Reverse Mortgage Industry in Trouble?

I’ve written several times over the years on the topic of Reverse Mortgages.  My first article explained the concept and requirements of a Reverse Mortgage and how seniors can use a reverse mortgage. 

My second article, entitled Using a Reverse Mortgage to Pay for Home Care, explained how the Reverse Mortgage can be used as a tool to help seniors stay in their homes and age in place. 

My third article, entitled Huge Problem with Reverse Mortgage Industry, raised a nationwide alarm about how the reverse mortgage industry is “shooting itself in its collective foot”  by routinely second-guessing the legitimacy of every power of attorney document and therefore imposing unnecessary obstacles for, and sometimes turning away, the very people who need a reverse mortgage the most — those frail elders who are unable to care for themselves but wish to remain at home and age in place rather than being forced to sell their homes and move into a long-term care facility. 

In a major move, Bank of America has now announced it is backing out of the industry.  Check both this blog and the Virginia blog later today for an update.  For the time being, you can read this series of articles  below:

Using a Reverse Mortgage to Pay for Home Care
Originally posted Jan. 30, 2010
Available Here

Many of my clients ask me how I feel about reverse mortgages, and even more so this past week because of a favorable story that appeared in last week’s Washington Post entitled “Reverse Mortgages are Not the Next Subprime.”  This excellent article was written by the ”Mortgage Professor,” a Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania (incidentally, my Alma Mater), and clears up much of the confusion and myths and fears surrounding the reverse mortgage.  I encourage all of you to read it.  Another good source of information about reverse mortgages is the Federal Trade Commission Fact Sheet.

As a Certified Elder Law attorney, one of my primary goals is to help preserve the dignity and enhance the lives of my elderly clients.  For many of my clients, remaining in their homes as long as possible is one of their highest priorities.  I have been a long-time fan of reverse mortgages because they help my clients do exactly that — remain in their homes as long as possible. 

Why? Because in order to remain in your home as long as possible, you will most likely at some point need some home care.  “Home Care” can be health care and/or supportive care provided formally in your home by health care professionals (typically referred to as home health aides) or by paid or unpaid family members or friends (typically referred to as caregivers).  Often, the term “home care” is used to mean non-medical care, or custodial care, which may be provided by persons who are not nurses, doctors, or other licensed medical personnel.  The term “home health care” typically refers to care that is provided by a licensed health care professional — most often a Certified Nurse Assistant (CNA).  However, the terms are often used interchangeably, and for simplicity in this article I will use the term “home care” to refer to both types of care.

The goal of home care is typically to to allow you to remain at home and age in place, rather than being forced to move to an assisted living facility or nursing home.  Home Care providers render services in your own home. These services typically include a combination of health care services and life assistance services.
Health care services may include services such as wound care, administration of medication, physical therapy, speech therapy, and occupational therapy.  Life assistance services typically include help with daily tasks such as meal preparation, medication reminders, laundry, light housekeeping, errands, shopping, transportation, companionship, and help with the activities of daily living (ADLs), which typically refers to six activities (bathing, dressing, transferring, using the toilet, eating, and walking).

Although some home care is provided by family members for free, most family caregivers need to be paid, and these payment arrangements should always be made pursuant to a written caregiver contract (prepared by an Elder Law Attorney) between the caregiver and the care recipient.  Because home care is quite expensive, having the proceeds from a reverse mortgage is often one of the  only ways that elders can afford to pay for appropriate home care. According to The 2009 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, the 2009 national average hourly rate for home health aides increased by 5.0% from $20 in 2008 to $21 in 2009. The national average hourly rate for homemaker/companions increased by 5.6% from $18 in 2008 to $19 in 2009.

Most of my clients, when they start out needing home care, will typically start with receiving 4 hours of care 3 days a week, which costs about $1,000 per month and is easily affordable for many people.  But over time, most of my clients progress to the point of needing upwards of 12 hours per day of home care, costing over $7,000 per month, and very few people can afford to pay for this type of care without eventually tapping into their home equity via a reverse mortgage.

The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which completely protects your ability to remain in your home. So long as you pay your property taxes and homeowners insurance, and maintain your property, you can remain in your home forever. If the reverse mortgage lender fails, any unmet payment obligation to the borrower will be assumed by FHA.
According to the Mortgage Professor’s article mentioned in my first paragraph, in 2009 about 130,000 HECMs were written, and feedback from borrowers has been mostly positive. In a 2006 survey of borrowers by AARP, 93% said that their reverse mortgage had a mostly positive effect on their lives.
For many of my clients, a reverse mortgage is the best way, and often the only way, for them to be able to afford to remain at home, despite the fact that reverse mortgages are expensive to obtain.  However, reverse mortgages are not for everyone, as there are other programs that may be able to help you remain in your home.  For instance, many of my clients are eligible for the Veterans Aid and Attendance benefit or for home-based Medicaid, or can be made eligible for these benefits through our process of Asset Protection.

Whether you own your home outright or in a Revocable Living Trust or in my proprietary  Living Trust PlusTM Asset Protection Trust, if you think a reverse mortgage might be the solution you need, please contact me for a free consultation so I can evaluate your specific situation and advise you as to whether a reverse mortgage is your best option for allowing you to live comfortably in your home.


