Seniors and Housing Debt

Although the amount of equity that is retained by American seniors exceeds 5 Trillion dollars, there are many who will not be able to retire because they are burdened with a mortgage payment.

Unfortunately, some seniors applied for Lines-of-Credit or did a traditional refinance on their property and took a lot of funds out at the close of escrow the last several years.

A much better option would have been to apply for the HECM Line-of-Credit and only use the funds as needed and not be obligated for a money mortgage payment.

A new report was recently published by HUD’s office of Policy Development and Research discussing this concern and what options seniors will have in the future to manage their housing debt.

I will post a summary of the findings in the next three posts.

HUD: Reverse Mortgages Provide Solution to Retirees’ Housing Needs

By Jason Oliva

“Baby Boomers and senior homeowners have the potential to reshape the nation’s housing market. But as a growing share of this demographic carries mortgage debt into retirement, they will need to seek additional solutions to improve their financial situations. For many, this could mean tapping into home equity through a reverse mortgage, according to a new report from the Department of Housing and Urban Development.

The broader housing market has shown positive signs of recovery in the years following the financial crisis, but several challenges remain, especially for older homeowners nearing retirement, according to a report recently issued by HUD’s Office of Policy Development and Research.

A rising percentage of older homeowners are carrying mortgage debt as they approach and enter retirement. Among owners aged 65 and older, 40% had mortgages in 2014, according to the Joint Center for Housing Studies of Harvard University.”


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Fixed Rate Reverse Loans with a Credit Line

Within the last few months several new Reverse mortgage options have become available.  These new HECM’s or “Home Equity Conversion Mortgage” are another way to have the piece of mind knowing the interest rate is fixed and can never change but also offer several payout options to the borrower.

My feeling is, is that these will become the preferred choice for anyone considering a Reverse loan rather than the adjustable rate loan, which traditionally was the only option until recently.

Following is a brief description of each new and unique mortgage.

HECM Choice. The HECM Choice adheres to HUD rules and regulations, but opens possibilities for borrowers by allowing them to take a fixed rate reverse mortgage while accessing some of the proceeds upfront, and the balance of the principal limit through any one of the allowable HECM payment plans—an option not offered under the standard product.

Fixed Advantage. Following the borrower’s upfront draw at loan closing, this fixed rate reverse mortgage allows the borrower to access the full balance of remaining loan proceeds on day 366 following the loan closing.

Fixed Fourtune., The Fixed Fourtune allows borrowers to access their remaining proceeds after a year post-closing, but instead of one payment on day 366, the borrower receives four payments—one in each year post-closing.

Fixed Freedom. The Fixed Freedom offers a fixed rate HECM with all payment options including an open-end line of credit that can be accessed and repaid by the borrower. Live Well’s fixed rate options are all structured as open-ended loans, meaning the borrower can draw down and re-borrow proceeds. Additionally, the traditional HECM credit line growth feature applies


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Seniors Can Have a Silver Lining

I am going to post an article in two parts that discusses why there is a potential silver lining for seniors due to a number of factors.  Although low interest rates have impacted savings and investments, they have created an excellent opportunity in mortgage rates.  Plus property values have increased by two figures.

The “Silver Lining”.

Reverse Mortgages a Silver Lining of Low Interest Rates for Seniors
Posted By Alyssa Gerace On June 19, 2013 @ 5:44 pm In Data,News,Reverse Mortgage | 1 Comment

The historically low interest rates stemming from federal economic recovery efforts negatively affect seniors’ annuity investments, but the impact on reverse mortgages presents a silver lining, suggests research recently published by the Boston College Center for Retirement Research (CRR).

While more than half of today’s households will not have enough retirement income to maintain their preretirement standard of living as of 2010, low interest rates are not necessarily to blame, the CRR finds in an issue brief [1] on the impact of interest rates on the national retirement risk index (NRRI).

“Households are less vulnerable than expected to today’s historically low interest rates, but higher interest rates would also provide no real cure to the problem of inadequate retirement saving,” the brief says.

A few factors explain the minor impact of low interest rates to senior households, including the muted effect interest rate changes have on annuity income.

“One’s initial thought might be that a doubling of interest rates would lead to a doubling of retirement income,” says the CRR. “But annuity payouts consist of a return of principal along with interest earnings. Since changes in interest rates only affect the interest portion of the annuity payout, the impact on the full annuity payout is much smaller.”

