What’s happening with Reverse Mortgages?

I recently met with a client who wanted to do whatever she could to remain at home.  Since she owned her home outright, I suggested that she consider a reverse mortgage as a way to access the equity for cash to pay for home-based care.  I was surprised to learn that Wells Fargo is no longer issuing reverse mortgages.  Wells Fargo and Bank of America, which discontinued offering reverse mortgages a few months earlier, had previously issued more than 40% of all reverse mortgages.  As reported in the Summer edition of the National Academy for Elder Law Attorneys (NAELA) Arizona chapter newsletter, Wells Fargo said they had based their decision on “today’s unpredictable home values,”  and the restrictions on reverse mortgage holders that make it difficult for the bank to determine whether the homeowner can meet her other obligations, such as taxes and insurance.

Reverse mortgages have several restrictions, one of which is that the mortgagee must stay in the home, and the fees are significantly higher than those for traditional mortgages.  However, for someone like my client, who is trying to pay for home-based care,  and who has most of her net worth in that home,  it has been one of very few options for financing that care. 

Through a broker, my client was able to find an institution that would issue a reverse mortgage.  Unfortunately, since a reverse mortgage will only secure up to 60% of the home’s current value, the amount of money available in the current housing market was barely worth the trouble.  

If my client ends up spending all of her cash assets to pay for her care, she will be forced to consider applying for Medicaid, which will not count her home as an asset.  It would be unfortunate, both for this family and for our cash-strapped state, if this women ends up accepting public benefits because she cannot access the equity she has accumulated over a lifetime.

For more information, contact Marsha Goodman.

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