Monthly Archives: May 2017

Will your Social Security be enough to balance household budget?

For the fifth year in a row, the 60 million people who depend on Social Security have had to settle for historically low increases.  For the average recipient the adjustment adds up to a monthly increase of less than $4 a month.

Meanwhile, older Americans report that their household budgets jumped substantially last year, despite the lack of growth in their Social Security benefits, according to a new survey by The Senior Citizens League (TSCL).

“The gap between benefit growth and retiree costs was particularly pronounced due to rising prices of the most essential items in retirees’ budgets, — medical and food costs,” says Mary Johnson, TSCL’s Social Security and Medicare policy analyst.  TSCL sent a letter this month to Congressional leaders calling upon them to enact legislation that would provide a modest boost to Social Security benefits.

Johnson discussed with FOX Business these additional findings from the survey, and what you need to know to adjust your household budget.

Boomer: To what did the survey attribute the substantial jump in household budgets for seniors?

Johnson: Two factors.  Spending needs typically grow in retirement, and, an extremely low annual cost-of-living adjustment (COLA).  Unfortunately the spending jump isn’t unusual, but a pattern that typically occurs in retirement.  This is something we can try to plan for in retirement, but it’s also a trend that needs to be addressed by our elected lawmakers in order to maintain the adequacy of Social Security benefits for all Americans.

Over any retirement our needs change. We require more medical services and prescription drugs, our need for different housing and supports like transportation services grow, and life events, like caregiving, or the death of a spouse, have a big impact on spending.

Annual surveys conducted by The Senior Citizens League since 2014 confirm this. About 90 percent of survey participants report that their household budgets rose by at least $39 per month over the 12-month period, in each of the past four years.  In each year, the largest percentage of survey participants — 37% in 2017 —report that monthly expenses rose by more than $119.  This year survey participants said their biggest cost jumps were for medical expenses and food — two categories that are essential.

The second factor in addition to the typical trend of rising spending over time, are recent low annual Social Security COLAs.  The COLA isn’t doing its job keeping pace with the inflation experienced by the majority of retirees.

Boomer: Why is there such a gap between retirees Cola and their spending?

Johnson: A major problem is the consumer price index (CPI) that the government uses to determine the annual boost.  One would think that the CPI used to calculate COLAs for retirees would be based on the spending patterns of older people, but it is not.  Instead, the COLA is determined by the growth in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).  Younger working adults spend a much smaller portion of their income on medical costs, and spend more on transportation and gasoline, categories that have gone down dramatically in recent years.  This tends to understate the inflation experienced by the majority of people receiving Social Security who spend more on medical costs and less on transportation and gasoline.

There is a better choice of CPI for calculating the COLA, the Consumer Price Index for the Elderly (CPI-E).  It gives greater weight to healthcare and housing, two categories that form a bigger share of spending for older households.  The CPI-E would for example have paid a COLA of 0.6 percent in 2016 instead of zero, and 1.5 percent this year instead of 0.3 percent.

Boomer: What can pre retirees do to prepare for the cost of living increases in their household budgets in retirement?

Johnson: Work out a household retirement budget, using spending records from several years back. Think ahead for big costs, like transportation needs, replacing a roof or appliances.  Find professional help with the hardest part like planning for growing medical and housing costs in the later part of life.  If you don’t have a financial advisor, check your local senior centers, or for classes in your area that can help.  The National Council on Aging has a free online tool called “EconomicCheckUp” that’s a great way to get started.

Boomer: Are there any legislative proposals in the works that would boost Social Security benefits?

Johnson: Yes!  The Social Security 2100 Act (H.R.1902) would not only keep the Social Security system solvent over the next 75 years and beyond, it would also boost benefits. The bill is estimated to provide both current and new beneficiaries with an average of about $300 more per year.  The legislation would also base the Social Security COLA on the Consumer Price Index for the Elderly (CPI-E).  According to my estimates, that would boost the current average monthly benefit about $75 after 20 years in retirement.  The bill was introduced with the support of 156 original co-sponsors — more than any other comprehensive Social Security reform bill to date.  TSCL believes the bill would go a long way in ensuring the retirement security that older Americans have earned and deserve.

HECM Reverse Mortgage accesses equity safely.

In this age of FAKE NEWS, you might be listening to the jaded misinformation of the forward mortgage industry who may well have told you how they can get you into another mortgage with payments and leave you with a little cash for your trouble. Don’t do it until you hear one of us HECM guys explain what can happen to you. First of all, you may not be eligible for a HECM for another year after you do that.

Those who prevail will find truth and WIN HECM BENEFITS. Consider from what source you heard about HECMs and then hear the oft played tune of the competition: “Oh, you DON’T WANT TO GET A REVERSE MORTGAGE” as if they cared what you want if you aren’t buying in to what “they” want. (Be careful — it’s a slippery slope).

