From Our Friend Stephen Moses: LTC E-Alert #9-072: MetLife and NCOA on HEC

LTC E-Alert #9-072: MetLife and NCOA on HEC

Tuesday, June 23, 2009

Seattle–

LTC Comment: Kudos to the MetLife Mature Market Institute (www.maturemarketinstitute.com) and the National Council on Aging (www.ncoa.org) for their new, jointly published report on reverse mortgages.

Read a summary below. See the full report here.

Reverse mortgages are rarely used to fund long-term care. We’ve established that fact repeatedly by interviewing lenders in our state-level studies of long-term care over the years. Examples here.

There is a simple reason why reverse mortgages don’t help many aging homeowners obtain quality long-term care. Until the Deficit Reduction Act of 2005 capped Medicaid’s home equity exemption at $500,000 to $750,000, Medicaid LTC recipients could retain one home and all contiguous property with no limit on the value. Even now the most common $500,000 limit is roughly four times the median value of the average elderly family’s home. But get this: our half a million dollar limit is nearly 15 times the size of the home equity exemption in the United Kingdom’s long-term care system ($35,000). We’re more generous with our welfare-financed long-term care than a socialized health care system in Europe.

No wonder middle class and even affluent Americans end up in Medicaid-financed nursing homes instead of using their home’s value to enable them to stay at home, as an earlier NCOA study recommended. It’s a no-brainer seemingly: Capture Medicaid’s generous health and LTC benefits, save your home’s value as your legacy, and preserve your adult children’s inheritance. This bill of goods is sold daily by thousands of Medicaid planners all across the country. It’s not the only reason, but it is one of the big reasons that most people fail to plan for long-term care and end up by default on a slippery slope into deficient institutional care funded by a bankrupt welfare program.

That said, it’s a great thing that MetLife and NCOA continue to encourage the wise use of home equity conversion to help aging Americans live better lives in retirement, including long-term care. I only have one quibble. The report says little about using a reverse mortgage to purchase private long-term care insurance and what it does say is negative: “Policymakers, advocates, and insurance companies have raised serious concerns about using home equity to purchase long-term care insurance.” (p. 18) Oh yeah? What concerns? No comment in the report. I’ve seen those objections in other publications. Most are specious based on a misunderstanding of and a prejudice against long-term care insurance specifically and private LTC financing alternatives in general. The rest are obvious based on common sense. Most seriously, opponents of the use of reverse mortgages to finance LTC insurance premiums never take into account the problems with Medicaid dependency which are the most likely outcome of going without private LTC insurance. Thus, our only hope to salvage a public LTC safety net for people in need (LTCI) is subverted in the interest of protecting a dubious welfare benefit for people who otherwise should, could and would save, invest or insure for long-term care.

Count on this: when Medicaid stops giving baby boomers free inheritance insurance by exempting their parents’ expensive homes, reverse mortgages will explode as a funding source for long-term care directly and for long-term care insurance premiums as well. When will this happen? Possibly as a consequence of the current recession’s fiscal pressure on the federal and state Medicaid programs. Likely within three to five years. Certainly within ten years. Smart people will get in front of this Age Wave and use home equity if they need it to leverage their LTC protection by means of private insurance whenever appropriate.

——————

AS BOOMER RETIREMENT LOOMS, THE NEED TO LEVERAGE HOME EQUITY GROWS

Report from MetLife Mature Market Institute® and National Council on Aging Recommends More Education for Using Home Equity and Reverse Mortgages in Retirement Westport, CT- June 22, 2009 – As today’s economic environment puts pressure on older homeowners to find new sources of retirement income and stretch their savings, growing numbers are starting to tap their housing wealth, using home-equity loans or reverse mortgages. However, with little guidance, they are often unsure about how to include this asset as an integral part of their financial strategy, rather than as a last resort. Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, issued today by the MetLife Mature Market Institute (MMI) and the National Council on Aging (NCOA), calls for a more comprehensive approach to ensure that this asset is used appropriately and effectively to deal with the growing uncertainties of retirement.

“There is no doubt that Americans should be more strategic about using home equity,” said Sandra Timmermann, Ed.D, director of the MetLife Mature Market Institute. “Retirees need a new framework for thinking about how home equity can help assure their financial security and enable them to age in place without fear of running out of money.”