Huge Problem with Reverse Mortgage Industry
Originally Posted May 5, 2010

I Used to Like Reverse Mortgages.
I have, in the past, praised the use of Reverse Mortgages as a way for seniors to pay for Home Care so they don’t need to leave their home and move into a long-term care facility.  See, for example, my January 30th, 2010 blog posting on this subject at:
http://blog.virginiaelderlaw.com/2010/01/using-reverse-mortgages-to-pay-for-home-care/



Now I Don’t.
Unfortunately, I must now retract my praise, as we have lately been running into a huge problem with the reverse mortgage industry.  It seems that most, if not all, reverse mortgage lenders are now routinely second-guessing the legitimacy of every Power of Attorney document (POA) presented for use in connection with obtaining a reverse mortgage, creating an unnecessary and sometimes insurmountable roadblock for elderly clients who are incapacitated and need a reverse mortgage to be able to afford the home care or home modifications necessary to remain at home and age in place.

Here’s Why.
Here’s what’s happened to two of my clients recently, using two different reverse mortgage lenders:  when the Agent under POA tried to commence the reverse mortgage application process, the reverse mortgage lenders refused to honor the POA unless the Agent (1) obtained a letter from the applicant’s doctor or former doctor stating that the applicant was mentally competent when the POA was originally signed (i.e., a ”competency letter”) AND (2) a letter from the applicant’s doctor stating that the applicant is not now mentally competent (i.e., an ”incompetency letter”).

Instead of honoring the well-established legal presumption that all adults are competent to sign legal and contractual documents unless proven otherwise (similar to the legal presumption in criminal law that all persons are innocent unless proven guilty), the leaders of the reverse mortgage industry are taking the law into their own hands and reversing the time-honored presumption of competence by essentially presuming that all reverse mortgage applicants were incompetent at the time of signing their Powers of Attorney, and forcing the families of these now-incompetent applicants to prove that these applicants were competent when they signed their Powers of Attorney, often years prior to ever applying for a reverse mortgage.  Worse yet, the reverse mortgage lenders are acting as judge and jury for these applicants, as the lenders are deciding whether to accept the “competency letter” and the “incompetency letter” from the applicant’s physician, assuming these letters can even be obtained.

When I questioned the loan officer in one of these cases, the reply was as follows: “We have discussed this issue with several of our lenders and they all require a doctors’ letter if we are using a poa where someone is incompetent, no matter their age. They want to make sure the person was competent when they signed the poa, and that the person can no longer handle their financial affairs. I understand you would never allow someone to sign a legal document who wasn’t competent but we sometimes run into poas which were printed off the internet.”

I mentioned this travesty to other elder law attorneys around Virginia and around the country and it seems that this is a universal problem that many seniors across the country are running into.  One attorney shared with me that she checked with a reverse mortgage loan officer who has worked for two different reverse mortgage companies, and was advised that this is the policy with both of these reverse mortgage lenders.   According to this attorney, the loan officer acknowledged that this may take the reverse mortgage tool off the table for many seniors as 1) obtaining the required letters is burdensome and may be costly; 2) doctors are much more willing to render an opinion about  incompetency versus competency; and 3) the legal assumption is competency when signing contractual documents, unless there were red flags or actual knowledge to the contrary.
Why is This Such a Huge Problem?
How does this policy eliminate the reverse mortgage as a tool for many seniors?  Let’s look at a typical scenario — the type of situation I see every day.  Let’s say you’re 85, you’ve just had a major stroke, and you’re no longer able to care for yourself.  You either need a live-in caregiver in order to remain in your home or you need to go into a nursing home.  Before your stroke, you had made it clear to your children that, like most elders, you never wanted to go to a nursing home, but would prefer to live out your life at home, with in-home care as needed.  The problem is you can’t afford a live-in caregiver because your only income is Social Security, and you have no assets other than the equity in your home.

Your daughter, acting as Agent under the POA you gave her 3 years before your stroke, has two options:
Option 1:  Your daughter can sell your home and place you in a nursing home.  This option would be quite simple.  POAs are routinely accepted in connection with the sale of homes, without being questioned and second-guessed by title companies and settlement attorneys or the purchaser’s mortgage lender, so your daughter would have no problem selling your home.  As for admitting you to a nursing home, that’s also no problem  — POAs are used every day to sign admission documents to nursing homes and other long-term care facilities.

Option 2:  Your daughter can take out a reverse mortgage and draw out the equity in your home each month to pay for a live-in caregiver.  Your daughter and all your other children would all prefer to honor your wishes and allow you to remain at home with a live-in caregiver.   But wait . . . your daughter tries to get a reverse mortgage and is met by obstacle after obstacle.  Even though your daughter can easily sell your house and move you into a nursing home using your perfectly valid Power of Attorney, the reverse mortgage lender will NOT accept the POA unless your daughter (1) obtains a letter from your doctor or former doctor stating that you were mentally competent when the POA was originally signed AND (2) obtains a letter from your current doctor stating that you are now incompetent.