And, for proof, these five myths are played for you, hoping you will refinance with them instead of the HECM originator who promises a much better scenario. MAKE NO MISTAKE — If you hook up with another cycle of  mortgage payments, you will often disqualify yourself of obtaining the HECM benefits.  Read on, and call with your questions, Warren Strycker. See “Information” tab on the home page for credentials and contact information. “I’ve been around the block now with HECM so you’ll soon see the differences.”

Here are some of the most common misconceptions about Home Equity Conversion Mortgages (HECMs)— also known as reverse mortgages — and the truth behind these myths.

1

“A HECM mortgage requires giving up ownership of your home.”

False.

As the borrower, your name remains on the title and the home is still yours—just as it would be with any mortgage. You’re required to continue paying real estate taxes, homeowner’s insurance, and providing basic maintenance to your home. Once you no longer live in the home as your primary residence, the loan balance, including interest and fees, must be repaid.* This is usually done by the homeowner or their estate selling the house.

2

“A HECM mortgage should only be used as a last resort.”   *If the borrower does not meet loan obligations such as taxes and insurance, then the loan will need to be repaid.

False.

How you use your HECM mortgage proceeds is up to you. Among the most common uses are paying off an existing mortgage or other debt in order to eliminate monthly debt payments; creating a cash reserve; supplementing monthly income; paying for home improvements; or covering medical bills or long-term care expenses.

3

“I could wind up owing more than my house is worth with a HECM, and leave my heirs with debt.”

False.

A HECM (Home Equity Conversion Mortgage is insured by the Federal Housing Administration. This insurance feature guarantees that you will never owe more than the value of your home when the loan becomes due. No debt will be left to your heirs. And if the loan balance is less than the market value of the home, the additional equity is retained by the homeowner/heirs (if the home is sold).

4

“There are restrictions on how I can use the money from a HECM mortgage.”

False.

How you use your HECM mortgage proceeds is up to you.

Among the most common uses are paying off an existing mortgage or other debt in order to eliminate monthly debt payments; creating a cash reserve; supplementing monthly income; paying for home improvements; or covering medical bills or long-term care expenses.

5

“I could wind up owing more than my house is worth with a HECM mortgage, and leave my heirs with debt.”

False.

If you understand how a mortgage works, you’ll quickly understand the HECM — except there are no monthly payments — that’s the major difference. A HECM (Home Equity Conversion Mortgage) reverse mortgage is insured by the Federal Housing Administration. This insurance feature guarantees that you will never owe more than the value of your home when the loan becomes due. No debt will be left to your heirs. And if the loan balance is less than the market value of the home, the additional equity is retained by the homeowner/heirs (if the home is sold).

6

“Reverse mortgages are too complicated.”

Not.

With most financial products, there are a number of factors to consider before you can choose what’s best for you. You can rely on your Senior Loan Officer to be a trusted resource for clear information and responsible guidance. In addition, before you apply for a government-insured Home Equity Conversion Mortgage, you are required to receive HECM mortgage counseling from a third-party counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD). These independent counselors are not affiliated with any mortgage company and their only job is to ensure you fully understand every aspect of your HECM mortgage.

Consider the information on this webpage before you make any decisions, and then see contact information in home page “information” tab and ask for the HECM facts. We’ll not mislead you — that is the truth.

Reward is to see “financial stress leave,” says HECM LO

April 30th, 2017

In recent years, the reverse mortgage program has undergone substantial policy changes as the product has been revamped and fine-tuned to better meet the needs of older Americans. Many of those who have made a living originating HECM loans have weathered the changes, but it hasn’t been without its challenges. For seasoned HECM loan officers, the work is not what it used to be.

“Tighter regulations have resulted in tougher underwriting standards that have made most HECM loans far less routine,” says Bill Smith of Reverse Mortgage West. “Complaints from my colleagues that ‘every loan is a problem loan’ are much too frequent and clearly not what used to be when I started.”

Smith, who has been originating HECMs for 15 years, says regulatory requirements have added considerable length to a loan’s turn time.

“The requirement that counseling precede the application has made the sales cycle far less efficient. Prior to the regulatory change, I was able to qualify most prospects over the telephone and arrive at the first appointment with an application ready to sign. Probably 90 percent of my loans were one-time visits to close. Now, two home visits are required, making the process less efficient,” he says. “This aggravates me because I do not see any clear advantage for the borrower.”

Less Originating, More Explaining

Beth Paterson of Reverse Mortgages SIDAC, a division of Greenleaf Financial, agrees. “A lot more work and a lot more time are involved in closing a loan,” says Paterson, who has been in the business for 18 years. “Now, with Financial Assessment, we spend a lot more time trying to get the documents needed. We need to explain what a LESA [Life Expectancy Set-Aside] is. There are a lot more conversations and much more legwork involved.”

