January 2015

Huffington Post and the Mass Affluent

The Huffington Post’s article continues to elaborate in it’s commentary, why the “Mass Affluent” will naturally utilize funds from a Reverse loan as part of their overall financial plan.

Older people are not as concerned about health issues as they age, but they are concerned about out living their money.  Wisely using money from a Reverse mortgage instead of a traditional line of credit  ( where they would be obligated to make payments AND receive less money than they would from a Reverse loan.) makes more sense.

Here is the remainder of a summary of the article from the Huffington Post.  The summary was written by  Jason Oliva

“This group, as defined by Huffington Post, has $750,000 to $2 million of net worth at retirement and are people who typically have “almost enough money to live comfortably.” Additionally, it’s not uncommon for these individuals to have $750,000 to $1 million in a 401(k) and another $750,000 to $1 million in home equity.

Using a reverse mortgage also goes against what traditionally has been the public’s perception of conventional wisdom—in that a reverse mortgage should be used as a tool of last resort, that home equity should be reserved until a person has exhausted all of his money.

However, the problem with this thinking, Sacks said, is that it does not take into account the volatility of the securities portfolio of the 401(k) account or the IRA.

“…[Y]ou can use the reverse mortgage credit line to fill those troughs when the securities portfolio is down and don’t draw upon the securities,” Sacks said. “If you draw from a reverse mortgage credit line and allow the portfolio to recover, then there’s a far better chance there will be money flowing through a 30-year retirement.”

For those with less wealth stored for retirement, a reverse mortgage can still help, but not as significantly as those considered “mass affluent.”’

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Huffington Post and Reverse Loans

Attitudes are shifting in regards to how Reverse loans are being seen by financial planners and the general public as a tool for retirement planning.  Used correctly, they can extend the longevity of a retirement portfolio and eliminate the worry of out living one’s money.

The Huffington Post recently discussed how a segment of older people, primarily “Boomers” who happen to have retirement funds, are looking to use money from a Reverse mortgage as a resource for additional funds and why they should, in lieu of withdrawing money from their retirement accounts.

HuffPost: Mass Affluent Present Huge Reverse Mortgage Opportunities

Posted By Jason Oliva On October 12, 2014 @ 7:37 pm In News,Reverse Mortgage | No Comments

“As reverse mortgages continue to gain notable mainstream press, they are also earning recognition for the vast need that lies ahead when it comes to the nation’s severe retirement crisis, according to a recent Huffington Post blog .

It is widely accepted that the Baby Boomer generation, which is seeing 10,000 Americans turn age 65 each day for the next 15 years, presents a favorable opportunity for reverse mortgage usage in the years to come. However, a group within this demographic dubbed the “mass affluent” stands to have the greatest potential in utilizing these loans.

“It’s a very misleading term because they’re not massively affluent. Rather there’s a mass of them and they’re almost affluent,” said Barry Sacks, a California tax attorney, author and nationally recognized expert on reverse mortgage trends, in the HuffPost blog article.”

I will share the remainder of this article in a following post.

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Reverse Loan and Financial Assessment

The possibility of some sort of financial and credit review for Reverse loans, has been under discussion for quite some time and as of March 2, 2015 will go into effect on any Reverse loans submitted March 2nd and thereafter. Following is a description of for this new process.

“Based on Mortgagee Letter 2014-21 and 22, including the HECM Financial Assessment and Property Charge guide, issued on November 10, 2014, all Reverse loan Lenders will be using the Financial Assessment (FA) to evaluate whether a borrower qualifies for the HECM loan, and under what conditions.

It specifically it looks at “willingness” and “capacity” of the borrower to meet his or her financial obligations and meet HECM requirements.

Willingness: Past performance and credit history.

Capacity: Using income, assets and expenses to calculate residual cash flow. The Financial Assessment will become effective, industrywide, on March 2, 2015”

The bottom line is this: All potential borrowers will be required to have any income documented and that may include 2 years of Federal tax returns, etc. Plus any bank statements to support savings and cash reserves. This could be a burden to the client to provide and make the process a little bit more of a hassle for them.

Depending on the review of the borrower’s capacity, it may be determined to create a “Life Expectany Set-Aside” ( LESA) using funds from the Reverse loan to pay for future property taxes and Homeowners Insurance.

I don’t believe that unlike a traditional loan, a potential borrower for a Reverse loan will be declined based on their income or credit history.

But it will take longer to process the loan and the potential impact to the borrower, may mean less money to them at the close of Escrow if it’s determined that the client needs funds to be set-aside for future borrower obligations.

So if someone has been hesitating about applying for a Reverse mortgage, I would suggest that they get started on it before March 2nd., otherwise the new regulations and requirements in regards to qualifying, may turn into a problem for them.

Get “off the fence” and don’t wait any longer.

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