The study finds that 35% of older Americans see their homes not just as secure places to live, but also as collateral for a loan. About 14% are taking cash out of their house through a home equity loan or reverse mortgage. This is a growing reality for affluent households who seek to enhance their lifestyle, as well as middle-income families for whom it may be their only choice. Study findings indicate that older homeowners are using home equity to increase income security, enhance financial resilience to deal with unexpected expenses, and to improve debt management, among other things.

“Tapping home equity in a timely and appropriate way can keep small budget shortfalls from becoming overwhelming problems,” said Barbara R. Stucki, Ph.D., director of the Reverse Mortgage Initiative for NCOA.

The study highlights different options for using home equity that are not part of the current national conversation. These include:

· The use of reverse mortgages to delay the age at which one might begin to collect Social Security, thus increasing the amount of one’s ultimate monthly Social Security income.

· Reverse mortgages as a stopgap measure to consolidate credit card debt, to cover investment losses or to defer mortgage payments.

· Periodic distributions that would tap home equity to help people meet expenses if they outlive their savings/retirement income.

· Programs that combine public benefits with modest amounts drawn from home equity to help seniors stay at home.

· Home equity lines of credit for emergency spending, such as home maintenance, without which many homes decay and lose value.

· Reverse mortgages with a line of credit option for borrowers to pay out-of-pocket health and home care expenses. Borrowers only pay the amount they use from the loan.

“Our research on Baby Boomers indicates that they are more open than previous generations to tapping home equity and considering reverse mortgages to help fund their retirement,” said Timmermann. “With the right guidance and policy protection, reverse mortgages can be an important financial option for Boomers who do not have adequate savings.”

The report emphasizes that consumer education must be part of any new efforts aimed at increasing the use of reverse mortgages. It reinforces the value of consumer counseling mandated by the U.S. Department of Housing and Urban Development for the popular Home Equity Conversion Mortgage (HECM) reverse mortgage program.

“The financial services industry, policymakers, and consumer advocates cannot be complacent about the potential benefits and risks of using home equity to address the challenges facing older Americans,” said Stucki. “We need to work together to educate consumers, create cost-effective financial products, and promote public policies that strengthen consumer protections for older homeowners.”

As a complement to the study, the Mature Market Institute is also introducing The Essentials: Reverse Mortgages, a free guide to help consumers better understand the product. It explains the terminology associated with these loans, presents some issues to consider, and provides answers to frequently asked questions about borrowing limits, qualifications and consumer protection, among other things.

National Council on Aging

The National Council on Aging (NCOA) is a nonprofit service and advocacy organization headquartered in Washington, DC. NCOA is a national voice for older Americans- especially those who are vulnerable and disadvantaged- and the community organizations that serve them. It brings together nonprofit organizations, businesses and government to develop creative solutions that improve the lives of all older adults. NCOA works with thousands of organizations across the country to help older adults find jobs and benefits to improve their health, live independently and remain active in their communities. www.ncoa.org

The MetLife Mature Market Institute®

Established in 1997, the MetLife Mature Market Institute (MMI) is MetLife’s research organization and a recognized thought leader on the multi-dimensional and multi-generational issues of aging and longevity. MMI’s groundbreaking research, gerontology expertise, national partnerships, and educational materials work to expand the knowledge and choices for those in, approaching, or caring for those in the mature market.

MMI supports MetLife’s long-standing commitment to identifying emerging issues and innovative solutions for the challenges of life. MetLife, a subsidiary of MetLife, Inc. (NYSE: MET), is a leading provider of insurance, employee benefits and financial services with operations throughout the United States and the Latin American, Europe and Asia Pacific regions.

The full study, Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, and The Essentials: Reverse Mortgages, are available at www.maturemarketinstitute.com under “What’s New.” For more information about the MetLife Mature Market Institute, visit: www.maturemarketinstitute.com.

——————

“LTC E-Alerts” are a feature offered by the Center for Long-Term Care Reform, Inc. to members at the $150 per year level or higher. We’ll track and report to you news and analysis regarding long-term care financing, service delivery, and research. We hope The LTC E-Alerts will help you attain and maintain a high level of knowledge and competency in this complex field. The Center for Long-Term Care Reform, Inc. is a private institute dedicated to ensuring quality LTC for all Americans (www.centerltc.com).

Images:

The images are downsized due to limited space here. The original dimensions may differ.
Click on the image to open it on a new tab.