Yearly Archives: 2016

Colder Winter May Fuel Reverse Mortgage Demand

For most of us, the bulk of our housing costs are relatively constant. Monthly mortgage payments may vary slightly as property taxes and insurance rate are updated annually. But one housing cost is often seasonal – Heating Ventilation and Air Conditioning (HVAC). It can make, or break, a budget.

One advantage of living in the south is the reduced cost of heating a home during the winter. The trade-off is the high cost of energy to cool the home in the summer. But this year, the U.S. Energy Department has forecast a significant increase in heating costs for the four primary fuels that heat America’s homes – natural gas, heating oil, electricity, and propane.

Some of these increases are due to price increases. However, according to the U.S. Energy Information Administration (EIA), weather plays a role as well.

“The latest outlook from NOAA expects winter temperatures east of the Rocky Mountains to be colder than last winter, with projected heating degree days in the Northeast, Midwest, and South about 16-18% higher.” www.EIA.gov

Colder Weather May Fuel Reverse Mortgage Demand

Here are the EIA’s projected cost increases per household this winter by fuel type:

  • Natural gas         + $116   (+ 22.4%) representing nearly 1/2 of U.S. households       
  • Heating oil          + $378   (+ 38.1%)            
  • Electricity            + $49     (+ 5.4%)
  • Propane (NE)      + $345   (+ 21.0%) in the Northeast
  • Propane (MW)    + $290   (+ 29.6%) in the Midwest

We never know what contingencies may arise that will disrupt the monthly budget. Things like inflation, low interest rates, a poor sequence of market returns, family emergencies, and health concerns can all impact a homeowner’s bottom line. For those on a fixed income, these increases in winter heating costs are significant.

Fortunately, most older homeowners have a home equity nest egg that can improve their retirement cash flow. The reverse mortgage line-of-credit (LOC) may be established early in retirement and used for unexpected expenses or emergencies. If monthly cash flow is needed, a reverse mortgage tenure or term payment may do the trick.

If you have read my previous blogs and/or my book, Understanding Reverse, you might remember that I discussed three primary uses for reverse mortgages – Need, Lifestyle, and Planning.

Understanding Reverse

Using a reverse mortgage to supplement retirement cash flow may allow the home itself to pay for increased heating costs. This can be done without disrupting traditional retirement planning. For this reason, a reverse mortgage may be used for all three of the primary uses mentioned above. Keeping the home at a comfortable temperature satisfies a need, improves lifestyle, and protects traditional retirement planning.

While the overwhelming majority of baby boomers wish to remain in their existing homes during retirement, homeownership can be expensive. I should know. I’m scheduled to replace two air conditioning units in the spring. But it may be wise for those who are at least age 62, and wish to age in place, to consider establishing a reverse mortgage line-of-credit today, and know that they can weather the winter storms as they come.

 

Others are warming up to the idea of using a reverse mortgage to enhance retirement. To learn more this financial tool, buy the book, Understanding Reverse, and subscribe to this blog.

As this is the last blog post of 2016, I want to thank those of you that have made Understanding Reverse the top-selling book on Home Equity Conversion over the last two years. Stay tuned for the release of the 2017 edition, and have a Merry Christmas and a Happy New Year.

Dan Hultquist

The Reverse Mortgage: Is it really that complicated?

Is the Reverse Mortgage as simple as some claim? Or is it a highly complex financial tool, as the Consumer Financial Protection Bureau describes it?

While it may appear that these views are mutually exclusive, they are not. However, the underlying concern is one that congress, regulators, financial planners, lenders, and consumers all need to better understand.

THE REVERSE MORTGAGE CONCEPT

The reverse mortgage concept is simple and can be explained in a sentence or two. In its most basic sense, a reverse mortgage is any loan program that defers the repayment obligation until a later date.

