CPA Conference, Sept. 17-18, Cleveland

September 17-18, 2008

I-X Center

Cleveland, Ohio

Highlight Program with Karen Knerem:

“Eldercare Planning Using Reverse Mortgage” from 1:00-2:00pm on Thursday, September 18th, 2008

Selling vs. Reverse Mortgaging

Seriously Consider Selling
Many homeowners become interested in reverse mortgages so they can stay in their own homes. Selling their homes and moving elsewhere are generally not very appealing to most older people.

The single best way to evaluate a reverse mortgage is to compare it to what may be your only real option: selling your home and using the proceeds to buy or rent a new home. Do you know:

How much cash you could get by selling your home?
What it would cost you to buy (and maintain) or rent a new home?
How much money you could safely earn on any money left over after you buy a new home?
Have you recently looked into buying a less costly home, renting an apartment, or moving into assisted living or other alternative housing?
Until you have seen and considered other housing options, how do you know that another housing choice wouldn't be better for you than a reverse mortgage? For your own peace of mind, look into what else might be available. It doesn't hurt to explore all your options before making a decision.

Most likely you will come to one of two conclusions:

you may find another housing option that is a lot more attractive than you thought; or
you may confirm what you were fairly certain of all along: that where you live now is the best place for you to be.
No matter what you conclude, you will have a much better idea of the overall costs — and benefits — of staying versus moving. That will give you a better sense of what is most important to you. And then it should be easier for you to evaluate the costs and benefits of a reverse mortgage.

Reverse Mortgages vs. Traditional Mortgages

Generally, a traditional mortgage loan is one where the homeowner borrows a large amount of money and makes monthly payments back to the lender. As payments are made, the loan balance decreases and the equity in the home increases.

With a Reverse Mortgage, the homeowner borrows a percentage of the home's value, which can be disbursed all at once, or monthly, or as needed through a line of credit. As additional funds are disbursed to the homeowner, the loan balance gets larger and the equity in the home decreases. Payment back to the lender is required only once, at the end of the loan, which in most cases is when the homeowner dies (or the last remaining homeowner in the case of co-owners), sells or no longer uses the home as the primary residence. Repayment is also required if the homeowner does not comply with the terms of the Reverse Mortgage.

Reverse Mortgage Concerns...

Reverse Mortgage Concerns to be aware of:

The Senate Special Committee on Aging, which is an oversight and investigative committee -- it doesn't produce legislation -- convened a hearing on reverse mortgages last Wednesday, December 12. The hearing was organized and chaired by Sen. Claire McCaskill (D-Missouri), who was a state attorney general before being elected to the Senate last year. Several Senators from both parties participated in the hearing.

There were a few areas that surfaced that are of particular concern to members of Congress:

1.) Senators are extremely concerned about the sale of annuities financed by reverse mortgage proceeds, particularly deferred annuities. A witness presented testimony about how the same company sold her 78 year-old mother both a reverse mortgage and an annuity that had a very long deferral until any money would be paid out.

2.) Senators are concerned about ads promoting the opportunity to sell reverse mortgages (presumably through "advisor" type programs) that seem to indicate it is an easy way to earn money and get rich quick -- and that no particular background, experience or licensing is required. They fear that this type of activity will draw in unsavory players out to make a quick buck who will sell any product to a senior whether it's appropriate for them or not.

3.) There was concern about misleading direct mail pieces sent out by reverse mortgage lenders that are designed to look like official government notices, tout "An Important Government Benefit," or use language and graphics to make seniors believe that reverse mortgages are a government assistance program, without explaining that a HECM is a mortgage loan that will have to be paid back. These types of mailers are doing a major disservice to the reputation of our industry and were a major factor in bringing about this Congressional hearing.

Reverse mortgages: Way out of foreclosure

For Ohio Expert, contact Ms. Karen Knerem @ 216-496-3092


By KELLY GREENE
THE WALL STREET JOURNAL
Reverse mortgages used to be a way for homeowners to get extra cash during retirement. Now they’re also being used for a more-pressing purpose: helping people who are struggling to meet payments on high-interest-rate loans to keep their homes.

