Reverse Mortgage - What You Need to Know from A Massachusetts Elder Law Attorney

Posted on August 4, 2008 by John Gosselin
Reverse Mortgage: Gimmick or Good Deal?

Today, several of the new skin products being marketed tout that they can reverse the signs of aging. They make claims that they can remove wrinkles or increase energy or improve memory. I don't know if any of these products can deliver on their claims. But for seniors 62-years-old or older who own (or almost own) the home they live in, there is a way to reverse one thing in their lives, the mortgage on their homes.

How? In a typical mortgage, a home owner pays the bank a monthly amortized amount. In a reverse mortgage, a home owner pays the bank a monthly amortized amount. Does this sound too good to be true? Is this another anti-aging product gimmick? It's not. For many seniors, a reverse mortgage is a sound financial planning tool, and according to Brett Kirkpatrick of Mortgage Financial Services , "A reverse mortgage might be the ideal option for seniors to maintain their financial independence."

Some Reverse Mortgage History

Reverse mortgages have been available in the United States since 1961 but with considerable variation from one region of the country to another. In 1991 the Federal government expanded its insurance of reverse mortgages, thereby increasing availability across the map. With the rising cost of healthcare, unanticipated increases in inflation, pension plans going under and the unpredictable nature of Social Security, more seniors are looking towards their houses for the cash they need.

In fact, as property values have risen, a number of seniors who took out reverse mortgage loans years ago are returning for second and even third reverse mortgages to harvest the additional equity that has built up in their homes. "Most senior homeowners just want to remain comfortable in their own home." states Ed Barrett, a reverse mortgage expert from Your Home for Life in Westwood, Mass. "With the rising costs of everything today, that is becoming harder and harder to do. Now, with the federally insured reverse mortgage, there is a new option available that really provides for financial security and peace of mind. It really can be 'Your Home For Life'." According to the Federal Housing Administration, which insures most reverse mortgages, by September of 2005, homeowners had taken out about 43,000 reverse mortgages, up from about 37,800 the year before and from 7,700 in 2001. The demand continues to rise with 56% more loans taken out in the first quarter of 2006 than in 2005.

The Ins & Outs of Reverse Mortgages

To qualify for a reverse mortgage, at least one person on the home's title must be 62 years old, the home must be the owner's primary residence (i.e., the homeowner must actually live in the home) and the home must be owned outright or the reverse mortgage loan must be used to pay off the outstanding mortgage balance.

The Federal reverse mortgage loan program has a cap on the size of the mortgage loan it provides, so for those seeking amounts in excess of the Federal limits, state programs and private lenders are a better choice. For both Federal and state programs, there may be restrictions on the types of residences that qualify. For example, under the Federal program condos are eligible, but shareholder-owned cooperatives are not. In Massachusetts, SFR, MFR (1-4 units), Condo's, and HUD-approved manufactured housing are all eligible. Loans generally are written for no more than one-half to two-thirds the value of a home and even if the value of the home changes while the loan is outstanding, the borrower only owes the amount of the loan. The repayment amount can never exceed the value of the home. In fact, under the Federal program, the government makes up the deficiency, if any, to the lending institution, and while Private Placement programs are not insured, all are "non-recourse".

The borrower decides how to receive the loan money. There are four payment options: (1) an up-front lump sum payment; (2) a line of credit; (3) fixed monthly payments; and (4) a combination of a line of credit and fixed monthly payments. With any of these options there are fees and costs, but many of these are the same fees and costs that would be incurred with any loan. For example, there is an origination fee, an up-front mortgage insurance fee, an appraisal fee, and standard closing costs. As far as Uncle Sam is concerned, the money received from a reverse mortgage is not taxable as income, regardless of the way the money is paid. Likewise, many states do not consider reverse mortgages as income. They are not count ed as disqualifying resources for most Federal and state public assistance programs.

A reverse mortgage must be carefully evaluated as it is more complex than other secured loans (like home equity loans, for example). It is suggested that seniors considering one seek the advice of a legal, tax or financial advisor. In fact, the law requires that seniors receive counseling before they obtain a loan. Typically, such counseling covers budgeting and general financial planning, as well as the tax implications and Medicaid/public assistance ramifications. The AARP, Fannie Mae and HUD are three agencies that provide counselor referrals. As previously mentioned, reverse mortgage loans contain fees and costs. However, the fees and costs are low and are not paid out of pocket or up front. They are added to the total loan amount along with the interest, and are paid when the loan's term expires. If a borrower's reverse mortgage is structured as monthly payments "for life", his or her estate may end up paying off the loan.