Some LOs say explaining all the rules and regulations to a borrower can be a challenge.

“Putting FA into layman’s terms for my clients can be tough,” says Mark Draper, a 10-year HECM LO with Amity Mortgage. “They just want to know they are being treated fairly and it’s going to help them.”

Smith says reverse originators now need to do a lot of legwork to close just one loan, a fact others outside the profession may not recognize.

“People may think we are well paid for doing little,” he says. “In truth, they cannot know how many homeowners we must advise and counsel just to secure one loan that actually closes.”

Seeking New Audiences

Florian Steciuch, a HECM specialist with Retirement Funding Solutions who has been originating for seven years, says he has altered his approach in order to adapt.

“I’ve turned my focus to financial planners and estate planners, who are open to learning how a HECM can be used for retirement planning. Rather than marketing to the general consumer, I reach out to specific professionals,” Steciuch says. “Most advisors welcome the Financial Assessment and feel the HECM is a safer product with these changes. With a booming real estate market, serving Realtors and builders has become a larger part of my efforts.”

But getting through to these professionals can be difficult. “The greatest challenge is getting the commitment from financial planners other professionals, like Realtors and builders,” Steciuch says. “They still view the HECM as a last-resort option, even though that changed years ago.”

Outcomes Worth the Extra Work

While increased regulations may have complicated the loan process, HECM specialists are traditionally invested in helping their clients, and this aspect of the work has not changed.

“We are more than loan officers who calculate DTIs or chase conditions. We listen to the sometimes very urgent and sensitive needs of our older borrowers,” Steciuch says. “We understand retirement planning, cash flow, home safety. Of course, we never provide financial, legal or health care advice, but we do understand them. That makes us more than just an LO. We are professionals who can provide life-changing solutions.”

Though some may enumerate the challenges of the work in today’s post-FA world, they are just as quick to list the rewards of the job as well. For many reverse mortgage originators, helping clients solve their financial problems offers a reward great enough to outweigh the challenges faced along the way.

“The reward for me is and always will be that feeling of satisfaction when you’ve helped someone obtain a reverse mortgage and see the financial stress leave their body,” Draper says.

Steciuch says seeing his clients’ relief motivates him to keep at it. “At my last closing, the borrower clasped her hands over mine and said, with a tear in her eye, ‘Thank you. The pressure is lifted from us.’ All the no’s I face each week are worth that one yes.”

Paterson says helping seniors incites a passion that is her driving force. “As the saying goes, if you love your job, you never work a day in your life. That’s how I feel. It’s not work to me; I’m really passionate about it. To me, it’s a ministry.

“… and to me,” Warren Strycker

 

 

“HECM Mortgage Worked For Dad” says Personal Finance Columnist

May 30th, 2017

A Chicago-based personal finance columnist doesn’t just suggest reverse mortgages to her readers — she helped her father get one, with positive results.

Terry Savage, whose columns appear in the Chicago Tribune and other papers around the country, wrote this week about her father’s experience with a Home Equity Conversion Mortgage, which she says helped him age in place with dignity.

She describes an almost perfect HECM scenario: After taking out a reverse mortgage on his condo at age 80, Savage’s father remained at home for the next 15 years, only needing to use his long-term care insurance shortly before his death at age 95. In that time, Savage writes, her father wound up borrowing more than the condo was worth.

“My dad worried about how the balance of the reverse mortgage ‘loan’ was building up, including the interest that was charged on the money withdrawn,” Savage writes. “I had regularly reminded him that they could never force him to move out. I urged him not to worry, live longer — and beat the odds! He certainly did.”

Upon her father’s death, Savage’s family elected to allow the lender to foreclose on the property and handle its sale.

“The family had agreed at the start that we wanted Dad to live there in dignity as long as possible, and we wouldn’t worry about losing the property in the end if he outlived his equity,” she writes. “This is the way a reverse mortgage should work.”

Savage then goes through a detailed description of the reverse mortgage program, advising potential borrowers to only seriously consider a HECM if they plan to remain in the property for at least five years, and if they have savings or income to cover the mandatory obligations. She also points out that the proceeds from a HECM are not typically taxable, and that like her father, borrowers can’t “run out” of home equity or lose their homes as long as they hold up their end of the bargain.

Savage’s column marks another milestone in a streak of positive coverage in the Tribune from syndicated financial columnists; the paper ran a piece by Benny L. Kass extolling the virtues of the HECM line of credit over a traditional “forward” home equity line in March. These articles also represent a contrast from the paper’s recent news coverage of reverse mortgage fraud in Chicago, with the return of noted alleged scammer Mark Diamond to the headlines last week.