More specifically, it offers a homeowner the ability to use a portion of his/her home’s equity, it creates a lien, and it delays repayment until the home is no longer the primary residence of the last borrower. That is pretty basic and easy to understand. This holds true for all reverse mortgages, including the Federally Insured Home Equity Conversion Mortgage (HECM), single-purpose reverse mortgages offered by local government entities, and proprietary reverse mortgages.

THE HECM PRODUCT

However, the “concept” of a reverse mortgage and the “product” itself are quite different.

The Consumer Financial Protection Bureau (CFPB), which is charged with a degree of oversight of the mortgage world, believes the reverse mortgage is complex. In 2012, the CFPB commented on the complexity of the HECM product in their 231-page Report to Congress stating,

Reverse mortgages are inherently complicated products that are not easy for the average consumer to understand.

Looking back, it’s hard to imagine this was said in 2012. At the time, training and education on the product was relatively easy. All that was needed was to simply educate mortgage originators and clients on the program guidelines, the non-recourse feature, principal limit factors, product options, payout options, and costs.

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REGULATORY CHANGES

Only 15 months after the CFPB report was published, the program saw massive regulatory changes. These changes from 2013-2015 were intended to protect the HECM program, protect the consumer, and ensure the product was used as a sustainable solution for homeowners. Nevertheless, in a short period of time, the complexity of the reverse mortgage product doubled.

Does that mean the product is complicated? Not necessarily. The issue is not one of complexity, but rather a lack of familiarity. The HECM product is misunderstood simply because the terminology and concepts are somewhat unfamiliar.

As a result, industry training is quite different now, including the addition of the following concepts: initial disbursement limits, non-borrowing spouse, and financial assessment.

IS THE REVERSE WORLD MORE COMPLICATED THAN THE FORWARD?

I received what many believed was the best forward mortgage training available when I entered the industry. Completing it took me away from home for several weeks. Having a comprehensive understanding of the forward side DOES takes time. In fact, forward originators must now comply with TRID requirements which is not mandated for the reverse side… yet.

But, while various forward product options each have their own credit requirements and debt-to-income ratios, most consumers already understand the dominant product – the 30-year fixed conventional loan. By contrast, the dominant reverse product (The HECM) and the terminology that accompanies it are relatively unknown.

Once again, the primary issue for mortgage originators, financial service professionals, and consumers alike is becoming familiar with the HECM product.

Note: To be a licensed mortgage loan originator, the standardized testing (SAFE Exam) generally includes only one question on the topic of reverse mortgages.

DO NEW REVERSE MORTGAGE STRATEGIES INCREASE THE COMPLEXITY?

Yes. Wendy Peel, VP of Sales and Marketing at ReverseVision, notes that “much of the complexity lies within the varied strategic uses of the new reverse mortgage product.” Prior to 2013, reverse mortgage sales had little to do with financial planning and more to do with how much money the borrower could receive. In 2013, the program began limiting many borrowers to an initial disbursement of 60% for the first year. This, combined with an increased focus on sustainability, shifted the product back towards the financial planning uses for which it was originally intended.

Mathematically, research shows us the financial planning advantages are significant. Unfortunately, many loan originators, consumers, and most financial planners are still uncertain how to use reverse mortgages to open up retirement cash flow options and strategically manage portfolio draws in retirement.

IS IT WORTH EXPLORING?

Yes. Don’t let the unknown discourage you. The primary reason I wrote the book, Understanding Reverse, was to answer the most common questions, summarize the program guidelines, and document the regulatory sources. In fact, one of my greatest pleasures is receiving emails and letters from loan originators and consumers who thank me for clarification gleaned from the book.

The HECM product is the most under-utilized financial tool available to enhance the lives of older homeowners. We can easily solve the perceived complexity problem with proper education, not just offered to the loan originators, but also to financial service professionals, realtors, the media, and the clients themselves.

Yes, the concept is beautifully simple. Yet, the product appears complex because of a lack of familiarity with regulatory changes and appropriate financial planning uses. As we continue to develop new ways to explain this great program to a broader audience, I know we can build a better understanding of reverse mortgages.