The Federal reverse mortgage program assumes a life expectancy of 100 years, thus, monthly payments may be lower for seniors closer to age 62 than for those nearer to 100. The life expectancy assumed by Massachusetts, as well as for all other programs is 100 years. One thing about reverse mortgages that seems to worry most seniors is that having a reverse mortgage loan will prevent their children and grandchildren from inheriting their home.

Seniors who want to ensure that their heirs are provided for could take advantage of the new transfer rules under the Deficit Reduction Act of 2005 (passed in 2006) which allows, among other things, transfers made five years before their application for Medicaid to be outside the "look-back period". Being outside the "look-back period" means that the seniors will not be penalized for the transfer. For example, if a senior gives some of her savings and investments to her grandchildren five years before she needs Medicaid, she qualify immediately, provided of course, that she is careful not to make it seem like the transfer was made for the sole purpose of qualifying. Even if seniors do not take advantage of the new transfer rules, the rising costs of real estate should protect the home for their heirs, who can sell the house and use the proceeds to pay off the reverse mortgage note and keep the profit. In fact under the Deficit Reduction Act, seniors with more mortgage on their home may fair better (in some circumstances) that those who have higher equity.

The new law's limit of $500,000 on home equity (which can be increased up to $750,000 at state option) may well mean that seniors owning homes with greater equity could risk not qualifying for Medicaid coverage. If the equity is tapped using a reverse mortgage loan,  seniors may be sheltered from disqualification.

Because You Were Curious: Other Home Equity Conversion Mechanisms The desire of seniors to utilize the value of their homes' equity, while continuing to live in their homes has led to banks offering various other home equity conversion mechanisms in addition to reverse mortgages. Home equity loans, sale-leasebacks and financial arrangements in which seniors retain a life interest in the home while selling the remainder interest are other options for seniors to harness the equity in their homes. However, none of these are as beneficial to seniors or are as easy to obtain as a reverse mortgage.

For example, most home equity loans require that the borrower demonstrate a dependable source of income that can support monthly re-payment obligations. As a result, most seniors in retirement are not likely to have the income that is necessary to obtain a home equity loan. In a sale-leaseback (where the home is sold and then simultaneously leased back to the person for life) or a sale of a remainder interest transaction (where the homeowner retains a life estate in the home while selling the remainder interest) a major concern, in each of these transactions, is that it may be difficult to find a suitable buyer who is willing to buy the home subject to the sort of leasehold restrictions that an older homeowner requires. In sale-leaseback and remainder interest transactions, there are also tax and public assistance issues that may not make these viable options for seniors.

Reverse Mortgage in Summary

A reverse mortgage is a financial planning tool that is increasingly being used by senior homeowners from all walks of life. They are an attractive option that allows seniors across the economic spectrum to have more cash by increasing the liquidity of an asset that most do not think of as liquid, a home. According to Ed Barrett of Your Home For Life, "Reverses offer a better quality of life for those who need more cash flow than offered by a pension or social security benefits and enable much needed repairs to your home to be made, all without making a single monthly payment," and while reverse mortgages can't remove wrinkles, increase energy or improve memory, they do help seniors lead a richer and more rewarding life.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Reverse Mortgage - Forward Thinking

Posted on June 28, 2008 by John Gosselin
Reverse mortgage lenders, the elder law bar and the public did not get off on the right foot when reverse mortgages became generally available. There were many confusing features to the initial loans and the government and banks did little to help borrowers understand their transactions. Reverse mortgages became known as the estate planning tool of last resort for truly financially needy elders. The elder law bar was hesitant to recommend reverse mortgages, estate planning lawyers put their heads in the sand and real estate lawyers, at least many of the real estate lawyers in Massachusetts that my law firm deals with, were completely in the dark on the workings and benefits of reverse mortgages. So what has changed? In a word, education.

