Articles
Study Aims to Show Reverse Mortgages Offset Medicaid Spending
March 31st, 2011 | by Elizabeth Ecker Published in News, Reverse Mortgage | 4 Comments
A recent industry study aims to change the conversation when it comes to reverse mortgages. By providing a greater context for the reverse mortgage industry, the study positions reverse mortgages as part of the solution to the larger problem of a mounting federal deficit that hovers around the $14 trillion mark. By encouraging seniors to cash in on home equity before relying on entitlement programs for their health and long term care needs, the study asserts, the use of reverse mortgages can cut down substantially on government spending.
The study, conducted by John Mitchell, CPA, owner of Reverse Mortgage USA (formerly known as 1st AA Reverse Mortgage, Inc.) and board member of Coalition for Independent Seniors (CIS), finds that through reverse mortgages, Americans could save billions of Medicaid dollars each year. Mitchell’s hope in completing the study is for it to be shared with members of the industry as well as Congress, state government officials and the Office of Management and Budget, and for it to show that reverse mortgages are part of the solution when it comes to the national deficit.
“Our industry’s destiny is controlled by Congress and therefore we must have political support,” says Mitchell, who was recently active in conjunction with CIS in getting reverse mortgage participants to engage in a letter writing campaign to Congress, which he says helped the industry to avoid another principle limit reduction that could have been devastating.
“Clearly, the message for the reverse mortgage industry had to be that reverse mortgage saves Medicaid dollars. What could be a better message than that, given the current evolving mood in Washington, D.C.?” Mitchell says. “I knew we needed to quantify the savings and put facts behind it. I also knew time was of the essence. The industry needs something supporting its value proposition now, not one, two years from now.”
The study is based on the premise that three major entitlement programs—Social Security, Medicare, and Medicaid—account for approximately 58% of the federal government’s annual budget and cites National Council on Aging data that shows 81% of America’s 13.2 million households age 62+ own their own homes. In addition, 74% of those senior homeowners own their own homes, free of a mortgage. That amounts to nearly $2 trillion in home equity that is exempt from Medicaid eligibility limits and is usually protected against Medicaid estate recovery, the study says.
“Increased use of reverse mortgages for long-term care could result in savings to Medicaid ranging from about $3.3 billion to almost $5 billion annually in 2010, depending on the future take-up rate for the these loans,” according to the study. “This represents 6% to 9% of the total projected annual Medicaid expenditures. These savings result from the additional cash available to borrowers that would delay or eliminate the need for Medicaid.”
It will change the conversation about reverse mortgages, says Mitchell. “Rather than reverse mortgages being perceived as potentially a drain on the government in a time when the government is going in the direction of shrinking, we can be part of the solution…This country spends almost $400 billion a year on Medicaid, and the unfunded liability is even greater than that. We have the perfect product to take Medicaid from being a inheritance protection program and shrink it back to its originally intended purpose—which is to provide long-term care for the truly needy.”
February 1st, 2011 | by admin Published in News, Reverse Mortgage
The Chicago Sun Times is reporting that when the Federal Housing Administration created new rules for reverse mortgages, it opened up the door for additional opportunities and lower cost loans through the HECM Saver program.
Sun Times columnist, Terry Savage writes “Now that most lenders have launched these new products, it’s worth an updated look.” Savage has been a big supporter of the product, which she describes as:
Basically, you are just borrowing from yourself — although you will be paying interest on that loan. But the interest is added to the amount of equity taken out of the home. When you sell the home, or die, the amount you have borrowed out of your home’s equity must be repaid from the sale proceeds.
Importantly, you — or your heirs — can never owe more than the home is worth. And you can never be forced out of your home because you’ve “run out” of equity. Eventually, when the home is sold, because you move or die, any proceeds (minus the withdrawals, interest and fees) are returned to you, or your heirs.
If that sounds too good to be true, this is the one product that really is as good as it sounds — if you understand all the details and costs.
Mon, 2010-11-08 12:08 — NationalMortgag…
David H. Stevens, FHA Commissioner
In his wide ranging address to the National Reverse Mortgage Lenders Association’s (NRMLA) Annual Conference in New Orleans, La., Federal Housing Administration (FHA) Commissioner David H. Stevens reiterated his dedication to the HECM Standard and HECM Saver reverse mortgage programs, and talked with industry attendees about accountability, transparency and access for the reverse mortgage market.
“Sustainable home ownership [and] sustainable loan programs are something I’ve been very focused on at FHA…We have done everything we could to stem the attacks on the reverse mortgage market…I think that the reverse mortgage program is critically important, and I was very worried that we were going to lose this program,” said Stevens, and “I want to thank Peter [Bell] and the [NRMLA] team who really helped us put the new HECM Saver into the market.”
“Commissioner Stevens is a devoted advocate of the reverse mortgage product as a retirement solution,” said Peter Bell, president of NRMLA, after the address. “We thank him for his leadership and dedication to the program.” NRMLA is a Washington-based trade group that represents most of the major lenders associated with reverse mortgages.
Commissioner Stevens complemented NRMLA and its members for helping to promote responsibility in the industry, and discussed how FHA and the industry participants need to remove bad players.
“Accountability means focusing on the bad players…We are promoting a program that can clearly help seniors who need liquidity,” said Stevens, but “we are dealing with the most fragile universe of buyers in the marketplace…and we need to protect them.”
In his speech, Stevens asked NRMLA members to continue to monitor the industry, and report bad players to the FHA. Numerous changes have occurred with the HECM program in recent months. On Sept. 11, 2010, new counseling protocols went into effect to provide seniors with a more robust counseling procedure that evaluates the product’s appropriateness for borrowers. Reverse mortgages are the only mortgage loan product that requires independent counseling in order to apply for a loan. Additionally, on October 4, 2010, HUD introduced the HECM Saver product that nearly eliminates the up-front insurance fees borrowers pay at loan origination.
“Reverse mortgages are a safe, cost-effective retirement security solution that provide financial certainty and ensure quality of life for older Americans. The industry takes our ethical obligations very seriously, and look forward to continuing to work with the Commissioner to ensure that the consumer financial protections in place provide the necessary safeguards.”
