Key Changes Tighten Reverse Mortgage Eligibility
Published: Thu, 02/06/14
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Ask the Expert: Your Elder Law Questions Answered by Evan H. Farr, CELA |
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Key Changes Tighten Reverse Mortgage Eligibility
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Q: My mother,
Sally, 62, owns a home in Fairfax that is valued at $500,000 and the amount
owed on her mortgage is still $300,000. When my mother retires in 3 years, the monthly
mortgage payment will be unaffordable for her, but she would still like to
remain in her home. She is considering refinancing
her current conventional mortgage to turn it into a reverse mortgage, but I heard
that some changes have recently gone into effect that may make reverse mortgages
harder to get. Is this true? Also, my
grandpa lost his house when he had to go into a nursing home several years ago
due to Alzheimer's. I understand now
(from reading your website) that we could have protected grandpa's house had we
come to you. But now I'm concerned about
my mom maybe getting Alzheimer's and needing nursing home care. Would a reverse mortgage cause a problem with
getting her eligible for Medicaid?
A. Many homeowners understandably want to remain in their homes as they age because they want to remain independent and because they have spent many years making their home everything they wanted it to be. Reverse mortgages have assisted many senior homeowners over the years to stay in their homes when their financial position changed. A reverse mortgage is a loan for people age 62 or older. It provides money from the equity in your home through a line of credit, monthly payments or a lump sum. It does not require repayment of the loan until you move, sell the property, or pass away, and the homeowner is still responsible for property taxes and insurance. Reverse mortgages were initially developed as a tool to assist individuals to remain in their homes and communities as they grow older, by allowing homeowners to tap their equity without selling their homes. As you mentioned, however, the rules about reverse mortgages recently changed, making them harder to obtain. In August of 2013, the President signed HR 2167 - "The Reverse Mortgage Stabilization Act of 2013" - giving the Federal Housing Administration (FHA) the authority to make necessary changes to the reverse mortgage program. According to the United States Department of Housing and Urban Development (HUD), the changes "reduce their risk and make the program easier for seniors to use responsibly." For the homeowner, the changes will make it harder to qualify for a reverse mortgage, but will provide additional protections. Until now, getting a reverse mortgage loan required no credit history and no minimum income requirement. Due to problems with homeowners failing to maintain their property tax and home insurance payments, starting on January 13, 2014, the FHA began requiring lenders to verify that homeowners have the ability to pay their taxes and insurance and that their credit history demonstrates a commitment to paying obligations. To qualify for a reverse mortgage, lenders now must analyze all income sources -- including pensions, Social Security, IRAs and 401(k) plans -- as well as credit history. They also look closely at how much money is left over after paying typical living expenses. If a lender determines that you are not be able to keep up with property taxes and hazard insurance payments, they are now authorized to set-aside a certain amount of funds from your loan to pay future charges. The amount of the set-aside is based on the life expectancy of the youngest borrower. If set-aside funds run out, you must continue paying property charges using whatever funds are at your disposal. If a lender determines that you have sufficient income left over, then you don't have to worry about having any funds set-aside to pay for future tax and insurance payments. These changes, along with the reduced benefits adopted in September of 2013, mean that many seniors will not qualify for a reverse mortgage to make their homes affordable. Why the new rules? Some seniors who obtained reverse mortgages with rather harsh terms found they were unable to either live off the loan for long or pay it back entirely. The FHA's changes to its reverse mortgage program sets out to encourage homeowners to tap their home's equity slowly and steadily. "What regulators are trying to do is shift behavior so that people are more thoughtful and methodical about how they draw the money," says Peter H. Bell, president of the National Reverse Mortgage Lenders Association. "The changes are intended to put the program back on track and encourage people to take what they need and no more." You also asked if a reverse mortgage might affect Medicaid
eligibility for your mother. The answer
is no. Keeping money in a reverse mortgage line of credit in Virginia, and in
most other states, will not count as a resource for Medicaid eligibility
purposes so long as the house itself is an exempt resource, which it would be
for your mother so long as she is living in the home and receiving home-based
Medicaid services. However, transferring
money from the reverse mortgage line of credit to a bank account and leaving it
there past the end of the month would convert the exempt home equity into a
countable resource and that would make her lose her Medicaid eligibility. This important distinction between countable
resources and exempt assets is not a simple black and white issue -- if you or
your loved one is facing the possible need for long-term care, you should get
an opinion from a Certified
Elder Law Attorney, such as myself. To make an appointment for a no-cost
consultation, please call the Fairfax and
Fredericksburg Medicaid Asset Protection Law Firm of Evan H. Farr, P.C. at 703-691-1888 in Fairfax or 540-479-1435 in Fredericksburg.
----- Critter Corner: When Grandpa Needs a Cell-Phone
 Dear Ernie and Jannette, My grandpa, Hal, is 83 and still driving and participating in social activities. He lives alone and I worry about him often, and wish he had a cell phone. When I mention it to him, he reminds me that he has a difficult time hearing over the phone, and that his vision and memory aren't what they used to be. He doesn't think they make a phone for someone like him. His 84th birthday is next month and I'd like to purchase a phone for him. Is there an age-friendly phone out there that would be ideal for him? Rich Ingham ------ Dear Rich, There are many age-friendly phones on the market today that can help seniors, such as your grandfather, with challenges such as hearing loss, low vision, and memory problems.
Another option you should check into is state-funded specialized telecommunications equipment programs, which are available in 47 states, including Virginia. If your grandfather's state has a program, you may be able to get him an amplified telephone for free. Check with his local telephone company or visit tedpa.org to find out what his state offers. If you or your grandpa have not done Long-Term Care Planning, Estate Planning or Incapacity Planning (or had your Planning documents reviewed in the past several years), one number you might want to add to your contact list is the Fairfax and Fredericksburg Elder Law Firm of Evan H. Farr, P.C. Please call us at our Virginia Elder Law Fairfax office at 703-691-1888 or at our Virginia Elder Law Fredericksburg office at 540-479-1435 to make an appointment for a no-cost consultation. About Ernie and Jannette: African dwarf frogs Ernie and Jannette have lived at The Farr Law Firm for about two years, and they belong to Evan and Jeannie Farr. They reside on Jeannie's desk, and love socializing with the other pets and greeting all of the clients that come to the firm. |
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