The reverse mortgage industry made it their mission to educate the market place, not only consumers but also lenders about the powerful benefits of reverse mortgages. As with any schooling it takes time. Sometimes you take the wrong class or get a bad professor, but if you stick to it great things can happen. That is the case with reverse mortgages. Lawyers, geriatric care managers, lenders, borrowers and other interested parties are now coming to see the place for reverse mortgages in elder law planning. To me the key benefit of reverse mortgages is their ability to create peace of mind through financial independence. So there has been education; why else have reverse mortgages suddenly emerged as a viable planning tool for older estate planning clients? Life is expensive, particularly in states like Massachusetts where we seldom see a purchase and sale agreement for less than $400,000. As the population ages and the housing market remains strong (yes, it is still very strong by historical measures - in the Boston area real estate is still considerably overpriced when taking all other aspects of the cost of living into account,) elders have more month than they have monthly income.

Most reverse mortgages are used to convert home equity into a replacement for insufficient income. When you look deeper the net effect of reverse mortgages is that more elders can stay in their own homes longer, more elders are able to afford home care services and more elders have the sense of financial freedom that only comes from knowing that there is money in the bank. What's not to love about reverse mortgages? Well, real estate brokers in Massachusetts don't like reverse mortgages - they slow down the transaction pace and change the traditional marketing cycle of listing elders' homes when they can no longer afford them. The assisted living industry doesn't like reverse mortgages. How could they? They depend on elders giving up their old homes in return for 3 squares and a cot at their local "Happy Garden Loving Home for Golden Years on Smiling Hill Assisted Living and Schmaltz Factory." I found this primer on reverse mortgages useful, not only for my elder law colleagues that follow the blog, but also for the general public that wants to more about the basic mechanics of reverse mortgages. Just remember that reverse mortgage laws can vary by state and also it is a good idea to consult an elder law lawyer in Massachusetts or your state before proceeding with a reverse mortgage or any estate plan or real estate transaction.

Reverse Mortgage Loans For many seniors the equity in their home is their largest single asset, yet it is unavailable to use unless they use a conventional home-equity loan. But a conventional loan really doesn't free up the equity because the money has to be paid back with interest. A reverse mortgage is a risk-free way of tapping into home equity without creating monthly payments and without requiring the money to be paid back during a person's lifetime. Instead of making payments the cash flow is reversed and the senior receives payments from the bank. Thus the title "reverse mortgage". Many seniors are finding they can use a reverse mortgage to pay off an existing conventional mortgage, to create money for a down payment for a second home or to pay off debt. Popularity is skyrocketing. Over the last five years the number of reverse mortgages nationwide has tripled. The uses of this untapped wealth are only limited by a person's imagination. For those seniors who earn low incomes but own a home, a reverse mortgage can allow them to remain in the home by creating extra income. It can also allow for remodeling or repairs and when the time comes to sell, the investment in the home can make it more valuable. False Beliefs about Reverse Mortgages "The lender could take my house." The homeowner retains full ownership. The Reverse Mortgage is just like any other mortgage; you own the title and the bank holds a lien. You can pay it off anytime you like. "I can be thrown out of my own home." Homeowners can stay in the home as long as they live, with no payment requirement. "I could end up owing more than my house is worth." The homeowner can never owe more than the value of the home at the time the loan is due. "My heirs will be against it." Experience demonstrates heirs are in favor of Reverse Mortgages.