 

I’d love more discussion on this topic. So, please let me know your thoughts? If you wish to attend my national broadcast on the Financial Assessment changes on October 3rd, please register by clicking this link:

Financial Assessment Review and Updated Compensating Factors

Dan Hultquist is the Director of Learning and Development at ReverseVision and authored the top-selling book on this topic, Understanding Reverse – 2016.

Getting Back to Reverse Mortgage Basics

With the regulatory overhaul over the last three years, and with more to come, the reverse mortgage program has gained positive attention in the national media and financial planning community. But, the basic concepts that every older homeowner should know have remained unchanged for the most of three decades. So, since other blog posts, including my own, discuss changes, this may be a good time to take a breather and review the core of the reverse mortgage program and what it offers.

The following is a summary of the top 10 most important concepts on my list:

  1. What is a reverse mortgage?

The most common product, known as a Home Equity Conversion Mortgage (HECM), is a federally insured loan product that allows homeowners 62 years and older to access a portion of their equity now in cash or monthly payments, or later from an established line-of-credit.

  1. What are the primary advantages?

Many clients like the freedom of having no required monthly principal or interest mortgage payments. However, they often miss the advantages gained by making periodic prepayments. Of course prepayments will reduce the loan balance. But when using the adjustable rate HECM, those payments will also boost the government-insured line of credit that is already growing.

  1. Who use Reverse Mortgages?

Older homeowners seeking reverse mortgages are a mix of those with a need for cash, those who wish to enhance their retirement lifestyle, and those with financial planning motives. However, since 2008, the reverse mortgage has also had the ability to assist those that wish to purchase a home.

  1. What are the borrower responsibilities?

It is the borrower’s responsibility to occupy and maintain the home. However, he/she is also required to pay the property charges including property taxes and homeowners insurance when due, unless the lender sets aside funds for those purposes.

  1. What is the most common misconception?

Clearly, the greatest misunderstanding is that the “bank gets your home.” This is not true, and the homeowner retains title and ownership of the home over the life of the loan, and the heirs have multiple options upon the death of the last borrower.

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  1. What do the proceeds potentially impact?

Proceeds are NOT taxed as income. While the HECM may be used to enhance basic Social Security and Medicare, the proceeds don’t adversely affect those government benefits. However, Supplemental Security Income or Medicaid are means-tested programs that may be impacted if caution is not taken.

  1. What is the “Principal Limit?”

The Principal Limit represents the maximum funds that can be offered at the time of closing. This amount is tied to the relevant ages, interest rates, and the home’s value, but may be restricted in some cases during the first year.

  1. What is the non-recourse feature?

The homeowners and their estates will never owe more than the value of their homes. This is a great consumer protection for the homeowners as well as their heirs, as there is no personal liability for a deficiency created by falling home prices or a loan balance that exceeds the value of the home.

  1. Why is counseling required?

HUD felt it was important for the homeowner to be counseled by someone other than the loan originator. Therefore, a reverse mortgage applicant will need to select a HUD-Approved counseling agency and obtain a counseling certificate.

  1. What are the Financial Planning strategies?

Many are using the HECM to delay Social Security filing. Others will draw tax free distributions from their home equity, allowing them to manage their adjusted gross incomes. This may reduce their tax liability as well as Medicare premiums. Still others will draw retirement cash flow from home equity during down markets to preserve their traditional retirement funds.

For more information on the reverse mortgage product and its recent changes, please purchase Understanding Reverse – 2016. For updates on the newest round of changes, stay tuned by subscribing to this blog.

Dan

Let’s Openly Discuss this Reverse Mortgage “Scam”

Reverse mortgage lenders have been fighting an uphill battle for years. And blogs and online debates likely won’t change the overall perception (or misperception) about reverse mortgages. There will always be those who can’t help but voice their opinions about a product they simply don’t understand. Nevertheless, as an advocate for proper home equity conversion for retirement cash flow, I’m often the recipient of these negative comments. So, let’s openly discuss the so-called reverse mortgage “scam.”

