Monthly Archives: July 2019

Propriety Reverse Mortgage Products Could Eclipse FHA’s HECM Program in 2019

Jul 2, 2019, Jamie Hopkins Contributor — Director of Retirement Research at Carson Wealth

The reverse mortgage market world heads in reverse away from the government created Home Equity Conversion Mortgage (HECM) and towards new propriety products. This is an encouraging sign because any healthy market needs competition, innovation, and variety. However, recently HECM program has been the driving force behind the reverse mortgage world, leaving many without an ideal solution to utilizing home equity as part of a sustainable retirement plan.

All in all, the reverse mortgage history in the U.S. is relatively short, with perhaps the first one dating back to 1961, and the HECM being created by the federal government through the 1987 Housing and Community Development Act. So, it is not entirely surprising that the reverse mortgage is still trying to find its way.

The government has continuously revamped the program over the past 10 years to improve consumer protections and to ensure that the program does not become a burden on taxpayers as the HECM is secured by the FHA Mutual Mortgage Insurance Fund.

At the HECMs peak back in 2009, with around 114,000 new reverse mortgages being issued, there was a healthy proprietary market. However, that market has since disappeared. The robust market back in the mid to late 2000s was not all that surprising as seniors looked to tap into home equity during the economic downturn to meet their spending needs.

Since then, research has supported the use of home equity during market downturns, but in more of a proactive than reactionary manner. Today, with markets storming upward and most portfolios doing well, the number of retirees looking to tap home equity through the HECM has declined dramatically to just shy of 50,000. In fact, since 2012 the number has been pretty flat, hovering in the mid 50s.

In 2017, HUD and the FHA changed the reverse mortgage rules, which shifted the mortgage insurance premiums (MIP) paid on HECMs. Instead of paying a higher MIP over the course of the loan, most borrowers now pay a higher MIP upfront and a lower MIP over the course of the loan.

This higher initial MIP does create some sticker shock and caused a drop in reverse mortgage applications after it went into effect. The drop off of applications and loans has caused the reverse mortgage world to react in considering a more diversified product offering. As such, a focus on proprietary products to both supplement the HECM and to compete against it have started to develop.

This development of proprietary products is relatively new. By looking at the HECM back in 2009 you essentially got the full reverse mortgage picture. But in 2019, the HECM might take a back seat to proprietary products. In 2018, proprietary product development was the focus. Companies like One Reverse Mortgage, FAR, AAG, Retirement Funding Solutions, Longbridge Financial, and others all were developing, looking at, or rolling out new products. The results? Very encouraging.

By the end of 2018 the proprietary market was taking off and now in 2019 it is seriously in flight. After speaking with a number of loan officers and companies, the consensus appears to be that this is working. Some companies might even see the total volume of loan amounts in proprietary products eclipse the loan amounts they originate in HECM products in 2019. Looking back a few years this would have been almost unimaginable.

Historically, proprietary products have been what I have called “accounting dust.” While they exist, and for some firms were important, as an overall player in the market they really didn’t have an impact. For the past few years the proprietary market has been a very small percentage of the overall market but that is starting to change.

While volume of loans closed in the proprietary reverse mortgage market is not ready to challenge the HECM, the loan values of these proprietary can be so much greater, reaching millions of dollars per loan, which most HECMs are fairly small in comparison with just a few hundred thousand dollars.

In the past, the proprietary reverse mortgage products were offered by only a few companies, had limited products, and really looked like a jumbo HECM. So what changed? Products on the market now include a proprietary line of credit, which didn’t exist until recently.

Products have also attempted to compete with the HECM by offering cheaper loans, but with lower loan to home value options. By offering less access to home equity, the lenders feel they can manage the risk of the loan better and don’t need to use the HECM which requires borrowers to pay into the MIP fund because of the risk of the loan going underwater at some point.

The cost of the HECM is one of the biggest complaints, so a less expensive loan could find some traction. A few years back the HECM changed, requiring a larger upfront payment for many loans. This sticker shock brought down the total value in the HECM market. So now, there are other options and options create opportunity. Furthermore, FHA loans cannot be approved on certain community housing set ups, which proprietary loans can be approved on.

