Recession put clamps on reverse mortgages

A USEFUL TOOL: The reverse mortgage can make a real difference in the quality of life for an elderly person, says attorney Kevin Hackman, speaking with associate Elizabeth Phillips at Elder Law RI LLC, but it must be understood so that there are no surprises. / PBN PHOTO/ MICHAEL SALERNO
A USEFUL TOOL: The reverse mortgage can make a real difference in the quality of life for an elderly person, says attorney Kevin Hackman, speaking with associate Elizabeth Phillips at Elder Law RI LLC, but it must be understood so that there are no surprises. / PBN PHOTO/ MICHAEL SALERNO

Kevin Hackman, an elder law attorney in Warwick, says he has about a dozen clients a year interested in reverse mortgages, only half of whom actually follow through and get one.
“The reluctance is, they’re tapping into the equity in the home, and they want to leave whatever they can for children,” said Hackman, a partner with Elder Law RI LLC. “But I’m seeing a very useful way of providing for long-term care costs [which are] just going through the roof.”
Processing of reverse mortgages may have slowed recently, but financial and legal advisers, lenders and a national trade group specialist say using reverse mortgages is not only possible but also helpful to homeowners and family members who act cautiously and are well informed. The basic concept is that the homeowner receives payments from the reverse-mortgage holder based on the equity of the home, with the loan being paid off when the homeowner sells or dies.
Despite the clear advantages they bring to an older homeowner, Rhode Island housing and social service officials say they must be handled with care. “Reverse mortgages can be very helpful, but they are a complex financial tool,” said Sandra Powell, director of the R.I. Department of Human Services, which oversees the division of Elderly Affairs.
In fact, while a homeowner who takes out a reverse mortgage may have discovered a new income stream, that person may die, leaving property to heirs that has lost its value, acknowledges Peter Bell, president and CEO of the Washington, D.C.-based National Reverse Mortgage Lenders Association. His trade group has about 311 members, he said.
Bell worked as a housing-policy analyst representing the affordable housing industry for nearly 40 years before being tapped to lead the association in the mid-1990s and bring more legitimacy to the mortgage tool. The U.S. Dept. of Housing and Urban Development insures a type of reverse mortgage called a “HECM” – short for “home-equity conversion mortgage.”
Rhode Island has had a reverse-mortgage statute since 1986, said Powell and Paula Parker, assistant director of the R.I. Division of Elderly Affairs. With more baby boomers reaching retirement age and the popularity of reverse mortgages, the statute was amended in 2008 to provide disclosure and financial counseling requirements so that seniors would have more information before making a decision, they said. Rhode Island enacted the 2008 law to better protect the homeowner, in part, to address concerns about closing costs being higher than expected or unreasonable, they said. The law requires full financial disclosure and counseling, so that the individual understands the costs and understands it is a loan that has to be repaid, they added.
There is a three-day waiting period during which potential borrowers can change their minds. And lenders cannot use proceeds for an annuity or long-term care insurance, they said.
“We were anticipating a significant surge, which is why we wanted safeguards in place,” said Powell. “After 2008, there was a reversal, and the market pretty much dried up, and there was virtually no activity in reverse mortgages. [Today,] it’s very occasional.”
Before 2011, Powell said, while the DEA never counseled seniors on reverse mortgages, they could refer them to one of seven approved federal counselors. Now, instead, the state refers people to the toll-free number at HUD, (800) 569-4287 or to the Rhode Island Bar Association’s Legal Information & Referral Service for the Elderly, which provides counseling for up to 30 minutes free.
“We try to do that if they’re further along in [the process],” Powell said.
Rhode Island Housing, which helps Rhode Islanders rent, buy and retain homes, hasn’t processed reverse mortgages since 2010. In fact, while the agency retained the ability to originate reverse mortgages through Seattle Mortgage Company, later bought out by Bank of America Corp., as a HUD-endorsed lender up until 2010, Rhode Island Housing had processed very few such mortgages since 2004, said Assistant Deputy Director Michael Milito.
In 2010, HUD “changed rules on what to do to become a counselor,” Milito said, so since the agency had not been doing “significant volume, it didn’t make sense from a business point of view [to continue],” he said.
Rhode Island Housing had done 90 such mortgages in 2004, but in 2008 only had originated 29; by 2009 the number had dropped to three, he said.
“We do believe that the HECM that is HUD-insured is a good product for folks who have been adequately counseled,” said Milito. So when might a HUD HECM reverse mortgage make sense?
The national association has a list (www.reversemortgage.org/About/25WaystoUseaHECM.aspx) of 25 possible ways in which using it could benefit the homeowner. These include paying off your mortgage to reduce monthly expenses, paying for long-term care needs or helping an adult child through a family emergency.
Hackman sees the value in providing help with health costs, in particular when the cost of home health care at $20 or more an hour is a “big chunk” to come out of a fixed income.
“I still like reverse mortgages for a number of my senior clients,” he said. “It supplements monthly income, helps them pay for medical expenses and fuel costs – it definitely is an option. The advantage is the senior is able to stay home and still get assistance where needed and they can … pay for it.”
Richard Lepine, president of Lepine Financial Advisors in Cumberland, has 450 clients, none of whom has expressed interest in reverse mortgages. Yet, he thinks the tool, when used properly can be a benefit. He has advised acquaintances on the subject, for whom it has worked out well, including a widow who successfully used a reverse mortgage to enable her to afford to stay in her home when her income had diminished, Lepine said.
Her mortgage had been paid off, she didn’t have much family to leave the property to, and her pension, savings and social security were small.
“The key factor here is, it’s not a one-size fits all solution,” he said. “It has to be specific to the person.”
Hackman for his part, also expressed concern about elder abuse that takes the form of a friend or relative manipulating the reverse-mortgage holder into lending out the money for purposes other than taking care of themselves. He would like to see federal or state legislation that requires the loans to be monitored in a way that protects the mortgage holders, he said.
If the Division of Elderly Affairs Protective Services Unit receives a report of financial exploitation involving reverse mortgages, the matter is referred to the Elder Abuse Protection Unit of the Rhode Island Department of Attorney General for possible prosecution, Powell and Parker said. •

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