The media is generally pretty quick to jump on scam coverage. And yet, the national media has actually reacted favorably toward the product reforms of the last three years, and the coverage on the topic has been positive. In addition, publications like Forbes and the Wall Street Journal have touted the prudent aspects of reverse mortgages, adding academic research from respected retirement experts like Jamie Hopkins, Wade Pfau, and others. In this respect, the financial media, and the academic community are way ahead of the game, and offer credible arguments in support of reverse mortgages.

Financial AssessmentYet, any time such articles are published in the media touting the merits of reverse mortgages, there will be those who reply “It’s a SCAM!”, “Stay away!”, and “There is a sucker born every minute”. These comments continue to show how poorly the public understands the terms of the product, and I naturally feel compelled to reply.

These negative sentiments have persisted as a result of the unregulated products offered by financial service “professionals” since the 1960’s. The truth is, reverse mortgages have been highly-regulated and safe products since the Federal Housing Administration first insured the Home Equity Conversion Mortgage (HECM) product in 1989.

In fact, Ohio State University recently released a study showing that 83% of seniors were either “satisfied” or “very satisfied” with their decision to obtain a reverse mortgage. That’s extremely high for ANY financial product. Clearly, it is not a scam, a failed government program, or a bank trying to take a home.

One argument for the Home Equity Conversion is that it is insured by the U.S. government. Well, that’s probably a poor argument. Even though I believe the Reagan administration got this one right, we live in an age where distrust of the government is at an all-time high. So there may be more effective ways to debate its validity.

In fact, I have found that replying with a simple question is a great way to open up an honest conversation – “what about them makes you think it is a scam?

  • Is it because you believe the bank takes title of the home?
  • Is it because you believe the homeowner can owe more than the value of his/her home?
  • Is it because you believe these are similar to subprime loans?
  • Is it because you believe they are too expensive for what they provide?
  • Is it because you believe they stick the heirs with a bill upon the borrower’s death?
  • Is it because you believe those who get them generally regret their decision?

None of these are beliefs are true, and yet they account for many of the objections people have about the product. Asking about their objections opens the door to education, and learning the facts from a specialist should reduce fears.

The good news is that the Financial Planning community is beginning to understand the advantages, and many now base their recommendations on research from the academic community. Top-selling author, Jane Bryant Quinn, has a very good understanding of the product and now advocates for reverse mortgages in her recent book, How to Make Your Money Last. Sadly, Dave Ramsey is still misinformed and refuses to recognize the research of his peers, as well as published papers within the Journal of Financial Planning.

We’ll continue to see comments like “worst idea ever,” “people get screwed,” and “just give the home to the bank”, and I’ll still respond. But the media, academia, and the financial planning community are moving the perception needle from “scam” to “strategic use of home equity.”

Dan Hultquist

Reverse Mortgage Changes Again?

If I were to track my phone usage for the last ten years, May 2016 probably was the busiest. I seemed I received hourly phone calls from loan originators, financial services professionals, the media, and of course older homeowners, all asking the same complex questions:

  • What are the positive changes about which I’m hearing?
  • What did recent regulatory changes accomplish?
  • What are the strategic financial planning strategies that have emerged?

Now, we are faced with NEW proposed regulatory changes to the Home Equity Conversion Mortgage, the federally-insured reverse mortgage product also called a “HECM.” The questions have intensified. But these questions cannot be answered in one blog, and they certainly cannot be answered in a quick phone call. However, I update my book, Understanding Reverse, each year to answer these questions in the best way possible.

My take on the past changes

The truth is this: The HECM reverse mortgage product was awesome BEFORE 2013… if the right homeowner was obtaining one. FHA and HUD didn’t necessarily make the product “better” for everyone over the last three years. But, they did clarify who should be obtaining one, and for what reasons.

