Rock Initiative Provides Firm Foundation

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]