Another reason: financial assets for most households are only a “modest portion” of total wealth—only 10% for middle-income households aged 55-64.

Written by Alyssa Gerace

To be continued in the next post.


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Home Equity On the Raise

At last we are finally seeing some positive gains in home equity.   After years of loss, the Real Estate market is enjoying some tremendous gains with values increasing on homes throughout the Untied States.

The following article discusses what that can mean for a senior who has been unable to apply for a Reverse loan because they didn’t have enough equity to qualify for it.

“Senior Home Equity Rises Nearly $50 Billion in Q1

Posted By Jason Oliva On June 13, 2013 @ 5:03 pm In News,NRMLA,Reverse Mortgage | No Comments

Senior home equity is on the rise, increasing $49.5 billion in the first quarter of 2013, according to the latest National Reverse Mortgage Lenders Association (NRMLA)/RiskSpan Reverse Mortgage Market Index [1] (RMMI).

The quarterly increase in senior home equity was driven by an estimated $45.1 billion increase in the aggregate value of senior housing and a $4.4 billion decline in mortgage debt held by seniors, notes NRMLA.

“Today’s report continues a positive trend for the American housing market and for senior homeowners,” said NRMLA President Peter Bell.

Rising home equity and returning home values could signal that seniors will have more financial resources available to them during retirement, and that a reverse mortgage could help cushion retirement security for many senior homeowners.

“With proper planning, using a reverse mortgage to access that equity is one option to help fund living expenses, home maintenance costs, or health care needs,” added Bell.

The first quarter of 2013 marks the fourth consecutive quarter the RMMI has posted a gain, rising 1.5% from last quarter’s reading [2] to a level of 155—the index’s highest level since first quarter 2009.

While the index has risen four months in a row, the estimated $3.25 trillion aggregate value of home equity owned by seniors eligible for reverse mortgages is still 19% below its peak level of $4 trillion in the fourth quarter 2006.

Analyzing trends in the home values, home equity and mortgage debt of homeowners age 62 and older, the RMMI is updated on a quarterly basis and tracks data beginning at the start of 2000.

Since the RMMI’s starting point, the collective home equity of Americans 62-years and older has grown by 55%.”

Written by Jason Oliva [3]


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Financial Advisors and Reverse Loans

The obligation of a Financial advisor to their client, is to to guide them in their investments to develop a healthy portfolio of funds and also protect those funds from running out, by managing the account and providing guidance to the clients on an ongoing basis.

For many years, Advisors have felt that a Reverse loan defeats the purpose of protecting their clients’ assests and due to lack of knowledge about the FHA loan program and how they function, the Advisor would not consider them as an option to protect their client’s principle from being drawn down.

But recently an article was published in Financial Advisor magazine to the industry,  about how they can utilize a Reverse mortgage to extend the life of their clients investments without any tax consequences.  It is simply a matter of the Advisor being more open to learning about this unique federal loan program for seniors and what it could mean for their business in the coming years  because the future of financial planning  will be  rapidly changing as the Boomers begin to consider retirement and new methods  and options for financial planning  will need to adapt to the changes as they appear.

I will be posting some comments in two parts from Reverse Mortgage Daily with the first one here:


Reverse Mortgages on the Verge of Financial Planning Breakthrough?
Posted By Elizabeth Ecker On April 18, 2012 @ 6:36 pm In News,Retirement,Reverse Mortgage | No Comments

An article [1] published Wednesday in Financial Advisor magazine demonstrates the way in which a reverse mortgage can preserve the portfolios of retirees who have investments. On the heels of another recent article written for financial planners on the same topic, it is beginning to sound like a sea change for the reverse mortgage industry and its work with financial planners.

Featuring an interview with nationally-recognized retirement expert Harold Evensky, the Financial Advisor article [1] details the Saver option for use by baby boomers who are planning for retirement.

“I’m reasonably positive [the Saver] will become an important part of our planning in the future,” Evensky told the publication.

Evensky and colleagues at Texas Tech have worked on a yearlong study on the use of reverse mortgages in retirement planning that is expected to be published soon. In speaking with groups of financial professionals about the research, Salter told RMD [2] he has received positive feedback from the planning community. In the meantime, Evensky says the studies indicate that use of the reverse mortgage Saver product will significantly increase the survivability of a retiree’s portfolio in retirement.

Part 2 to follow on 4/20/12


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