What all this means for retirees is more options, flexibility, and innovation. Innovation and competition is good for the market, it drives companies to develop new products to meet current market needs and to try and solve problems.  The reality is that the HECM has only reached a small portion of the overall senior housing market that could benefit from tapping into home equity. Perhaps increase product development and growth in the proprietary market can take smart home equity solutions both up-stream and down-stream.

I am the Director of Retirement Research at Carson Wealth and a Finance Professor of Practice at Creighton University Heider College of Business. I was a professor at the American College of Financial Services where I helped co-create the Retirement Income Certified Professional Designation (RICP®).

I’ve written about, and published, a variety of articles on retirement. I frequently write and publish law review articles dealing with retirement issues, such as long-term care, taxation of insurance benefits, and estate planning. I am extremely passionate about the retirement security of Americans and believe that a better prepared public can enjoy a more secure and fulfilling retirement.

More than 1 in 5 say retirement savings are worse now than before the Great Recession

(See Editor’s note at the end of this article)

By Casey Dowd Published July 01, 2019 The BoomerFOXBusiness

Former Reagan economist Art Laffer on the U.S. economy’s record expansion.

As America marks the 10th anniversary of the end of the Great Recession in June, a new Bankrate surveyOpens a New Window.  finds that more than 1 in 5 (22%) Americans who were adults when the recession started in December 2007 say their retirement savings are worse now than they were before it hit.

“The echoes of the Great Recession remain very present in the financial lives of many Americans, despite the improvement in the broader economy,” said Mark Hamrick, senior economic analyst at Bankrate.com. “While some have managed to prosper in the decade since, there are still tens of millions who are struggling to even get back to where they were before the economy took a turn for the worse.”

At a time when the traditional economic data tells a story of booming growth and maximum employment why do more than 1 in 5 say retirement savings are worse now than before the Great Recession?

Hamrick talked with Fox Business to discuss why retirement savings are worse now than before the Great Recession.

Boomer:  If I am now retired where should I have my investments?  II am in my 60’s and still working, to avoid a loss if we have another recession, should I continue contributing to my 401K or should I be putting my savings elsewhere?

At a time when the traditional economic data tells a story of booming growth and maximum employment why do more than 1 in 5 say retirement savings are worse now than before the Great Recession?

Hamrick:  To both of these questions, we have to start with the fact that we don’t give specific investing advice at Bankrate. Among the reasons for this is that more information is needed to address specific situations or questions.

Our mission is to help people attain their financial goals by providing trusted and useful information. Still, there are some important considerations which can help you to begin the process of moving forward. If you believe you still have work to do regarding the best investment decisions, no matter whether you are just beginning a career, heading toward retirement or having stopped working, the first step is acknowledging that you have some homework to do.

Among the first things to consider:

-How much money are your currently investing and how much do you plan to invest or need to invest in the future to achieve your goals? What are your anticipated expenses such as mortgage payments or rent, health insurance costs, debt and money needed for other basic needs?

-What other sources of potential income do you envision? Is part-time work necessary or desired?

-A recession or downturn is ultimately inevitable. You still need to work toward your financial goals in any case. But you might also need to make some adjustments depending on previous investments or asset allocation decisions.

-Are you in good health? Americans are generally living longer these days. So, it isn’t unusual for someone to live 20 or 30 years (or longer) beyond the end of work. That means that you’ll still likely weather a number of market and economic or business cycles and the inevitable market volatility. For some, that might suggest that at least a portion of their savings or investments need to generate a return better than the rate of inflation as well as better than what cash can provide in a conservative or interest-bearing account.

-What is your risk tolerance? Can you stomach nerve-rattling downturns in the market from a psychological standpoint?

-Are you married or have a partner who is also dependent to a degree on your investments? Does that person have retirement benefits including a 401K and/or Social Security benefits?

-Do you know of a fee-only financial adviser or do you have a relationship with another reliable and trusted financial professional who can help you chart your future course? Many professionals are willing to engage in a free consultation to begin.

Boomer: At a time when the traditional economic data tells a story of booming growth and maximum employment why do more than 1 in 5 say retirement savings are worse now than before the Great Recession?

Hamrick:  My sense is that the depth and breadth of the virtual hole that was created by the financial crisis and Great Recession are generally underestimated.  Our survey found, for example, that of those with retirement savings at the start of the downturn, nearly 1-in-5 tapped into that money to some extent. That means they had ground to make up. Further, of those with emergency savings when the recession began, about 1-in-4 depleted that savings cushion entirely.