The HECM is now less desirable for those that wish to use the program poorly (e.g. massive cash-out refinancing). This shift has made the product safer for the Mutual Mortgage Insurance Fund (MMIF) that insures it.

Action was also taken to significantly reduce technical defaults, like foreclosures due to delinquent property charges. In addition, many non-borrowing spouses are now protected as “homeowners.”

These are generally good things, and because of Financial Assessment, the reverse mortgage is now only being used as a sustainable solution for the RIGHT homeowners. For all historians out there, here is a brief timeline:

2013       Initial Disbursement Limits

Unless homeowners are paying off large loan balances, they will now have access to only 60% of their principal limit at closing, or within the first year of a HECM ARM.

2014       Non-Borrowing Spouse Regulations

If a spouse is not 62 at the time of closing, he/she can’t be a party to the reverse mortgage. This posed a problem, as the loan became “due and payable” at the time the last borrower passed away. Now, non-borrowing spouses, who are married at the time of application, and reside in the home, may be eligible to defer the “due and payable” status of the loan upon the death of the borrowing spouse.

2015       Financial Assessment

We must now examine a borrower’s credit and property charge history, and calculate their residual income. The results are used to determine if a Life Expectancy Set Aside (LESA) will be required to ensure property charges are always paid.

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2016 and Beyond

HUD’s most recent proposed changes cover a broad spectrum of reverse mortgage issues. Consequently, they are harder to label. Their stated purpose is to strengthen the HECM program and to “codify several significant changes to FHA’s Home Equity Conversion Mortgage program.” This means they want to add the recent changes to the Code of Federal Regulations, as well as propose a few more changes, opening them up for comment.

What are the new changes? We’ll likely see a minor, yet welcome, enhancement to the HECM for Purchase program. This change may allow the seller to pay certain fees including a home warrantee policy. HUD is also clarifying what is included in origination fees, and changing the way we lock-in the expected rates for borrowers.

The Results

As a result of these regulatory updates, the reverse mortgage program of today is almost unrecognizable from previous versions. The product has shifted from “crisis management” strategies to “retirement cash-flow” strategies. The downside is that these enhancements have caused a significant reduction in the number of reverse mortgages offered. Yet, during a time of declining numbers, the “NEW Reverse Mortgage” has been viewed more positively by the media and the financial planning community.

So there you have it – my take on recent changes and the ones to come this fall. While the changes offer some consumer protection, in many cases they simply steer a complex and controversial industry in a direction that makes it safer for FHA, and attempts to neutralize issues that create bad press.

Dan Hultquist

For more information on the reverse mortgage product and its recent changes, please purchase Understanding Reverse. For updates on the newest round of changes, stay tuned by subscribing to this blog.

The Reverse Mortgage, Taxes, and Government Benefits

“Accessing a large sum of cash from home equity and placing it in a bank account might be a problem for certain benefits that are “means-tested.”

 Understanding Reverse

Will getting a reverse mortgage impact my government benefits and/or my income taxes? These are major concerns that come up frequently when speaking to homeowners, especially during the month of April. And, for disclosure purposes, my first response is always:

“Keep in mind, reverse mortgage professionals are not a tax planners or financial planners, and rules regarding these items are always subject to change.”

Nevertheless, I offer general guidelines in my book, and in presentations to consumers, regarding both government benefits and taxation.

WILL A REVERSE MORTGAGE ADVERSELY AFFECT MY GOVERNMENT BENEFITS?

Maybe. As stated above, accessing a large sum of cash might pose a problem for some “means-tested” benefits. A means-test is a way of determining whether someone has the “means” to do without the assistance. Therefore, it will all depend on the answers to these two questions:

  1. Is the government benefit affected by means-testing?
  2. Is the amount drawn in excess of the benefit’s limits?

SOCIAL SECURITY AND MEDICARE

Basic Social Security benefits are not currently means-tested, and only a portion of Medicare is adjusted based on a homeowner’s income (MAGI or Modified Adjusted Gross Income). Therefore, we can safely say that Social Security and Medicare are NOT adversely affected by Reverse Mortgage proceeds.

