Changes in reverse home mortgages due at end of September

FALL FORECAST FOR SENIORS HOLDS BOTH

GOOD AND BAD NEWS

Isn’t it encouraging to know that more older Americans have jobs: 35.9 percent of men, ages 65-69, and 25.6 percent of women in that same age group, making those figures the highest since records began to be kept in 1981 .

The employment rate this summer for women age 70-74 was also higher than any previous summer. Although people younger than 30 are still having trouble finding permanent jobs, it appears that older workers are postponing retirement, whenever feasible. It could also be possible that many employers are beginning to fully appreciate the work ethics of mature Americans, their reliability, positive attitude and expectation of a hard day’s work for a day’s pay.

The bad news is that more elderly Americans are having trouble making ends meet and now under consideration by Congress are cuts in the food stamp and other programs. Additionally, new rules, which go into effect on Sept. 30, will make it much harder to get a reverse mortgage.

Although the new rules may prove burdensome to a few, to my mind, they are a much-needed improvement that should prevent many seniors, for whom a reverse mortgage became an unwise decision culminating in a loss of money as well as the eventual loss of their homes, from making the same mistake. The major changes are these:n There will be a limit on the amount of money that can be withdrawn in the first year, which will encourage people to use a reverse as a long-term retirement planning tool, rather than using it in a crisis.n A lower loan amount (about 15 percent less home equity, on average, than the current maximum allowable now.) There will also be some higher fees based on the amount withdrawn.n Lenders will be required to do a financial assessment to ensure that homeowners can afford to make all the necessary tax, insurance and other payments over the life of the loan. All income sources will be looked at as well as the borrower’s credit history. If a lender determines that you might not be able to keep up with property taxes, required insurance, etc., you will have to set aside money in a reserve. This last requirement could disqualify many borrowers and hits hardest in areas which have modest home values, but higher property taxes and insurance rates.

Reverse mortgages were created to help seniors remain in their own homes by allowing those 62 or older to convert part of the equity in their homes into tax-free income. Seniors could elect to receive the money as lump-sum front payment, a line of credit, or as a fixed monthly payment.

While this was a good product for those seniors whose home was suitable in both the layout and upkeep costs to enable them to remain there for another 7-10 years, it was not a good solution for seniors who, due to changing health or economic conditions, would need to move because the up-front costs of the reverse are quite high. 

Unfortunately, there was a great deal of telemarketing fraud in which seniors were approached by telemarketers offering “free information” on how to turn their homes’ equity into cash. Many seniors paid out thousands of dollars to these providers who did little more than referring their loan application to mortgage lenders. Some seniors were also advised to invest all or most of the cash into an annuity which allowed the provider to pocket about 8-10 percent of the loan.

Other women, whose name was not on the title to the house and became widows after receiving a reverse mortgage, lost their homes. Even with the new rules regulating reverse mortgages, seniors must give careful thought if this is an appropriate product for them. Call AARP about their publications on reverse mortgages, speak to an elder law attorney or a local trusted bank official. 

You may wish to consider a home equity line of credit or refinancing your current loan or think seriously about a move to a smaller, less costly residence. Depending on your age, current health needs and income, an assisted living or continuing care community could also be an excellent choice.

Contact Jean Cherni, certified senior adviser for Senior Living Solutions and Pearce Plus, a helpful, full-service program for seniors contemplating a move, at jeancherni@sbcglobal.net or 49 Rose St., Apt. 510, Branford, 06405.

I'm reading: Changes in reverse home mortgages due at end of September