Forward on Reverse: The Reverse Mortgage/Long-Term Care ConnectionAtare E. Agbamu, CRMSreverse mortgages, Home Equity Conversion Mortgages,
Shortly before leaving office, former U.S. President Bill
Clinton signed a bill into law that, among other housing
provisions, waived the up-front mortgage insurance premium for Home
Equity Conversion Mortgages (HECMs)--the Federal Housing
Administration's reverse mortgage--if the borrower uses all of the
proceeds to purchase long-term care insurance (LTCI). As the
industry awaits the U.S. Department of Housing and Urban
Development¡¦s mortgagee letter that will implement the
law, some leaders in the reverse mortgage industry have argued
persuasively that this waiver should be extended to all healthcare
expenses. At the National Reverse
Mortgage Lenders Association's Annual Conference in Chicago
last September, I spoke with some care planning and financing
experts who convinced me that what is good for LTCI is even better
for reverse mortgages.
What is LTCI anyway? And what are some of the implications of
this connection for mortgage brokers in Cherry-dom (reverse
mortgage land)? According to Barbara Franklin of Franklin &
Associates, a long-term care planning and financing firm in
Charleston, S.C., long-term care consists of non-medical services
and support one would need to cope with ongoing difficulties
arising usually as a result of a stroke, a fall, heart disease,
Alzheimer¡¦s, arthritis, osteoporosis or other chronic
conditions. These services can be provided at home, a nursing home
or an assisted-living facility. While LTC is most often associated
with elders and aging, Franklin pointed out that 40 percent of
people who need long-term care are under the age of 65. She also
says there is a 50 percent chance that everyone will need some form
of long-term care during their lifetime; of course, that likely
increases with age.
LTCI, therefore, helps reduce the risk of impoverishment due to
long-term care expenses. To get LTCI coverage, of course, cash is
needed to pay premiums, and a reverse mortgage is a means of
getting cash from the home without making monthly payments or
selling the home. In other words, a reverse mortgage is simply
another funding option for a form of care that most of our senior
borrowers are going to need.
Analysts and experts say long-term care can be dreadfully
expensive. The average daily cost of a nursing home stay is
approximately $165 a day, with the average stay at approximately
2.5 years (or nearly $150,000). Home-care is just as costly.
According to Franklin, home care attendants in the Charleston, S.C.
area charge an average of $15 to $17 per hour. For someone who
needs 24-hour care at home, that is $360 per day or $131,400
annually! Add to that the cost of maintaining the home, and it
quickly becomes clearowhether it is nursing home or home care, the
price tag is heavy and can be catastrophic for the financial health
of families.
"The biggest risk to older homeowners is long-term care
expenses," said Barbara R. Stucki, Ph.D., president of Bend,
Ore.-based Kenning Group and manager of the National Council on
Aging¡¦s (NCOA) new Reverse Mortgage for Long-Term Care
Project. The NCOA project is developing a national blueprint of
recommendations to promote the use of reverse mortgages for
long-term care, or as Dr. Stucki has said, "Using the home to stay
at home." Reverse mortgages offer a significant source of cash for
"house-rich-and-cash-poor" seniors who would otherwise go broke
paying for LTCI and would have to move to government-funded nursing
homes.
Uncle Sam currently pays for most long-term care through
Medicaid; however, long-term care financing experts believe that
government financing is unsustainable with 77 million aging boomers
barreling down the long-term care pipeline in the coming decades.
Originally designed in 1965 for the poor, Medicaid, according to
Stephen Moses, president of the Seattle-based Center for Long-Term
Care Financing (a non-profit think tank dedicated to alerting the
public to plan ahead for the risk of costly long-term care), has
been hijacked by relatively wealthy people who can afford to hire
Medicaid planners to legally hide their assets and claim poverty in
order to qualify.
The good news for mortgage brokers in the reverse arena is that
Uncle Sam is now pushing reverse mortgages as a long-term care
financing alternative. Translation: demand, need-based demand that
will defy the interest rate god in the residential lending
business. In a recent issue of LTC Bullets, a publication of the
Center for Long-Term Care Financing, Dennis Smith, a top federal
administrator of Medicare and Medicaid, said, "The encouragement of
reverse mortgages as a means of private sector financing of
long-term care expenses for the elderly is a priority for the U.S.
Department of Health and Human Services, Centers for Medicare and
Medicaid Services."
Now, let's look at some implications of the reverse
mortgage/long-term care connection for mortgage brokers who are
farming the reverse mortgage field:
Need for insurance-premium dollars for LTCI and cash to pay
directly for LTC services will drive demand for reverse
mortgages.
Mortgage brokers who intend to farm this field need long-term care
literacy. I strongly recommend visiting the Center for Long-Term
Care Financing¡¦s Web site, www.centerltc.org, and reading
their publications. Also, the new NRMLA-sponsored Web site, Aging
in Place, is also a good source of information on ways to help
older homeowners who need long-term care to stay at home. Visit www.reversemortgage.org/ssi/index.shtml
for more information.
Mortgage brokers should speak with senior borrowers about long-term
care and how reverse mortgages can assist as a financing option.
Awareness is important. After all, as Stephen Moses said, "Few
people take the risk of long-term care seriously until it's too
late to save, invest or insure."
Mortgage brokers should consider cultivating long-term care
planning professionals. Those who understand the reverse
mortgage/long-term care link are looking for dependable partners
with reverse mortgage expertise.
The reverse mortgage/long-term care connection is as
powerful as it is enduring, because the home is a vital source of
wealth for older borrowers and one to which most younger borrowers
aspire. Mortgage brokers are the leading and the closest
residential mortgage professionals to American borrowers; reverse
mortgage competency will become a core-skill requirement for us to
provide well-rounded, inter-generational residential lending
services.
Not only are reverse mortgages providing cash for borrowers
62 and older to live better in retirement, they¡¦re also
going to supply premium dollars that can be leveraged for quality
long-term care coverage, ensuring that long-term care expenses will
not reverse our borrowers' fortunes in retirement. Think forward on
reverse!
Atare E. Agbamu, CRMS is a reverse mortgage consultant
with Credo Mortgage in Twin Cities, Minn. Atare is widely regarded
as an emerging authority on reverse mortgages, and is frequently
consulted by financial professionals and families across America.
His reverse mortgage interviews have been webcast on MortgageMag
Live! Atare serves on the board of Little Brothers¡XFriends of
the Elderly in the Twin Cities and on the national board. In
addition, he is a trustee of The Little Brothers Foundation,
serving on its investment committee. He can be reached at (651)
389-1105 or e-mail
[email protected].