It is important to remember that not all expansions and recessions are created equal. While the downturn was exceptionally severe, ultimately regarded as the worst since the Great Depression, there have been some less-than-stellar aspects of the expansion which has followed. While the duration of the expansion has been historic, wage gains have largely been less than substantial and sustained.

Given that most Americans rely on income from work as a means to potentially improve their standard of living, the lack of better wage gains has hampered their recovery. While we don’t know when the next recession will begin exactly (and can’t know either its depth or length), it will likely erode the financial standing of many Americans once again through unemployment and losses in investments and income.

Editor’s Note: “OK, you aren’t ready for the cost of retirement. We get it. A HECM Reverse Mortgage is in your future. It’s OK, we’ve been waiting for you so we could help when this happened.” Warren Strycker, Professional financial veteran.

Financial Literacy for Seniors: Practical Money-Management Advice

Photo courtesy of Pexels

Financial literacy and money management skills are important at any age. In one’s youth, it’s important to save up for retirement. In retirement, it’s important to properly manage money so that you can continue to live comfortably while also paying for any unexpected medical bills or other expenses. If you’re a senior, or you have a senior loved one who is looking to improve their finances, this is the article for you.

Here’s some practical, well-researched advice on how to manage your money well during retirement:

Health Insurance

Health insurance is an often-overlooked way for seniors to better manage their money. Health insurance coverage matters, as recent studies have shown, especially in a country where nearly 20 percent of the nation’s money goes toward funding health care systems. Healthcare can be costly, and illnesses or injuries can be unexpected at any age, especially for seniors.

Luckily, if seniors have the right healthcare coverage, staying healthy doesn’t have to be a financial stressor. There are many health insurance options available for seniors these days, including Medicare. Of course, Medicare is just one option. It’s important to make sure you have the right coverage for your unique situation and health history. While Medicare is a great benefit, there are gaps in its coverage. Depending on your needs, like if you need coverage for dental and vision care, a Medicare Advantage plan can cover all the bases. Whereas if you want to stick with Original Medicare, you might only need supplemental coverage through a Medigap plan. It’s important to use your resources to zero in on what coverage suits you best so you’re getting the most for your money.

Finances During Grief

No one likes to think about losing their loved ones. Unfortunately, however, it is a natural fact of life. Seniors who have recently lost a spouse, while contending with their grief and all the emotions that come with it, still need to address financial concerns, such as funeral costs and tending to medical bills. Depending on your financial situation after the loss of your spouse, you may want to consider thinking ahead for your own end-of-life arrangements. Funeral expense insurance can help cover medical costs and the service, removing the financial burden from your family.

Avoiding Debt

There’s no denying it: the United States has a massive debt problem. This issue directly impacts seniors during a time when the nation’s Social Security benefits are facing funding issues. These days, one of the best ways to pay off your debt is to avoid having it in the first place. In addition to the tactics listed above, you could restructure your budget to become more modest, allowing you to allocate more funds toward paying off debt. For instance, many seniors downsize from a large family home into something smaller, less expensive, and easier to manage.

If all else fails, you can also work with a financial advisor or even enter a debt management program. While these decisions might seem scary at first, they can really bring more freedom to your golden years and more money to your wallet.

It’s never too late to start making better financial decisions. The truth is, at any age, you can start turning your financial situation around and improve how you plan for your future. By following the advice listed here, you can start building a nest egg and protect yourself in unexpected situations, such as a medical crisis. By practicing proper money-management techniques, you can not only improve your financial literacy, you can also eliminate debt and help ensure you have the funds available to truly enjoy your retirement.

 

Busting Three Half-Truths About Reverse Mortgages — Hopkins

Jamie Hopkins Contributor

Director of Retirement Research at Carson Wealth

Reverse mortgages are very misunderstood products

A few years back, I conducted and published research in the Journal of Financial Planning that showed Americans don’t understand reverse mortgages. In fact, respondents scored below 50 percent on a 10-question true-false quiz.

One possible explanation for the poor performance is a lot of misinformation floating about. A recent USA Todayarticle titled “Considering reverse mortgages? Better to reverse course on this risky course” confirms my belief. The article contains many half-truths and misunderstandings and projects a negative connotation of reverse mortgages onto the reader.