Virtually anyone can qualify. You must be at least 62, own and live in, as a primary residence, a home [1-4 family residence, condominium, co-op, permanent mobile home, or manufactured home] in order to qualify for a reverse mortgage. There are no income, asset or credit requirements. It is the easiest loan to qualify for. A reverse mortgage is similar to a conventional mortgage. As an example: The bank does not own the home but owns a lien on the property just as with any other mortgage You continue to hold title to the property as with any other mortgage The bank has no recourse to demand payment from any family member if there is not enough equity to cover paying off the loan There is no penalty to pay off the mortgage early When the loan becomes due, you can refinance and keep the house. The proceeds from a reverse mortgage are tax-free and can be used for any legal purpose you wish: daily living expenses home repairs and improvements medical bills and prescription drugs pay-off of existing debts education, travel long-term care and/or long-term care insurance financial and estate tax plans gifts and trusts to purchase life insurance or any other needs you may have. The amount of reverse mortgage benefit for which you may qualify, will depend on your age at the time you apply for the loan, the reverse mortgage program you choose, the value of your home, current interest rates, and for some products, where you live. As a general rule, the older you are and the greater your equity, the larger the reverse mortgage benefit will be (up to certain limits, in some cases). The reverse mortgage must pay off any outstanding liens against your property before you can withdraw additional funds. The loan is not due and payable until the borrower no longer occupies the home as a principal residence (i.e. the borrower sells, moves out permanently or passes away). At that time, the balance of borrowed funds is due and payable, all additional equity in the property belongs to the owners or their beneficiaries. If the heirs want to keep the home with the additional equity, they can refinance with a conventional loan. There are three reverse mortgage loan products available, the FHA - HECM (Home Equity Conversion Mortgage), Fannie Mae - HomeKeeper®, and the Cash Account programs. Over 90% of all reverse mortgages are HECM contracts. The costs associated with getting a reverse mortgage are similar to those with a conventional mortgage, such as the origination fee, appraisal and inspection fees, title policy, mortgage insurance and other normal closing costs. With a reverse mortgage, all of these costs will be financed as part of the mortgage prior to your withdrawal of additional funds. You must participate in an independent Credit Counseling session with an FHA-approved counselor early in the application process for a reverse mortgage. The counselor's job is to educate you about all of your mortgage options. This counseling session is at no cost to the borrower and can be done in person or, more typically, over the telephone. After completing this counseling, you will receive a Counseling Certificate in the mail which must be included as part of the reverse mortgage application. You can choose 3 options to receive the money from a reverse mortgage: 1) all at once (lump sum); 2) fixed monthly payments (for up to life); 3) a line of credit; or a combination of a line of credit and monthly payments. The most popular option, chosen by more than 60 percent of borrowers, is the line of credit, which allows you to draw on the loan proceeds at any time. The line of credit also earns interest which in essence is allowing the equity in the home to grow.

For example $120,000 in a line of credit earning 5% would be worth almost 200,$000 10 years from now. Keeping money in a reverse mortgage line of credit in most states will not count as an asset for Medicaid eligibility as this would be considered a loan and not a resource for Medicaid spend down. In other words, keeping the money in the line of credit will not disqualify you from becoming Medicaid eligible. However, transferring the money to an investment or to a bank account would represent an asset and would trigger a spend down requirement and delay eligibility. Please note however that distinguishing between what portion of reverse mortgage proceeds might be counted as a loan and what portion as an asset is not a simple black and white decision. It is best to get an opinion from an elder attorney in your state.

If a senior homeowner chooses to repay any portion of the interest accruing against his borrowed funds, the payment of this interest may be deductible (just as any mortgage interest may be). A reverse mortgage loan will be available to a senior homeowner to draw upon for as long as that person lives in the home. And, in some cases, the lender increases the total amount of the line of credit over time (unlike a traditional Home Equity Line where the credit limit is established at origination). If a senior homeowner stays in the property until he or she dies, his or her estate valuation will be reduced by the amount of the debt. At the death of the last borrower or the sale of the home, the loan is repaid from equity in the home. Any remaining equity (which is often the case) goes to the heirs. Almost all reverse mortgages are the HECM loan which is guaranteed by FHA mortgage insurance. If there is not enough equity to cover the loan, the insurance satisfies the loan by paying the deficit. With a HECM loan, the bank will never come after the heirs to satisfy the mortgage obligation. Good resources for reverse mortgage information are AARP, the Ed Barrett at Your Home for Life mortgage company (781-329-6644) and the National Reverse Mortgage Lenders Association.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , ,

Reverse Mortgage - When New Reverse Mortgage Products Are A Bad Thing

Posted on June 27, 2008 by John Gosselin
Have you heard of the new reverse mortgage product? Borrowers can be any age, borrow up to 100% of their equity and can get a fixed rate with no closing costs on a reverse mortgage (and it pays 4 points to the mortgage company!) - Just kidding!

New reverse mortgage products are popping up daily from lenders of all stripes. It's almost like reverse mortgages are the new sexy product category of the mortgage industry - like sub-prime loans were in the past decade. We know where that got us.

But is the market large enough to absorb all these new products? Despite being cool variations of the reverse mortgage theme - such as going to 60 year old (and younger!) borrowers, fixing rates, tying rates to any manner of indexes and making closing costs appear to be lower, the new reverse mortgage products appear to be driven more by a need for marketing than actual innovation. So, elders who are confused enough already about the prospect of taking out a reverse mortgage on their homes, now have to wrestle with the dozens of variations that the reverse mortgage originator can put on the table.