The strategy, which is relatively novel but gaining popularity among legal-aid attorneys and housing advocates around the country, calls for persuading lenders to take the cash generated by a reverse mortgage in lieu of foreclosing on older homeowners.

With a reverse mortgage, the bank makes payments to the homeowner instead of the homeowner making payments to a bank. The loan is repaid, with interest, when the borrower sells the house, moves out permanently or dies. The products are complex and have high fees - typically about 7 percent of the home’s value - and they make it difficult for homeowners to leave the property to their heirs. But they may be the best option for people who have built up equity in their home and would otherwise lose it.

Most of these older homeowners in trouble had refinanced their home into so-called subprime mortgages. Such loans - many of which feature adjustable rates that can tack sharply higher after an initial teaser period - have roiled the mortgage industry and credit markets this year as default rates have shot up, and analysts expect hundreds of thousands of additional subprime loans to go bad over the next several years.

While no one tracks subprime mortgage holders by age, the approximately 30 million Americans 65 and older who own their homes are routinely targeted by subprime lenders with refinancing deals, borrower advocates say. Given that the rescue plan recently proposed by the Bush administration and the mortgage industry doesn’t provide relief for individuals who can’t afford their current loan terms, reverse mortgages are currently one of the few tools available to help older homeowners facing foreclosure.

The strategy worked recently for Gloria Forts, a 62-year-old retired federal worker in Forest Park, Ga., a suburb of Atlanta. After refinancing her home in August 2006 with a $106,500 mortgage from Fremont Investment & Loan in Brea, Calif., Forts was facing monthly payments of $950.41. That consumed 70 percent of her monthly income from Social Security and a pension. Intending to start a new job, she found herself kept at home by diabetes complications and back surgery. In June, she sought help from the Atlanta Legal Aid Society.

There, she found William J. Brennan Jr., a veteran housing attorney who, over the past 18 months, has developed a sophisticated model for settling subprime debts with reverse mortgages. After Forts received a foreclosure warning in October, Brennan connected her with Genie McGee, a reverse-mortgage specialist with Financial Freedom Senior Funding Corp., an Irvine, Calif., unit of IndyMac Bancorp Inc. She determined that Forts would qualify for a reverse mortgage of about $61,000.

Brennan sent Fremont’s loss-mitigation department a letter proposing that the company agree to take that sum and cancel its plans to foreclose on the house. On Dec. 3, the day before the foreclosure sale was supposed to take place, Fremont agreed to the deal and stopped the foreclosure.

The transaction illustrates one of the biggest challenges in getting lenders to accept payouts from reverse mortgages: taking less money than the house may be worth. In the 14 cases Brennan has settled to date, lenders have accepted payments for an average of 65 cents on the dollar. Brennan contends that the loans - typically mortgage refinancings or home-equity loans with high interest rates and monthly payments that gobble up more than half of the borrowers’ fixed income - should never have been made in the first place. Lenders, he says, ‘‘have been making loans regardless of the borrowers’ ability to pay, and there needs to be a penalty for that.’’

When Brennan first attempted to broker such settlements a few years ago, he hit resistance from mortgage lenders who were unwilling to accept reverse mortgages as full loan repayment instead of foreclosing on properties they could sell outright. He finally started getting traction when Georgia Sen. Vincent Fort, an Atlanta Democrat who pushed state legislation to damp predatory lending, personally called the executive offices of the banks involved.

Now, with real-estate markets struggling, more lenders may be willing to entertain reverse-mortgage payoffs. ‘‘If there’s a way to settle the debt that nets the investor more than it would get if there was a foreclosure and a sale, then the servicer would look at it,’’ says Thomas Kelly, a spokesman for J.P. Morgan Chase & Co., whose Chase Home Lending unit services more than $700 billion in mortgages. (Chase was the trustee on one mortgage loan Brennan settled, though another bank has since acquired that business.)

A spokeswoman for Fremont General Corp., Fremont Investment & Loan’s parent, declined to comment about Forts’s settlement. The Federal Deposit Insurance Corp. issued a cease-and-desist order against Fremont in March, in which it said it had determined ‘‘that the bank had been operating without adequate subprime mortgage loan underwriting criteria, and that it was marketing and extending subprime mortgage loans in a way that substantially increased the likelihood of borrower default.’’