SUPPLEMENTAL SECURITY AND MEDICAID

However, Supplemental Security (SSI) and Medicaid have income and/or asset requirements. It will be important to know what amount, held in a bank account, could prevent one from receiving those forms of assistance. As a result, it may be best to leave all available reverse mortgage funds in a line-of-credit, and only access those funds for specific expenses (e.g. roof repair, stair lift, bathroom remodel, etc.). Furthermore, it is always a best practice for the homeowner to consult with a benefits administrator financial advisor to make sure they are not disqualifying themselves.

Will getting a reverse mortgage impact my government benefits?

CAN A REVERSE MORTGAGE IMPROVE MY GOVERNMENT BENEFITS?

Yes it can! Draws from Home Equity are not taxed as income. Therefore, showing a lower Adjusted Gross Income can reduce premiums surcharges for that portion of Medicare that is means-tested on income.

In addition, even small draws from a reverse mortgage may eliminate the need to file for Social Security benefits too early. Delaying social Security may have significant advantages until age 70, and even a one year delay can improve a homeowner’s retirement cash flow.

WILL A REVERSE MORTGAGE ADVERSELY AFFECT MY TAXES?

This is another major concern that comes up frequently when speaking to homeowners.  Draws from home equity are not considered a taxable event (Federal or State Income Tax) and therefore do not adversely impact income tax liability.

However, if funds are drawn and placed into a bank account, they become an asset where interest may be earned. Any interest received from a new, or higher, bank account may be taxable moving forward.

On the flip side, when a homeowner draws part of their monthly cash needs from home equity instead of a taxable retirement income source, they may have the opportunity to reduce their marginal tax rate, which, in turn, can reduce their overall tax liability.

In addition, there may be cases where accrued interest, paid on a reverse mortgage loan balance, may be deductible just as with traditional, forward, mortgages. Keep in mind, reverse mortgages do not require monthly principal and interest payments. So, interest will generally accrue, but is not “paid”, and there can be no potential deductions unless a borrower actually makes prepayments.

Dan Hultquist

To learn more about how reverse mortgages, and how they can be used in financial planning, subscribe to this blog in the right-hand margin and get a copy of the top-selling book on the topic – Understanding Reverse.

Marshmallows and the Reverse Mortgage Line of Credit Growth

Delayed gratification is the principle that resisting a SMALLER reward today may lead to a LARGER reward later. Yet how many people are really willing to wait for something better?

Consider the famous Stanford Marshmallow Experiments conducted in the early 1970s. Children were offered one marshmallow immediately, but two marshmallows if they waited only 15 minutes to consume it. According to Wikipedia, “In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI), and other life measures.”

The children ONLY had to wait 15 minutes for their reward to double. How much harder is it for many homeowners to wait approximately 10 years for their available reverse mortgage funds to double? But, research shows it is indeed worth the wait.

Line of Credit Growth

The growth associated with the federally insured reverse mortgage is one of the hidden gems of the Home Equity Conversion Mortgage (HECM) program. For those homeowners who obtain a reverse mortgage as soon as they are eligible (62), and leave the funds in the line of credit (LOC), their delayed gratification comes in the form of guaranteed growth.

Reverse Mortgage LOC Growth

The LOC grows at current interest rates, which means many homeowners should want their interest rates to rise. It is also very secure, as the Federal government guarantees that those funds will be available to homeowners as long as they occupy their homes and abide by program guidelines. The LOC will never be frozen, reduced, or even eliminated if home values decline. In other words, you can trust the one who distributes the marshmallows.

Social Security Delays

Delaying Social Security has a similar benefit. Imagine an 8% increase in monthly benefit each year delayed until age 70. Yet, according to data from the Social Security Administration only 1.1% of men and 1.7% of women are willing or able to wait until age 70 to draw file for their benefits.