I am all for innovation in the reverse mortgage industry, but I really don't believe that the wholesale mortgage industry is on the right track with creating a myriad of new products. It seems that they are only sending out new product slicks to get the attention of reverse mortgage brokers. This will only invite reverse mortgage abuses. We have seen this pattern so many times before. Wholesalers just make new packaging for good core products - perverting the good with the ugly.

This is not going to work with reverse mortgages. If wholesalers want to increase market share they should do it through marketing support and education. They should make their brokers experts in selling reverse mortgages - not motivated strictly by mortgage sales commissions - but by providing great service to their clients and their communities.

Not every mortgage company should sell reverse mortgages. Reverse mortgages are a specialty product. Reverse mortgages require educated consultative sales people. Yes, they need to be well equipped, but the trend towards more and more aggressive underwriting and riskier variations on reverse mortgages will only backfire on the uninitiated. Our law firm is focused on the education and co-marketing of reverse mortgages to the elder community. We are not interested in selling reverse mortgages, only presenting them and helping elders decide if it is a good fit.

Tags: , , , , , , , , , , , , , , , , , , , , , , ,

Using Reverse Mortgages in Complex Estate Planning - What Elder Homeowners Need to Know

Posted on June 27, 2008 by John Gosselin

Reverse mortgages are not just for poor people anymore. I am tired of hearing about reverse mortgages - in the past six months it's as if someone flipped a switch to turn up the noise, not necessarily the quality, of the messaging to elders about reverse mortgages.  

In my practice as an estate planner in Massachusetts I am often called upon to "get creative" on behalf of clients. As one of only a few true legal experts in the reverse mortgage industry, my creativity often opens the discussion with clients about complex uses of reverse mortgages in estate planning.

 I have developed several methods to leverage the equity value of a client's house to enhance either the economic benefit or overall personal security of clients. To explain the concepts in shorthand, Gosselin Law claims a servicemark on the shorthand names of many of our approaches. Here are examples of somewhat magical things that can be done with reverse mortgages as an estate planning tool.

GOLDEN TRIANGLE(sm). The Golden Triangle demonstrates to elders looking to plan for long term care how to use the reverse mortgage as a tool for closing the five year gap provided under the new Medicaid laws. It is a triangle as there is an estate plan, a long term care plan and a reverse mortgage plan coming together to provide for both current and future long term care needs. Here's how it works:

Mary, a 77 year old widow in Boston, has lived in her own home for over 40 years. This is the house that sheltered her family, where her dear husband passed and where she intends to stay until the very end. Although Mary has a good pension from the Commonwealth of Massachusetts, Social Security and adequate short term savings,  Mary is concerned that if she needed long term medical care that she could not afford to remain in her home or pay for a nursing home. Mary also wants to provide as much for her family upon her death as possible; after all she and her husband both worked hard to be able to leave something for their three children.

Mary's good health and family history of longevity helps indicate that Mary will likely grow to be very old. Her home is valued at $450,000 in today's real estate market. Based on her age, current interest rates and the property's values, Mary's HECM line of credit will be about $280,000 at closing. Mary qualifies for long term care insurance, but she feels that the $5,000 annual premium, although vitally important to her ability to remain in her home, is too much to pay on her fixed income. As many elder law lawyer advised her to  transfer the house to avoid exposure to a Medicaid lien - but every technique available requires a 5 year waiting period before she would be elegible for Medicaid.  At 77, Mary could live 15, 20 years or even longer - so even with her fixed income and ongoing inflation, she will no longer be able to afford to stay in her home in the not so distant future.

By securing a HECM reverse mortgage line of credit or similar reverse mortgage product, Mary will enable herself to have access to both a current and ready pool of cash, but also an appreciating line of credit that will be available to her for the rest of her life. Using a $5,000 per year draw, Mary will be able to buy the "Cadillac" of long term care insurance (including extensive home care benefits and high benefit limits) which will also serve to exempt her house from Medicaid liens immediately, without waiting for five years. At the same time, Mary's estate planning will have time to season. After five years, Mary will have had the peace of mind in the form of long term care insurance, lifetime financial security, and in her ever increasing available HECM cash and a now permanent estate plan to carry out her wishes. A Golden Triangle, indeed.