“A reverse mortgage is worth considering,” Savage concludes. “I know that firsthand.”

 

CBO’s Crystal Ball to 2047: Older Population, Higher Interest Rates

May 9th, 2017

The United States of America, 2047: The population bumps up against 400 million people, with a full 22 percent of folks aged 65 and older — or 85.8 million seniors. The national debt rises so high that the country spends more money on interest payments than all of its discretionary programs combined, a scenario that’s never been seen in a half-century of tracking such metrics. And that’s all assuming that elected officials even find a way to keep Social Security and Medicare funded at their current levels.

This stark vision comes courtesy of the Congressional Budget Office and its most recent Long-Term Budget Outlook. The nonpartisan CBO looks into its crystal ball and predicts the economic picture for the next 30 years, and the results could prove fascinating for folks who work in financial planning and lending — or, perhaps, send them screaming into the night.

Interest Rates Creep Higher, But Not Historically So

For instance, the CBO joins the chorus of other financial analysts by projecting steady increases in interest rates over the coming decades as the economy improves and the Federal Reserve moves away from the historically low federal funds rates instituted during the depths of the Great Recession. But mirroring the attitudes of many in the reverse mortgage industry after the Fed last hiked its interest rate target back in March, the office also puts these trends in the larger context of recent history,

“CBO anticipates that interest rates will rise as the economy grows but will still be lower than the average of the past few decades,” the report notes. “Over the long term, interest rates are projected to be consistent with factors such as labor force growth, productivity growth, the demand for investment, and federal deficit.”

As RMD reported at the time, rising interest rates have diverse effects on Home Equity Conversion Mortgage originators and lenders, potentially hampering needs-based borrowers with lower principal limits, but also providing opportunities to market the growing HECM line of credit and strengthening the HECM-backed securities market.

Though the CBO doesn’t address specific numbers for federal funds rate targets, the office offers projections for the interest rate on 10-year Treasury notes, predicting a rise from 2.1% at the end of last year to 3.6% in 2027 and 4.7% in 2047. That’s still a percentage point below the average of 5.8% recorded between 1990 and 2007, a period that the CBO notes was free of major fiscal crises or spikes in inflation.

The current federal funds rate target of 0.75% to 1% still falls on the historically low side of the spectrum; prior to the economic collapse in the late 2000s, the number sat at 5.25%, and it climbed as 20% during the inflationary malaise days of the Carter and early Reagan administrations.

Rising interest rates could spell bad news for the federal government, however, as they also determine the amount of money that Uncle Sam must pay on his debts. According to the CBO’s estimates, the amount of federal debt held by the public will balloon to 150% of the gross domestic product, up from 77% now — reaching figures never seen in the history of the United States. For reference, the national debt has only ever exceeded GDP during and after World War II, when the government embarked on an unprecedented defense spending spree.

A Changing Population

In the CBO’s estimate, a variety of factors will conspire to expand the American population to about 390 million as compared to around 320 million today — while simultaneously making it grayer.

The net immigration rate, which balances out the amount of people leaving and entering the U.S., is expected to rise ever-so-slightly from 3.2 per 1,000 in 2017 to 3.3 per 1,000 in 2047, while the fertility rate for folks already in America will sit at an average of 1.9 births per woman for the next 30 years, down from the pre-recession level of 2.1.

Couple that with declines in mortality rates and gains in life expectancy, and you’ve got the recipe for an older America: A baby born in 2047 can expect to live an average of 82.8 years according to the CBO’s estimates, compared with 79.2 for children born this year. And good news for readers born in 1982: You can expect an average of 21.5 more years on this mortal coil once you turn 65 in 2047, as compared to 19.4 more years for those celebrating their 65th birthdays by the end of 2017.

The Takeaway

Interestingly, the CBO notes that it bases its entire report on the assumption that the two key pillars of Social Security and Medicare will remain funded “even if their trust funds are exhausted” — a formidable “if” given political realities and the general pitfalls of making assumptions about the future of government from 30 years out.

As Jamie Hopkins, an associate professor of taxation at the American College of Financial Services, recently told a HECM industry event, Social Security and Medicare will remain funded through 2034, and any attempts to make unpopular decisions that could benefit their long-term health — such as raising the retirement age — would spell political disaster for those who attempt a change.

Perhaps none of this comes as a surprise to originators, lenders, and others who work in the reverse mortgage space: Americans as a unit are getting older, the economic outlook remains uncertain, and no one’s really sure what’s going to become of the social safety net. Meanwhile, down on the micro level, this growing crop of seniors will need to figure out ways to remain comfortable and safe in their retirement years.

 

The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.

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Yes, we’ll help. Call 928 345-1200 anytime day or night  — Warren Strycker, (born with a great sense of humor until 8 pm).

*NRMLA is the initials of the HECM industry trade association.