If reverse mortgages are so great, why is nationwide use of the program down?

Again, it is built for delayed gratification. The reverse mortgage is a great planning tool, but it is no longer designed for reckless massive cash draws upfront. For example, until September of 2009, homeowners could access a percentage of their homes value that was roughly equivalent to their age. A homeowner, age 62, would qualify for 62.5% of his/her home value, and a 95 year old would qualify for 90%. How can any homeowner resist that kind of immediate gratification? Reverse mortgage advertising was unnecessary because homeowners willingly drew large sums, knowing they could never owe more than the home’s value.

In 2013, however, the updated “New Reverse Mortgage” installed restrictions on how much can be drawn upfront. A homeowner may have an initial principal limit of $200,000, but unless he/she is paying off a large loan balance, that homeowner will likely have access to only $120,000 (60%) in the first year. The additional $80,000 (40%) is generally kept in the growing line of credit. These regulatory changes became a form of forced delayed gratification.

The reverse mortgage has been refined over the years, and is very attractive for many types of retirement planning needs. Nevertheless, it is now unattractive as a massive cash-out refinance tool, as the product was once used.

Several years of research has shown that mathematically, it does not make sense to wait to obtain a reverse mortgage. It does, however, make sense to get one as early as possible, and not draw from the available funds until later… if you can resist.

Those children who resisted the marshmallows in 1972 will be eligible for a Home Equity Conversion in approximately 13 years. If I were a betting man, I would wager that they will have significant home equity, are more likely to delay social security, and will enjoy watching their reverse mortgage line of credit grow every month.

If you want to learn more about the strategic use of home equity in retirement, please subscribe to my blog and purchase my book, Understanding Reverse.

Dan Hultquist

A New Addition, and a New 2016 Edition of Understanding Reverse

YES, I HAVE BEEN AWAY

Some of you were curious about my absence in February. I generally avoid adding personal information to my professional blog. Nevertheless, my writing was placed on hold for a month as a result of a more pressing need. My wife and I traveled to China, and returned with a new addition to our family, Gabriel William Hultquist. Gabe, has been nothing short of a massive blessing to our family, and we are thankful for the assistance we received from friends, family, strangers, and industry professionals.

Hultquist

Gabe and his adoption registration in Nanchang, China

BOOK SALES

I’m happy to say that sales of the new edition of Understanding Reverse have also been amazing. This is primarily due to the backing the book received from within the reverse mortgage community. Thank you so much to everyone for supporting this endeavor!

Understanding Reverse – 2016 was published shortly before the New Year, and Reverse Mortgage Daily announced the release shortly thereafter. As a result of that press, the book moved into Amazon’s top 20 books within the “Retirement Planning” category for January. Any time a technical, mortgage-related, book breaks into the top 10,000 on Amazon’s best seller list, the author has to be extremely pleased. So, thank you RMD and thank you Shannon Hicks, President of Reverse Focus, for picking up the story, and airing it during your weekly podcast.

NEW CONTENT

The new edition contains 5 new chapters and updates to existing chapters. In addition, a comprehensive glossary has been added to the end of the book. The new chapters include:

  • What is “Financial Assessment?”
  • What are the different uses for Reverse Mortgages?
  • When is a Reverse Mortgage not a good option?
  • What should I expect during servicing?
  • What is a “HECM-to-HECM Refinance?”

READERSHIP

As was the case in 2015, the majority of the sales are NOT through Amazon. They are actually sold in bulk to other professionals within the financial services sector. This appears to be because the book was written to be “lender-neutral” and also because the book works well as a client giveaway.

Book Cover 2016

In addition, I have received a lot of feedback that the book is appealing in the way it documents where the guidelines can be found, whether that be the U.S. Code of Federal Regulations, FHA Mortgagee Letters, or HUD handbooks.

BULK DISCOUNTS

As we have discussed, the book has been used for national training programs, marketing campaigns, and client giveaways. For this reason, bulk orders can get expensive when purchasing through Amazon.com. So, several lenders have requested bulk copies at a discount for industry professionals.