An interesting variation on the reverse mortgage that could work well in the Golden Triangle is the "Retirement Mortgage" from Virgin Money. Essentially a child acts as the reverse mortgage lender, documents the transaction as a loan to ensure that he or she is repaid before any other siblings at the time of the elder's death. I am a big proponent of Virgin Money (full disclosure is that I am working with Virgin Money in developing new and exciting products for the US market), on the principle that families should be helping each other first before turning to often high cost products from the financial services community. 

SNOWBIRD(sm). In the Snowbird(sm) we show reverse mortgage companies how to prospect with sunbelt real estate agents to facilitate the purchase of properties with reverse mortgages, primary residences can be obtained with a reverse mortgage purchase money mortgage, and secondary residence by using a reverse mortgage leveraged primary residence in Massachusetts as collateral for the real estate purchase. Similarly, we show elder homeowners how to conserve cash by using reverse mortgages as purchase money mortgages. Here's an example:

Bob and Cathy, 70 and 68 respectively, haved lived in their lovely 4 bedroom home in Newton for over 30 years. Now retired, Bob and Cathy enjoy playing golf, sailing and visiting with their two children and their families (who both live in the Greater Boston area). As much as they enjoy the New England seasons, they enjoy spending the Winter and long weekends in Florida. They have made many new friends and enjoy the Florida lifestyle, especially in the Clearwater Beach area.

Financially, Bob and Cathy have not fared too well. Bob worked for Polaroid for over 30 years, but because of its collapse, his pension benefits and stock savings (all in Polaroid stock) are meager at best. Bob continues to work part time at The Country Club in Brookline, which also gets him some free time on the greens. Cathy never worked outside the home, but has been doing quite well organizing Ebay sales for her friends and neighbors looking to downsize their homes. The thought of doing this at this point in her life brings Cathy to tears, but she and Bob agree that they would enjoy having a place in Florida during their healthy retirement years.

Based on Bob and Cathy's ages, current interest rates and the $800,000 value of their Newton home, they could borrow approximately $425,000 in reverse mortgage cash. They could draw it all at the closing or take some in a lump sum and leave rest to be available for future withdrawals. Bob and Cathy would very much like to purchase a $200,000 condominium in Clearwater Beach condominiums, not far from their favorite public golf course.

By taking out a reverse mortgage as above, Bob and Cathy will have the best of all worlds. They will have the cash they need to buy the Florida condominium outright (and enjoy its appreciation throughout their retirement), a financial cushion in the form of the remaining credit line on their Newton home, and most importantly, will be able to keep and enjoy their home. Of course, interest will acrrue on their borrowings, but between the expected appreciation of the Florida property and the value they place on the two-home lifestyle, Bob and Cathy will have it all in retirement thanks to the Snowbird.

ROBINHOOD(sm). The Robinhood(sm) guides more sophisticated and larger property value elders on the use of asset leverage by using other financial products, especially second to die life insurance. In simple terms, the reverse mortgage is used to pay premiums and the actuarial analysis results in a positive arbitrage for the reverse mortgage borrower. Here's a simple example to ilustrate the idea:

Mike and Sheila enjoy financial security by anyone's measure. Mike, recently turned 65, and Sheila, 66, just sold their successful software company to a larger competitor - realizing over $10 million in restricted stock in the buyer from the sale. Adding that to their $2 million primary residence in Brookline, $3 million Nantucket home and $5 million in other savings, mainly in qualified retirement plans, Mike and Sheila will pass a large estate on to their five children. Or, will they only fill the coffers of the US Treasury? Based on a $20 million estate, Mike and Sheila's estate planning attorney showed them a potential estate tax of over $6 million if they were to die this year.

If we were their attorneys, we would suggest setting up an irrevocable life insurance trust (ILIT) to hold a survivorship (second to die) life insurance policy. As wealthy as they may seem, Mike and Sheila lack sufficient liquidity to commit to a relatively large insurance premium, although the arbitrage on the numbers clearly show the economic benefit of establishing such an estate plan while they are young and healthy. The solution? A reverse mortgage, either on a line of credit basis where premiums are paid annually or a lump sum cash account where Mike and Sheila can purchase their life insurance (through the ILIT) with a single premium.