It’s a similar uphill battle that annuities have faced – a somewhat complex concept that needs to be carefully reviewed, but it’s attacked and misrepresented in the broader media. As a result, people tend to shun annuities and reverse mortgages in their financial planning.

I often describe both annuities and reverse mortgages as oversold but underutilized. Because of a general consumer distrust and misunderstanding of the two products, the industries behind them have ramped up marketing and sales efforts. In some cases, though – like with celebrity ads on TV – this can actually push people further away from the products.

The USA Today article mentioned the inaccuracy of reverse mortgage TV commercials – which is fair. Reverse mortgage TV commercials have done the overall industry a disservice. They aren’t professional and feel more like celebrity sales.

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The article also covers the basics of a reverse mortgage: they can be attractive because they allow seniors to tap into their home equity to support cash flow. But the accuracy stops there.

Half-truth #1: Reverse mortgages are high-interest-rate loans

The article said reverse mortgage is a “high interest rate” loan. Are there expenses with reverse mortgages? Absolutely. Are they high-interest rate loans? Not exactly. The interest rates on a reverse mortgage aren’t out of line with most traditional 30-year mortgages – which is far below most personal rate loans.

Take a look at data from the end of 2018. In December 2018, a 30-year fixed mortgage average fell to 4.58 percent from 4.73 percent in November 2018. Then you look at average HECM reverse mortgage rates, which was 4.67 percent in December and 4.69 percent in November. Reverse mortgages were actually at a lower rate than the traditional 30-year fixed mortgage in November – and not too far off in December.

Reverse mortgages keep in line with traditional mortgage rates. In some instances, they can be lower for seniors as reverse mortgage rates aren’t as subject to income requirements and credit scores as traditional loans. Labeling reverse mortgages as “high interest rate” without comparison isn’t entirely accurate.

And sure, reverse mortgages do have additional costs – payment into the FHA insurance fund – that not all forward mortgages have. But this payment offers up a product feature other loans don’t – the ability to not make money payments and never owe more than the value of the house on the loan. So yes, there’s an additional cost, but for an additional feature. We need to look at the entire situation before jumping to a conclusion.

Half-truth #2: Reverse mortgages are too expensive

Another misconception pushed in the article about reverse mortgages is its high cost. Reverse mortgages can absolutely be too expensive for the solution a client needs with closing costs, insurance premium and interest owed.

However, like any product, you need to review its value and not just look at the dollar amount. A new Lexus costs more than a 15-year-old KIA. That doesn’t mean one vehicle is better or worse based on price alone. You need to attach the price to its value and compare. This is similar with financial products. Reverse mortgages under the HECM program have features that are unique when compared to traditional mortgages, like the non-recourse aspect of the loan and that while the borrower lives in the home, there is no requirement to make monthly mortgage payments.

Half-truth #3: Reverse mortgages aren’t a long-term solution

Another half-truth about reverse mortgages is that if you live a long time, reverse mortgages aren’t a good solution. It is true that your compounding interest balloons the longer you live and carry your debt. However, one big thing the article failed to mention is that reverse mortgages are required by law to be non-recourse loans. Once you die, your estate would not be responsible for any amount above the value of your home. This means that you only owe up to the value of the loan amount due or the home value.

The USA Today article mentioned a scenario of how a reverse mortgage debt could grow substantially over time.  The article basically laid out an example of owing $1.5 million on a loan with a principal borrowing amount of $700,000. However, the article made no mention of the non-recourse aspect. So if the borrower had a home that ends up being worth $700,000, you can’t owe more than the value of the home with a reverse mortgage. So while there is a substantial cost with compounding debt interest on a loan, this is limited to a degree because of the non-recourse aspect of reverse mortgages. And furthermore, if you end up borrowing more money than your home is worth through the course of the loan, you made a smart financial decision, not a bad decision. You got more out of the loan than your home was worth. Showing dramatic debts without mentioning the non-recourse aspect of the loan leads to half-truth scare tactic. You need to understand the costs but also the protections the loan affords.

