New Rules for REVERSE MORTGAGES

New FHA Rules for Reverse Mortgages Borrowers are rushing to lock in reverse mortgages ahead of changes next month intended to strengthen the loan program for seniors but that will also reduce its popularity. "It has been a madhouse," said Helen Taylor, program director at the Northeast Denver Housing Center. "I am getting about 20 to 25 calls a day." Taylor, who conducts the mandatory counseling required to get a reverse mortgage, is hearing from applicants eager to qualify under existing rules rather than the ones coming Tuesday. Those changes, detailed in a letter from the Federal Housing Administration, include a 15 percent reduction in the maximum amount a borrower can access via a reverse mortgage. The FHA will also begin collecting 2.5 The Denver Post's reporters and editors offer news, analysis and commentary on the latest business, real estate, tourism, gambling and technology news in Colorado. percent of the home's value in an upfront mortgage-insurance premium rather than the 2 percent it has charged for those taking out 60 percent or more of their proceeds in the first year of a loan. And starting Jan. 13, borrowers will have to pass a financial assessment to measure whether they can handle insurance and property-tax payments. If not, funds will be set aside to cover those costs and prevent a default. "The changes coming down the pike are huge, and they will change how the business is done," said James Spray, an Arvada mortgage lender who specializes in reverse mortgages for home purchases. Spray expects the changes will cut his business by about a fifth, but he has heard from others in the industry who are expecting much larger reductions and are planning to get out. Reverse mortgages, also known as home-equity-conversion mortgages, allow a borrower to tap their home equity as a monthly payment or a line of credit. The program, around since 1989, is available to people ages 62 and older. A key goal of the reverse-mortgage program is to allow seniors to stay in their homes as long as possible, which has a larger societal benefit, said Rick Garcia, regional administrator of the U.S. Department of Housing and Urban Development's Region VIII, which covers Colorado and five nearby states. The Federal Housing Administration backed 1,072 reverse mortgages in Colorado and 54,676 nationwide in the last full fiscal year, which ended last Sept. 30. Those totals are down by about half from the peak seen in 2009 because of earlier changes in the program and a weaker housing market. Hedging against losses from reverse mortgages is difficult because it requires predicting two things correctly: how long a borrower will hold the loan and the direction of home prices. "We are trying to ensure the longer-term solvency of the fund," Garcia said. In 1990, the average age of a person taking out a reverse mortgage was 76.7. Last year, it had fallen to 71.9. Technically, a reverse mortgage doesn't have to be repaid until the borrower moves out or passes away. But younger borrowers are more likely to move than "age in place," and more of them have gone into default. Because of the unprecedented decline in home values during the housing bust, the FHA has found itself holding the bag for bigger losses than expected, depleting its insurance fund. "They have the new borrowers paying for the sins of the past borrowers," said Donald Opeka, president of Orion Mortgage in Broomfield. In the early days of the program, many borrowers turned to reverse mortgages to free up cash for spending, a use that declined with the equity available in homes. With more people carrying mortgages into retirement, reverse mortgages have increasingly been used to eliminate monthly loan payments, lenders said. Opeka said one client had a $1,200 monthly mortgage payment while collecting $1,400 a month in Social Security, an untenable situation. An inheritance allowed her to take out a reverse mortgage and stop the payments. "She has a chance of living in the house and staying there the rest of her life," he said. Some borrowers use the mortgages as a line of credit that prevents having to tap other money sources when conditions aren't favorable. At the other extreme are those who turn to reverse mortgages in desperation. "Seniors who shouldn't have gotten the mortgage got it," said Jim Veale, a senior vice president with Security One Lending in Lakewood, Calif. Veale said more people are retiring with heavy debt burdens that leave them unable to meet even the most basic requirements of covering insurance and taxes. Their defaults are what have depleted the reserve funds designed to protect taxpayers, although Garcia said the default rates on reverse mortgages are comparable to those on loans under other FHA programs. There had been hope within the industry that the reverse-mortgage program could make it over the hump without a bailout, but Friday the FHA requested $1.7 billion to shore up its long-term finances. Veale said there will need to be a major shift in how the loans are perceived and marketed, not as a loan of last resort but as a financial-planning tool. "We know we won't be able to help the most needy any longer," Veale said.

How Reverse Mortgages Can Benefit Older Divorcing Women

Divorcing later in life is not a new phenomenon, but it is becoming more and more common. Indeed, the increased occurrence of “grey divorce,” as it’s called, has been identified as a significant 21^st century divorce trend:  Even though the overall divorce rate is actually declining, it’s on the rise among older generations.

Those of us in the business of helping people plan for secure financial futures have long known that grey divorce presents a unique set of challenges to our clients. Sure, there is overlap, but women divorcing after long marriages (or brief marriages that began later in their lives) typically face different financial concerns –and may have access to different financial products –than their younger counterparts.
For example, a recent article in The Wall Street Journal (written by Kelly Greene) explains how a loan called a “reverse mortgage” can be a useful financial tool for retirees. This type of loan is becoming increasingly popular because instead of making payments to a lender, the homeowner actually receives monthly payments, increasing the amount she owes. Or, she might opt to receive a lump sum, or maintain a ready line of credit.
The loan (and interest) come due when the homeowner dies, moves out, sells the home, or if property taxes or insurance premiums go unpaid. Typically, the home is sold to repay the loan.