Other public-service attorneys around the country are turning to reverse mortgages as a way to negotiate lower payoffs for subprime loans made to older clients. In Chicago, for example, ‘‘we advise a lot of clients that a reverse mortgage is appropriate when it’s the only way to keep them in their home,’’ says Michelle A. Weinberg, a supervisory attorney at the Legal Assistance Foundation of Metropolitan Chicago. ‘‘The same people have been refinanced over and over again to very little benefit for themselves, with high fees.’’

But the strategy may not be suitable for every homeowner in trouble. ‘‘We’ve helped a handful of people get refinanced with reverse mortgages,’’ says Jessica Attie, co-director of the Foreclosure Prevention Project at South Brooklyn Legal Services in New York. ‘‘We’d like to do it more, but a lot of times we find that they have too much debt on the property to qualify.’’

In Washington, the National Council on Aging, an advocacy group, has launched a reverse-mortgage initiative to help older homeowners around the country learn how to use the product appropriately - including ridding themselves of monthly mortgage payments.

‘‘Conventional mortgage loans, whether they’re subprime or not, are risky for seniors because they have to make that monthly payment from a fixed income,’’ says Barbara Stucki, the initiative’s director. ‘‘If anything gets out of whack, they are in danger of losing their home.’’ Recent studies have found that the portion of households age 65 and older with mortgage debt increased to 22 percent in 2004 from 15 percent in 1989, and increased in dollar terms to $47,000 from $15,000 per household. An AARP study released earlier this month found that nearly one-third of 946 reverse-mortgage borrowers surveyed used the loans to pay off existing mortgage debt.

‘‘For a small but crucial number of potential borrowers who are in financial distress, reverse mortgages can be essential in avoiding foreclosures - sometimes on subprime or home-equity loans with very high interest rates,’’ the AARP report says.

Elizabeth Renuart, a staff attorney at the National Consumer Law Center in Boston, reviews hundreds of mortgage documents annually, and says that the adjustable-rate mortgages she has examined this year that she considered ‘‘to be made inappropriately were almost entirely made to people over 60. To me, that’s a very shocking revelation.’’

Brennan in Atlanta is regularly giving speeches to and fielding calls from legal-aid lawyers around the country who want to use reverse mortgages to relieve older homeowners of their mortgage debt. ‘‘There has to be a way to systemize this strategy,’’ Brennan says. ‘‘Every senior in America should be able to use a reverse mortgage to get out of these subprime loans.’’

AARP Groundbreaking Report Focuses on Future of Reverse Mortgages

AARP Groundbreaking Report Focuses On Future Of Reverse Mortgages

Report Probes Homeowner Attitudes, Offers Recommendations to Lower Costs, Inform Borrowers

Washington, DC – A groundbreaking report released today by AARP’s Public Policy Institute (PPI) found that while consumers are initially favorable and increasingly aware of reverse mortgages, high costs and other obstacles prevent many older homeowners from applying for these loans.

The report also warns about the practice of some lenders to sell inappropriate financial products to reverse mortgage borrowers and recommends a series of policy and marketplace remedies to increase consumer protections. AARP presented the report today at a hearing by the Senate Aging Committee.

“Reverse mortgages provide a promising way to convert home equity savings into cash,” said John Rother, AARP’s Director of Policy and Strategy. “But recent growth in the programs masks the fact that only one percent of older homeowners currently are using them.

“High costs and abusive marketing practices must be addressed,” Rother added.

The market for federally-insured reverse mortgage loans was created 20 years ago through the Home Equity Conversion Mortgage (HECM) insurance program, and has grown dramatically in recent years – increasing from 6,600 loans in 2000 to 107,000 loans in 2007. The loans allow older homeowners to borrow against their home equity without the need to repay until the last surviving borrower dies, sells the home or moves out permanently.

The AARP PPI report is the most comprehensive study published regarding consumer demand for reverse mortgage loans, including data from the first ever survey of reverse mortgage shoppers – older homeowners who had received reverse mortgage counseling and either took out a loan or decided against doing so. The report also includes a second survey of Americans age 45 and older to track changes in awareness of and attitudes toward reverse mortgages between 1999 and 2007. The surveys showed:

· Reverse mortgage borrowers are initially favorable about the loans. Ninety-three percent of borrowers said their reverse mortgages had a positive effect on their lives, and 63 percent said they would be “very likely” to recommend a reverse mortgage to a friend.

