her daughter down the street from her so that she could help take care of her. The daughter now had a mortgage -free home and lives near enough to care for her mother.
Recently FHA introduced the Saver Loan. The good news is that the upfront costs of the loan are greatly reduced but so is the amount you can borrow. In some cases you will also pay a slightly higher interest rate. The volume of these Saver products has more than doubled since January. They are now about 10% of all new reverse mortgages according to John Lunde, president of Reverse Market Insight. It seems borrowers are getting younger and utilizing the product for retirement planning.
While home equity may have declined from it's peak, smart planning can allow people to fund their retirement by tapping into it.
Friday, November 4, 2011
Medicaid Asset Recovey - Important Information
MEDICAID ESTATE RECOVERY
What Seniors Should Know
What is Estate Recovery?
Not many people are aware of the 2009 Estate Recovery act enacted by the Federal Government that places the largest asset the family owns (their home) in jeopardy of a Medicaid lien. When I tell people about this law they are unaware of it. So I did some research and found this information on the West Virginia Attorney Generals website. This validates the information I've been giving seniors for several years.
"Estate Recovery is a collection program required by a Federal law (42 U.S.C.
§ 1396p). This law requires all States to “recover” money spent by Medicaid on
“long-term care” (nursing-home or home and community-based care) by collecting
it from the estates of people who received such care after reaching age 55. Most of
the money collected goes to the Federal government, not the States. States that fail
to implement Estate Recovery collections can be cut-off from Federal Medicaid
funding, but no State has yet been penalized for failure to properly implement the
Estate Recovery requirements.
% Estate Recovery does NOT create a debt owed by the deceased Medicaid recipient’s
heirs, but rather creates a claim or lien only against the assets in the
deceased’s estate. The State Medicaid agency (called the “Bureau of Medical
Services”) files a claim against the estate and can enforce it in the same manner
as any other creditor of the estate.
% Many assets that were exempt for purposes of determining Medicaid
eligibility (such as the home) are no longer exempt after the Medicaid-recipient
dies, and are subject to Estate Recovery.
% The maximum amount of an Estate Recovery claim is the value of the estate,
or the amount spent by Medicaid on long-term care after the deceased recipient
reached age 55, whichever is less. If the assets in the estate are insufficient to
pay the claim, the remainder of the claim is extinguished and does not
constitute a debt".
As a reverse mortgage specialist I help people "Age in Place". I have worked as a clinician in hospitals and nursing homes. So my personal agenda is to help people stay there by providing the financial means to do so. The Estate recovery act allows state to attach a lien to the property of individuals who receive Medicaid benefits. If a person secures a reverse mortgage they protect at least 60% of that asset against this Medicaid lien. The state can only attach whatever remains after the reverse mortgage is paid. I always ask seniors and family members if they have long term care insurance. Most people do not because it is cost prohibitive. So the only way to protect the asset is with a reverse mortgage.
While I'm not an attorney it seems the message is clear. If someone is unable to pay the $7,000 nursing home fees and goes on Medicaid they are going to allow the government to place a lien on their property. It usually doesn't take long for the equity to evaporate that took a lifetime to build.
What Seniors Should Know
What is Estate Recovery?
Not many people are aware of the 2009 Estate Recovery act enacted by the Federal Government that places the largest asset the family owns (their home) in jeopardy of a Medicaid lien. When I tell people about this law they are unaware of it. So I did some research and found this information on the West Virginia Attorney Generals website. This validates the information I've been giving seniors for several years.
"Estate Recovery is a collection program required by a Federal law (42 U.S.C.
§ 1396p). This law requires all States to “recover” money spent by Medicaid on
“long-term care” (nursing-home or home and community-based care) by collecting
it from the estates of people who received such care after reaching age 55. Most of
the money collected goes to the Federal government, not the States. States that fail
to implement Estate Recovery collections can be cut-off from Federal Medicaid
funding, but no State has yet been penalized for failure to properly implement the
Estate Recovery requirements.
% Estate Recovery does NOT create a debt owed by the deceased Medicaid recipient’s
heirs, but rather creates a claim or lien only against the assets in the
deceased’s estate. The State Medicaid agency (called the “Bureau of Medical
Services”) files a claim against the estate and can enforce it in the same manner
as any other creditor of the estate.
% Many assets that were exempt for purposes of determining Medicaid
eligibility (such as the home) are no longer exempt after the Medicaid-recipient
dies, and are subject to Estate Recovery.
% The maximum amount of an Estate Recovery claim is the value of the estate,
or the amount spent by Medicaid on long-term care after the deceased recipient
reached age 55, whichever is less. If the assets in the estate are insufficient to
pay the claim, the remainder of the claim is extinguished and does not
constitute a debt".
As a reverse mortgage specialist I help people "Age in Place". I have worked as a clinician in hospitals and nursing homes. So my personal agenda is to help people stay there by providing the financial means to do so. The Estate recovery act allows state to attach a lien to the property of individuals who receive Medicaid benefits. If a person secures a reverse mortgage they protect at least 60% of that asset against this Medicaid lien. The state can only attach whatever remains after the reverse mortgage is paid. I always ask seniors and family members if they have long term care insurance. Most people do not because it is cost prohibitive. So the only way to protect the asset is with a reverse mortgage.
While I'm not an attorney it seems the message is clear. If someone is unable to pay the $7,000 nursing home fees and goes on Medicaid they are going to allow the government to place a lien on their property. It usually doesn't take long for the equity to evaporate that took a lifetime to build.
Subscribe to:
Posts (Atom)