By using the reverse mortgage to pay the life insurance premium, Mike and Sheila will get the liquidity they need without running afoul of income tax rules or using restricted or otherwise inaccessible assets to pay for the needed life insurance. Upon the second of Mike and Sheila's death, the overall estate will be liquidated and the reverse mortgage paid in full with part of the cash proceeds of the life insurance policy, the balance to be used for paying estate taxes or direct bequests to their family. Based on a sophisticated side-by-side analysis of their reverse mortgage projections and life insurance guarantees, Mike and Sheila can make an educated arbitrage decision without significant risk of economic loss.

We are not licensed to provide insurance or loan products and any decision to proceed with any of these advanced reverse mortgage plans requires you to work with your trusted advisors. But, Gosselin Law can help our clients evaluate various complex uses of insurance and mortgage tools, as well as suggest reliable sales organizations

Gosselin Law is one of the only elder law firms in the country with a reverse mortgage specialty practice. We can assist homeowners in the states where we are licensed or associated with local counsel with the planning of reverse mortgages, coordination of federal benefits with reverse mortgage loan proceeds and gerneral asset protection and estate planning.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Mortgage Originator Licensing in Massachusetts

Posted on January 7, 2008 by John Gosselin

In the past several weeks I have met with several mortgage loan originators to discuss the next thing in the mortgage industry - mortgage financial planning. Whether born of the mortgage market meltdown, the rise of reverse mortgages or simply all the free time that mortgage loan originators are finding themselves with, there is a new phenomenon of the lowly mortgage salesperson becoming a quasi professional giving potential borrowers all sorts of advice about mortgage loan products.

There are weekend seminars that give you "certification", online courses to become a "diplomate" (I did not make that one up), and any number of in-house training programs. In an ever consolidating industry so narrowly focused on mortgage rates, The goal is for mortgage originators to distinguish themselves on the basis of service and added value.

Being a specialist or planner means using the mortgage as an integrated component of the financial plan rather than just a mere loan. Timing payments, tracking benchmark rates, coordinating debt with equity investments, putting estate and tax planning in the big picture and elevating the message that a mortgage is as important a financial services product as life insurance, mutual funds and bonds.

When I refer clients for mortgage services I only look for those loan orginators that are the real pros - like most businesses there are far too many "posers" that merely take orders and smile. You can find links on the Law for Life blog to some of the lenders that we work with regularly and know that they can deliver what they promise.

Kevin Clark from Clark Mortgage Consulting (he's part of the PHH Mortgage empire) is one those originators that "gets it" when it comes to mortgage planning. Kevin has obtained the CMPS (Certified Mortgage Planning Specialist) designation which seems to be the most complete review and training for full service mortgage originators (www.cmpsinstitute.org). Kevin is a thorough and competent professional that fits the right product to each borrower.

Likewise, in the reverse mortgage world, Ed Barrett of Your Home for Life (www.yourhomeforlife.com) is the best reverse mortgage originator in Massachusetts. He is active in the National Reverse Mortgage Lenders Association's (www.nrmla.org) professional development efforts and puts more effort than anyone into perfecting his knowledge of reverse mortgages.

So, all this talk of professional accreditation and education makes the 800lb gorrilla in the corner speak up a little. What 800lb gorrilla? Licensing, of course. Currently Massachusetts licenses mortgage lenders and brokers as sort of "junior banks" with a fair amount of oversight and restrictions, but there are no licenses for individual loan originators. None. Zilch. Nada. Want to be a loan originator? All you need is a friend in the business with a license and 3 days to wait for VistaPrint to send your box of cards.

Like any maturing industry mortgage origination in Massachusetts has come to its time of reckoning. Frankly, with loan originators leaving the industry in droves because of low mortgage loan volumes, those mortgage originators staying in the business are the "survivors" and really those that should embrace licensing as a way to protect their stock in trade. Licensing leads to regulatory oversight, continuing education and professional recognition for mortgage originators.

On the con side, the Commonwealth of Massachusetts has done a poor job overseeing real estate salespersons and real estate brokers in Massachusetts. It is quite difficult for a consumer to get heard in their complaint and few real estate agents are subjected to any meaningful discipline in any given year. You can read more about my position on this issue in my Boston Magazine interview from a few years back here: http://www.bostonmagazine.com/home/articles/double_agents/

I favor mortgage originator licensing in Massachusetts if it is acheived by communication with industry leaders, a committment to oversight by regulators and includes both a strong consumer participation process and mandatory continuing education (including business ethics for mortgage originators).

Tags: , , , , , , , , , , ,