· Borrowers are using reverse mortgages to pay for necessary costs. By a margin of 48 percent to 38 percent, respondents who identified “necessities” as a reason for looking into reverse mortgages outnumbered those who cited “extras.” Borrowers said they had many uses for the funds, but the main use cited by 19 percent was to retire an existing mortgage.

· Consumer awareness has increased in recent years, but interest in using reverse mortgages has actually decreased. Seventy percent of consumers 45 and older said they are aware of reverse mortgages (up from 51 percent reported by AARP in 1999). The share of respondents who said they were willing to consider the product declined over the same period from 19 percent to 14 percent.

· The high costs associated with reverse mortgages remain a serious concern and deterrent to shoppers. High cost was the most frequently identified deterrent (63 percent) for shoppers who ultimately decided against applying for the loan. More than two thirds (69 percent) of the actual borrowers surveyed said that costs were high.

· Reverse mortgage lenders may be depleting the home equity of borrowers by offering inappropriate financial products. Nine percent of borrowers said their lenders had offered them specific financial products – including annuities and long-term care insurance – which may be unwise investments given the costs and purposes of the loan.

The report also offers multi-faceted policy and marketplace recommendations to make reverse mortgages more of a mainstream financial instrument. The report proposes:

· Reducing costs and building consumer confidence in the HECM Program. Congress and the Department of Housing and Urban Development (HUD) should take several steps to reduce program costs, including removing the limit on the number of reverse mortgages that the Federal Housing Administration can insure. That action would promote higher volume and more competitive pricing.

· Encouraging product innovations to meet the growing diversity of consumer needs. Under the federally-insured program, many prospective borrowers would prefer smaller credit lines (with lower costs) than they can receive now, but do not currently have that option.

· Increasing funding for consumer counseling and information. Since 1989, the AARP Foundation has received grants from HUD to train and test independent housing counselors who educate prospective borrowers about reverse mortgages and potential alternatives. As the reverse mortgage market grows, HUD should increase funding to expand and improve independent consumer information programs like this to increase public awareness and confidence.

· Improvements in marketing practices of lenders. Lenders can improve how borrowers manage the funds they receive by participating in education and accreditation programs that promote the ethical marketing of reverse mortgages.

To read this report, or for more information on reverse mortgages, please visit www.aarp.org/reversemortgage.

Ins & Outs, Pros & Cons

The boom in housing markets across the country has made many older Americans house-rich and cash-poor. Reverse mortgages provide a way for seniors to tap their home equity for home improvements, health care expenses, and additional retirement income.

As the name implies, a reverse mortgage is the opposite of a traditional mortgage. With a traditional mortgage, you borrow a sum of money to purchase a home, then pay off the debt over time.

With a reverse mortgage, you receive loan proceeds - as a lump-sum payout, an annuity, a line of credit, or a combination of all three - but make no payments as long as you reside in the property. The loan, with any accrued interest, comes due when you move out or pass away.

To qualify for a reverse mortgage, you need to be at least 62 years old and own the home outright (or have a balance that can be paid off with the loan proceeds). How much you can borrow depends on your age, the home's market value, and interest rates.

When applying for a reverse mortgage, you don't have to prove you have enough income to make monthly payments (there aren't any). Also, neither you nor your heirs will have to scrounge for money to repay the loan. That's because the loan balance to be repaid can't exceed the home's value. If, for example, you pass away when the home is worth $250,000 but the loan balance is $300,000, your heirs will owe the lower amount.

But there's also a downside. Closing costs on a reverse mortgage can be very steep, often as high as 8% of the home's value.

In addition, borrowers may have to purchase mortgage insurance, and they're still on the hook for property taxes and homeowner's insurance. Moreover, some reverse mortgages require full payment of the loan balance (plus accrued interest) if the home is vacated for a specified period of time.

If you end up making a prolonged, but temporary, stay in a nursing home, your loan could come due. Another factor to consider is how the loan proceeds might affect your Medicaid eligibility.

It pays to do your research when considering a reverse mortgage. If you need help, give us a call.