Unfortunately, your doctor from 3 years ago (when you signed the POA) died two years ago; no one took over his medical practice, and your old medical records are therefore not available, so there is no doctor who can write a letter stating that you were competent 3 years ago when you signed the POA.  Or maybe you were so healthy that you hadn’t been to a doctor for 5 years prior to your stroke (or maybe you’d never been to a doctor prior to your stroke), so there are no medical records from 3 years ago and therefore no doctor to write a letter stating that you were competent 3 years ago when you signed the POA.

The End Result? 
Because of the arbitrary and capricious roadblocks imposed by the reverse mortgage lender in connection with use of your Power of Attorney, your daughter is forced to choose Option 1 — selling your home and placing you in a nursing home.

In my view, the reverse mortgage industry is effectively shooting itself in its collective foot with this unfair policy, as they are turning away the very people who need a reverse mortgage the most — those frail elders who are unable to care for themselves but wish to remain at home and age in place rather than being forced to sell their home and move into a long-term care facility.

Illegal Discrimination in Lending?
Additionally, in my view, this practice by the reverse mortgage industry constitutes illegal discrimination in lending, as the reverse mortgage industry is essentially discriminating against disabled and incapacitated adults by imposing obstacles that are not imposed on able, competent adults.
Discrimination in mortgage lending is prohibited by the federal Fair Housing Act, and HUD’s Office of Fair Housing and Equal Opportunity actively enforces those provisions of the law. According to HUD, The Fair Housing Act makes it unlawful for a mortgage lender to refuse to make a mortgage loan based on “handicap,” defined as ” a physical or mental impairment which substantially limits one or more of such person’s major life activities.”

What to Do?   Forward This Article and File Complaints.
If you or your loved one has experienced this type of discrimination, I encourage you to visit HUD’s Housing Discrimination Complaint Website and file a ” lending discrimination complaint” – either online, by phone, or via mail.  If you’re a fellow Elder Law Attorney and you’ve had clients who have experienced this type of discrimination, please forward this article to your clients (by either forwarding this article via email or directing them to this article online at: http://blog.virginiaelderlaw.com/2010/05/huge-problem-with-reverse-mortgage-industry) and encourage them to visit HUD’s Housing Discrimination Complaint Website and file a complaint.
If HUD and the reverse mortgage industry start getting enough complaints about this issue, perhaps they will reverse their position so that the reverse mortgage can once again be a useful tool for the elders that need it most.

 Reverse Mortgage Rules Changing Again
Originally Posted September 10, 2010

I’ve written several times over the years on the topic of Reverse Mortgages.  My first article explained the concept and requirements of a Reverse Mortgage and how seniors can use a reverse mortgage.  My second article, entitled Using a Reverse Mortgage to Pay for Home Care, explained how the Reverse Mortgage can be used as a tool to help seniors stay in their homes and age in place.  My most recent article, entitled Huge Problem with Reverse Mortgage Industry, raised a nationwide alarm about how the reverse mortgage industry is “shooting itself in its collective foot” (and, I believe, discriminating against disabled and incapacitated adults) by routinely second-guessing the legitimacy of every power of attorney document and therefore imposing unnecessary obstacles for, and sometimes turning away, the very people who need a reverse mortgage the most — those frail elders who are unable to care for themselves but wish to remain at home and age in place rather than being forced to sell their homes and move into a long-term care facility.  Here’s the link for the ElderLawAnswers article which picked up on my concerns and confirmed the enormous scope of this problem.

Now, having already maimed itself with the power of attorney fiasco, the reverse mortgage industry seems intent on digging its own grave.   According to Stephen Pepe, JD, a Reverse Mortgage Consultant with MetLife Bank, there are big changes coming soon to the HECM Reverse Mortgage programs, changes which for many seniors are going to significantly increase the expenses of obtaining a reverse mortgage after October 4, 2010, while also making the reverse mortgage counseling process “much longer and more involved due to significant changes in HUD’s HECM counseling protocol.”
In an email sent to the members of the National Academy of Elder Law Attorneys, Pepe explained as follows:
“Congress and HUD have made some significant changes to the Home Equity Conversion Mortgage (HECM) reverse mortgage program that take effect on October 4, 2010. These changes impact any applicant that does not have an FHA Case Number assigned to his or her HECM application before that date.”

Specifically, Pepe says that HUD’s ongoing Mortgage Insurance Premium will be increasing from 0.5% to 1.25% (a 150% increase!), and that the size of new HECM reverse mortgages will shrink anywhere from 1% to 5% depending on the applicant’s age.

However, Pepe also points out that homeowners will soon have a second HECM reverse mortgage option, called the “HECM Saver.” According to Pepe, the HECM Saver is a smaller and less expensive reverse mortgage. Under the HECM Saver, a reverse mortgage applicant will gain access to significantly less money, but in return, says Pepe, “HUD will waive its pricey Initial Insurance Premium, saving the applicant up to $12,510 in initial costs.”

Pepe did not mention whether HUD will be waiving or reducing the ongoing Mortgage Insurance Premium, so I’m guessing it won’t be.

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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