 

JamieHopkins

Longevity isn’t an automatic negative factor with reverse mortgages as it’s commonly believed. Many people see this retirement income product as a quick fix in a pinch for the short term. But reverse mortgages have been shown in numerous research projects to be more beneficial – not less beneficial – when there’s longevity in place. Therefore, reverse mortgages shouldn’t be viewed as a short-term fix – a traditional line of credit might be better. Instead, they should be considered as a long-term solution.

If you live to the age of 100 and took out a reverse mortgage that pays monthly income at 62, that’s when the homeowner “wins” the most. You’ll borrow more, make no monthly payments, and could have the loan secured by an asset with less value than what you received.  Utilizing a reverse mortgage early in retirement has also been shown to extend the longevity of an investment portfolio by helping to offset poor market returns (sequence of returns risk) early in retirement.

Like any retirement income strategy, reverse mortgages need to be researched, reviewed and considered beforehand. Don’t base your opinion on just one source. Reverse mortgages aren’t appropriate for everyone, as they come with costs and risks, but you might have the ideal situation.

On a higher level, we need to encourage more transparency and broader incorporation of all products – annuities, investments, reverse mortgages – into financial planning.  Pushing only one way puts Americans in a worse place for retirement.

Fisher bombs “fake news” hit on HECM)

How Depressed Medicare Enrollees Can Find Help

 

Knowing Your Coverage Options:

Depression impacts more than 6 million of America’s 35 million seniors every year according to the National Council on Aging, yet older adults often don’t know where to turn for help – and many don’t know whether they should look for help, often mistaking their condition for loneliness or irritability. Depression is frequently misdiagnosed in seniors and can easily be mistaken for Alzheimer’s or a sleeping disorder.

But the fact is that more of the nation’s senior population receives treatment for mental health services from primary care doctors than they do from mental health professionals. An older adult may know who to call for treatment for a sore throat yet have no clue where to go for help with depression and anxiety.

Medicare is the primary health maintenance resource for seniors, but it’s of little help if a Medicare beneficiary suffering from depression doesn’t know where to find mental health care providers in their area. Fortunately, there are plenty of useful resources that can help you find the treatment you need, walk you through the enrollment process, locate plans in your area, and find supplemental coverage to help pay for mental health care needs.

Where to look

Psychology Today provides an easy-to-use portal with search capabilities for people seeking a psychologist or therapist who accepts Medicare. You’ll find contact information and a rundown of each practitioner’s treatment specialties, as well as their Medicare status. Mental Health America can also help you find treatment providers, as can SAMHSA (Substance Abuse and Mental Health Services Administration).

Go online to research information about Medicare and Medicare Advantage plans in your area, including information about getting treatment for depression and how coverage breaks down based on what part of Medicare your plan falls under. Original Medicare pays for a preventive screening for depression. Medicare Part A provides coverage if you require an inpatient stay in a medical or psychiatric hospital, while Medicare Part B covers outpatient mental health treatment,

including outpatient counseling, diagnostic testing and evaluations, psychotherapy, and family counseling.

Plan coverage details

The Centers for Medicare and Medicaid Services publishes a resource guide with detailed information about Medicare’s mental health services, including eligibility, outpatient/inpatient benefits, prescription drug coverage, and financial assistance. This useful guide spells out exactly what mental health services are covered under Medicare Parts A and B and prescription medication coverage under Part D. Published annually, it provides important information and coverage updates that beneficiaries must stay abreast of.

Plan comparison

It’s also important to review and compare plans regularly, which you can do through MedicareAdvantage.com, where you can search by state, get detailed information about the enrollment process, compare Medicare Advantage plans — including those plans offered by UnitedHealthcare and other private insurers — and talk to a licensed health insurance agent 24/7.

Supplemental care

Medicare supplemental insurance varies somewhat from state to state, so it’s important to stay up to date on coverage details in your state. Medicare supplement plans help pay out-of-pocket costs not covered under Medicare Part A and Part B. It’s designed to help make Medicare coverage go farther by filling coverage gaps, an important factor for enrollees seeking mental health treatment.

Medicare is a vast health care resource for seniors but it is subject to frequent changes. That’s why it’s so important to stay on top of the most recent changes in order to get the maximum benefit, to understand how to fill gaps in coverage based on your particular health care needs, and where to find qualified mental health care professionals near you.

Courtesy of Pixabay.com.