For bulk orders, your books will be shipped directly from the printer, and the order may take extra time to fulfill. Simply reach out to me at understandingreverse.com if you are interested in receiving 10 or more copies.

For more information on the strategic uses for the Reverse Mortgage product, please subscribe to this blog and purchase your own copy of Understanding Reverse.

Dan Hultquist

Social Security Optimization with a Reverse Mortgage

When discussing Social Security and Reverse Mortgages, most professionals have always responded that “distributions from a reverse mortgage do not adversely affect basic Social Security benefits.” That is true, as basic Social Security is not a “means tested’ program. But that is only half of the story. The Reverse Mortgage can actually be used to ENHANCE a homeowner’s Social Security benefits.

Social Security strategies are critical to retirement planning

Let’s back up, and discuss the current reliance on Social Security. According to the Social Security Administration:

  • 51% of the workforce has no private pension coverage, and
  • 34% of the workforce has no savings set aside specifically for retirement.

As a result, over 64% of aged beneficiaries currently receive at least half of their retirement income from Social Security.

Over 50 years ago, Congress changed Social Security to allow Americans to claim benefits at age 62. And almost ¾ of the American population will draw Social Security at that age. At that time, however, the benefits are reduced. Currently, age 70 is the age at which retirees can maximize their monthly benefits.Social Security Optimization with a Reverse Mortgage

Many retirees SHOULD delay Social Security, but don’t

Of course results may vary based on earnings history and cost of living increases, but Social Security benefits will generally increase 8% (of full retirement benefit) for each year that is delayed until age 70. The end result is higher monthly payouts at age 70.

Some seniors will continue to work during some, or all, of the years leading up to age 70. According to Falling Short: The Coming Retirement Crisis, “Individuals who delay receiving Social Security benefits from 62 to 70 increase their monthly benefits by a full 76%.”

However, according to Social Security expert, Cindy Lundquist, the 76% estimate may be a little misleading. That figure assumes that the individual continues to work beyond age 62. She states “If you are not working from 62 until age 70, the increase in benefits may be closer to 54% to 57%.”

So, how many people actually take advantage of this opportunity to delay until age 70? According to data from the Social Security Administration only 1.1% of men and 1.7% of women wait.

Most people do not know how long they will live. Baby Boomers, however, have longer expected life spans than the generation before them. This makes Social Security delays especially attractive. However, if a retiree is in poor health and anticipates a shorter lifespan, this may not be the right strategy. For them, it may make sense to opt in early.

The problem has always been that retirees are counting on that income at the moment they retire. They don’t want to wait. That is precisely why many in their 60’s are turning to the Reverse Mortgage to fill the gap in their retirement income during that time.

But what about all the money they won’t get from 62 to 70?

Social Security is not about accumulation, but rather sustainability. Opting in too early could cause poverty if you live longer. If you opt in too late, you simply risk not receiving your Social Security benefits if you die. As Jack Guttentag (aka The Mortgage Professor) so eloquently states,

“Avoiding poverty risk is more important than avoiding mortality risk. If I don’t avoid poverty risk, I may be forced to endure poverty in my old age. If I don’t avoid mortality risk, in contrast, I won’t be around to lament the money I didn’t draw.”

In a nutshell, retirees can defer Social Security benefits and supplement their retirement income with tax-free draws from a Reverse Mortgage if needed. The objective is to get to age 70 comfortably, at which point monthly Social Security benefits are maximized.

For more information on the strategic uses for Reverse Mortgages, please subscribe to this blog and purchase my updated book, Understanding Reverse.

Dan Hultquist

This is not intended to be legal, tax, or financial planning advice, and Reverse Mortgage professionals (myself included) are not social security experts. For a recommendation on the use of home equity during retirement, please consult a Financial Advisor who understands the strategies for home equity conversion and retirement cash flow.