The Home Equity Conversion Mortgage as a Long-Term Care Insurance Alternative for Financing In-Home Care Stephen R. Pepe
loan obligations, which include the payment of property taxes, home- owner’s insurance, and other costs associated with home maintenance. (16) Mortgagee Letter 2014-21 (2014), endnote 14. (17) HUD Handbook 4235.1 REV-1(4-6), (4-7A); accessed at: https://portal.hud.gov/hudportal/documents/huddoc?id=42351c 4HSGH.pdf. (18) 24 CFR 206.41; accessed at: https://www.gpo.gov/fdsys/ granule/CFR-2012-title24-vol2/CFR-2012-title24-vol2-sec206-41. HUDHandbook 4235.1 REV-1 (1-9),(2); accessed at: https://portal. hud.gov/hudportal/HUD?src=/program_offices/administration/ hudclips/handbooks/hsgh/4235.1. Mortgagee Letters 2004-25, 2004-48, 2006-25; accessed at: https://portal.hud.gov/hudportal/ HUD?src=/program_offices/housing/sfh/hecm/hecmml. (19)HUDHandbook4235.1REV-1(1-4);accessedat:https://portal. hud.gov/hudportal/HUD?src=/program_offices/administration/ hudclips/handbooks/hsgh/4235.1. (20) Mortgagee Letter 2016-19; accessed at: https://portal.hud.gov/ hudportal/documents/huddoc?id=16-19ml.pdf. (21) 24 CFR 206.3; accessed at: https://www.gpo.gov/fdsys/ granule/CFR-2012-title24-vol2/CFR-2012-title24-vol2-sec206-3. (22) This is not tax advice. One should seek the advice of a tax professional. (23) For HECM loans, the unused portion of the LOC grows at the “credit line growth rate,” which is equal to the compounding note rate. This is the same rate at which the principal limit and the loan balance grow, which is the current interest rate plus the annual mortgage in- surance premium rate (which currently is 1.25 percent divided by 12). Therefore, the amount of funds available to the borrower from a LOC grows larger each month for as long as any funds remain. A proprietary productmay have a lower growth rate than that of aHECMor no growth rate feature, which will affect the amount of cash available to a borrower. (24) As with any home-secured loan, a borrower must meet his/her loan obligations, which include the payment of property taxes, home- owners insurance, and other costs associated with home maintenance. (25) 24 CFR 206.27(c), HUD Handbook 4235.1 REV-1(1-13), 209 CMR 32.33(1)(b). (26) 24 CFR 206.27(8), HUD Handbook 4235.1 REV-1(1-3)C. (27) “Long-Term Care Insurance Costs in 2015,” American Asso- ciation for Long-Term Care Insurance (2016); accessed at: http:// www.aaltci.org/long-term-care-insurance/learning-center/long- term-care-insurance-costs-2015.php#price. (28) Mortgagee Letter 2013-27; accessed at: https://portal.hud.gov/ hudportal/documents/huddoc?id=ML13-27.pdf. (29) Calculations performed September 19, 2016, on Tango Re- verse ™ software. (30) Calculated on October 4, 2016, using Tango Reverse ™ loan fore- casting tool. Assumes 4 percent annual property appreciation rate. (31) Bipartisan Policy Center (2016), endnote 2: 38. (32) Calculated on September 19, 2016, using Tango Reverse ™ software. (33) Calculated on October 8, 2016, using Tango Reverse ™ loan fore- casting tool. Assumes 4 percent annual property appreciation rate. (34) Calculated on September 19, 2016, using Tango Reverse ™ software. (35) Wade Pfau, Reverse Mortgages: How to use Reverse Mortgages to Secure Your Retirement (McLean, Virginia: Retirement Researcher Media, 2016): 68.
Stephen R. Pepe, JD, is a HECM loan specialist with Re- verse Mortgage Funding, LLC. He earned his JD from Suffolk University Law School in 1998 and previously practiced law in the areas of residential real estate convey- ancing, land use, summary process, and estate planning. He is a former AARP Foundation-certified reverse mort- gage counselor and a top-producing reverse mortgage originator. Steve is a frequent contributor in print and ra- dio and a CLE panelist on the topic of reverse mortgages. He can be reached at firstname.lastname@example.org. (1) Sandra Timmermann, “Shocks and Loss in Retirement: Pre- venting Despair, Promoting Resilience,” Journal of Financial Service Professionals 70, No. 5 (2016): 35. (2) “Healthy Aging Begins at Home,” Bipartisan Policy Center (May 22, 2016): 21. (3) Susan Hoover, “Long-Term Care Insurance (LTCI): The Good, the Bad, and the Ugly,” Enterprising Investor blog, CFA Insti- tute, September 19, 2016; accessed at: https://blogs.cfainstitute. org/investor/2016/09/19/the-pros-and-cons-of-long-term-care- insurance/?tc=eml. (4) David A. Gresham, “Seeking Stable, Efficient Coverage for Long-Term Care with Asset-Based Products,” Journal of Financial Service Professionals 70, No. 4 (2016): 47. (5) Bipartisan Policy Center (2016), endnote 2: 17. (6) “Home in Retirement: More Freedom, New Choices,” Merrill Lynch (2014). (7) “Projections and Implications for Housing a Growing Popu- lation: Older Households 2015–2035,” Joint Center for Housing Studies of Harvard University (2016): 54. (8) Jason Oliva, “Home Equity Grows to $6.1 Trillion for Reverse Mortgage-Age Seniors,” Reverse Mortgage Daily, Dec. 20, 2016; accessed at: http://reversemortgagedaily.com/2016/12/20/home- equity-grows-to-6-1-trillion-for-reverse-mortgage-age-seniors/. (9) This material has not been reviewed, approved or issued by HUD, FHA or any government agency. Reverse Mortgage Fund- ing, LLC (RMF) is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency. (10) This is not tax advice. One should seek the advice of a tax professional. (11) “Genworth 2016 Cost of Care Study,” Genworth Financial, Inc. (2016). Genworth defines “Homemaker Services” as services providing help with household tasks that cannot be managed alone. Homemaker services includes “hands-off” care such as cooking, cleaning, and running errands. “Home Health Aid Services” are defined as “hands-on” personal care, but not medical care, that is provided to people who need more extensive care. (12) Joint Center for Housing Studies of Harvard University (2016), endnote 7: 9. (13) 24 CFR 206.45, 24 CFR 206.35, HUD Handbook 4235.1 REV-1 (4-5), 24 CFR 206.45. (14) Mortgagee Letter 2014-21, U.S. Department of Housing and UrbanDevelopment, November 10, 2014; accessed at: https://portal. hud.gov/hudportal/documents/huddoc?id=14-21ml.pdf. (15) As with any home-secured loan, a borrower must meet his or her
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