As explained in the article, a reverse mortgage provides a mechanism for homeowners at least 62 years old to borrow against the equity in their home. While there’s no restriction on the purpose of the loan, the funds are commonly used to pay for home repairs or modifications, home health care or medical expenses. However, now that the financial services industry has developed new government-insured products, borrowing costs for reverse mortgages have come down, and these types of loans are becoming basic financial management tools, rather than just last-resort methods to increase cash flow.
So, what does all this mean for the divorcing woman?
Well, for those who are close to 62 years old, the possibility of taking a reverse mortgage loan could represent a new factor to consider when deciding whether or not to keep the house. There are many angles to that decision, including:

• equity and potential resale value on one side,
• maintenance and repair costs,
• property taxes,
• insurance premiums,
• and more!

Even so, the potential utility of a reverse mortgage in your financial plan might tip the balance toward keeping the house. Discuss it with your divorce financial planner.
For women whose divorces are behind them, a reverse mortgage might represent a new strategy for making their settlements last as long as possible. For example, using a reverse mortgage to provide cash income during retirement could save you from having to sell temporarily depressed investments. In the event of a drop in the market, payments from a reverse mortgage can be used to cover expenses until the value of your investments sufficiently rebounds.
The Wall Street Journal reports that taking a reverse mortgage can also have implications for your tax bill, and for configuring your potential Social Security income. You may be able to limit your income tax exposure by using cash flow from a reverse mortgage, rather than taxable withdrawals from a 401(k) or other retirement investment, to pay off a traditional mortgage or other debts. If you can delay taking Social Security by using a reverse mortgage as a source of income, you can increase the monthly payment you will eventually receive.
Used judiciously, a reverse mortgage can be a very useful part of the divorcing or divorced woman’s financial strategy, and as a Divorce Financial Strategist™ , I recommend you see how this financial tool might best serve you. The Consumer Financial Protection Bureau is an excellent place to get more information before you look for a lender. If you decide to pursue such a loan, be especially wary of “advisors” who try to steer your reverse mortgage payments into expensive or risky investments. As always, it’s best to be well-informed, and well-advise.
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What is Plexus Slim?

Six Things you should know about Social Security

by Jennifer Grey, HousingForSeniors.com Columnist | July 19, 2012 | 

If you’re like many people in the US who are close to retirement age, chances are you’ve been spending the past few years worrying about your 401(k), IRA, and other invested retirement accounts—and using them to plan for retirement. But Social Security is likely to make up a large part of your post-retirement income—approximately 50% of married retired couples receive about half their income from Social Security, and high-earners receive about 20% of their retirement income from it. Here are a few key things you should know about Social Security.

Social security is stable—but hard to plan around

Planning for retirement isn’t easy. But you can count on Social Security. Bear in mind that you will get a bigger payment if you can wait to withdraw, and don’t let worries over a reduced payment stop you from working.

Unlike your 401(k) and IRA, your Social Security income is guaranteed to last for the rest of your life—and stay abreast of inflation. It won’t be hurt by fluctuations in the market, and you aren’t likely to suffer a huge income loss based on an economic downturn. Those are the good points.

However, determining how much you’ll get—and how to get the most possible—can be tricky. The amount you get per month depends on the age you retired, how much you and your spouse earned over your working lifetime, and whether you still work even though you’re retired. It’s a complicated equation for everybody.

Social Security will be there when you retire

Despite what politicians often say about the system hemorrhaging money, it’s highly unlikely Social Security will go away anytime soon. Money coming in from payroll taxes will cover all benefits until 2016, even if the current system isn’t changed. The Social Security Trust Fund is there to support the system as well, and if no more money comes in, the fund’s Treasury bonds would cover payments until about 2037. Even if that runs out, payroll tax income could conceivably cover about 75% of what you shofuld get in benefits for decades to come after that.

So even if the government does nothing to support Social Security, it’s not very unlikely your benefits will disappear. However, the Obama Administration has shown signs of interest in strengthening the system in the future—by leveraging Social Security taxes on people who earn over $200,000, for example.

You can get some of your spouse’s payment

There are situations where you can qualify to receive Social Security payments for your spouse. If your spouse dies, you can receive up to 100% of his or her Social Security benefits, as long as they’re higher than your own payments. You may also be eligible for these benefits if you’re divorced.

It can be better to wait

You can start drawing your Social Security benefits at age 62. However, the longer you wait to collect Social Security, the bigger your monthly check will be. That said, most people begin collecting before retirement age, which is currently at 66. If you can wait, you’ll have a bigger monthly check as your other retirement savings are starting to diminish—which can be a big help.

If you’re married, however, it gets more complicated. Some spouses qualify for spousal benefits, and it can be more effective for the higher-earning spouse to wait as long as possible while the lower-earning spouse should take out their benefits earlier.

You can actually raise your payments by working while retired

But only up until full retirement age. Before you hit that age, the federal government will reduce your payments by $1 for every $2 you earn over a specific annual limit—which is currently set at $14,160. However, you don’t lose that money permanently. Social Security will compensate you once you hit full retirement age for the money withheld before then. And that higher payment will go on for the rest of your life, no matter how long you worked.

You can also raise your Social Security earnings if you earn a higher wage while you’re drawing Social Security. That’s because the amount you receive is calculated based on the 35 highest wage-earning years you had. Potentially, you could earn a higher wage in retirement than you did in one of the other 35 years, boosting your payments again.

Your Social Security benefits may be taxed

Approximately a third of people who receive Social Security pay income taxes on their benefits—and it’s projected that as much as 42% will by 2018. You are less likely to pay taxes—or can reduce your taxes—by waiting until full retirement age to claim your benefits.

Planning for retirement isn’t easy. But you can count on Social Security. Bear in mind that you will get a bigger payment if you can wait to withdraw, and don’t let worries over a reduced payment stop you from working. Talk to a financial advisor about how Social Security should be factored into your retirement plans, and hopefully you’ll be able to get the most from your benefits.
 

Older and Wiser