HOME EQUITY: A RESOURCE FOR LTC

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HOME EQUITY A RESOURCE FOR LTC LTCI

• Session 31 February 28, 2006
• Session Producer
• Barbara R. Stucki, Ph.D.
• Project Manager, Use Your Home to Stay At Home
  Initiative
• National Council on the Aging (NCOA)

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PANEL

• Peter Bell, President, National Reverse Mortgage
  Lenders Association
• Claude Thau, FSA, MAAA, President,
• Thau Inc.
• Valerie VanBooven, RN, BSN, PGCM, National
  Director of Marketing and PR, Next Generation
  Financial Services
• Jim Mahoney, CEO, Financial Freedom Senior
  Funding Corporation

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De-MystifyingReverse Mortgages

• Peter Bell, President
• National Reverse Mortgage Lenders Association

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What is a Reverse Mortgage?
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Reverse Mortgages The Basics

• A loan that allows homeowners age 62 to convert
  home equity into cash while living at home for as
  long as they want.
• Can receive payments as a lump sum, line of
  credit, monthly payments (for up to life in the
  home).
• Funds can be used for any purpose, and are
  tax-free.
• Loan comes due when the (last) borrower moves
  out, dies, sells the home, or stays in a nursing
  home over 12 months.
• Borrowers continue to own the home. They are
  responsible for repairs, insurance, and taxes.

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Types of Reverse Mortgages

• Home Equity Conversion Mortgage (HECM).
• HUD program, insured by FHA.
• Represents 90 of the market.
• Cash Account loans offered by Financial Freedom
  Senior Funding Corporation.
• Designed for high worth homes.
• Offer loans with no closing costs.
• Fannie Mae Home Keeper loan.

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Consumer Protections

• Borrowers can live in the home as long as they
  want without making a monthly payment.
• Never owe more than the value of the house at the
  time of sale or repayment of the loan.
• Must receive counseling from a HUD-approved
  agency before they can take out a loan.
• Borrowers can cancel the loan for any reason
  within three business days after closing.

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Using Reverse Mortgages to Pay for Help at
HomeBarbara R. StuckiNational Council on the
Aging
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Reverse Mortgage Fills a Gap
Aging in Place
Plan Ahead
Crisis
Reverse mortgage
LTC Insurance
Medicaid
50
60
70
80
90
Age
10
Reverse mortgage can pay for home care for many
years
Likely duration of funds based on monthly
withdrawals from a HECM creditline (years)
Years
500/month
1,120/month
Age of borrower
2,160/month
Estimates based on HECM amount for a 122,790
home and an annual creditline growth rate of
5.36. Source NCOA analysis using the AARP
reverse mortgage calculator.
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NCOA Use Your Home to Stay at Home Initiative

• 2006 Use Your Home to Stay at Home report
  (www.ncoa.org).
• Consumer booklets on using home equity to age in
  place (www.ncoa.org and www.nrmla.org).
• Research study funded by ASPE and AoA Working
  with MN, WA and the City of LA to find ways to
  promote the use of reverse mortgages for aging in
  place.

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Home Equity A Resource for LTC LTCi

• Claude Thau
• President, Thau Inc.
• cthau_at_targetins.com

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RMs and LTCi Have a Lot in Common

• Both are part of LTC Planning.
• Both are funding sources for LTC.
• Both help people to stay in their own home.
• Rather than going into NH or ALF.
• Rather than moving in with kids.
• But, both are discouraged by Medicaid treatment
  of the home.

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RMs and LTCi have differences

• RMs are more suitable for the less affluent.
• RMs cost less when interest rates are low LTCi
  is less expensive in high interest environments
  (ignoring opportunity cost).
• RMs structured to be variable in price LTCi
  intends level predictable cost.
• RMs are same cost whether treated like
  
  cash benefit or
  reimbursement.

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Can RMs Help Less Affluent People Purchase LTCi?

• Expensive loan cost premium cost.
• Risk of inability to pay for LTCi, especially if
  there is a premium increase.
• Risk needing low level services but cash-poor
  and, due to LTCi, RM unavailable.
• Could lose house whether or not LTC is
  eventually needed.

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Can RMs Help the More Affluent Purchase LTCi?

• 60 of those who could qualify for RMs are not
  candidates for Medicaid.
• Generally dont need RM to afford LTCi.
• In the past, could take RM and use proceeds to
  buy LTCi and life insurance that would replace
  loan.
• Now LTCi is more expensive, esp. for singles.
• UL less attractive with lower interest rates.

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RM Annuitant Life Expectancy

• Less affluent RM users likely to have shorter
  average life expectancy lenders and insurers do
  very well.
• More affluent RM users likely to have longer
  average life expectancy and more able to
  anti-select lenders and insurers do less well.

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Use of Home Equity as Safety Valve for LTCi

• RM method of dealing with rate increase.
• RM or home sale as way to cover LTC needs
  exceeding a limited BP.
• Buy LTCi w/lower daily benefit assuming home sale
  or RM will fund institutional cost.
• Buy longer EP, relying on potential RM or home
  sale to fund EP.

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CONCLUSIONLTCi and RMs are Complementary

• Serve different economic strata.
• Greatest overlap RM as safety valve or extender
  of LTCi, not as source for LTCi.
• Ability to do both LTCi RMs can be great
  positioning may become more common.
• Deficit Reduction Act of 2005 (DRA05) will help
  BOTH markets.

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DRA05 Restrictions on Medicaid Planning

• People with 500K in home equity.
• Few people affected.
• Most home equity is still exempt.
• Non-trust look-back extended to 5 years.
• Partial months of ineligibility could no longer
  be waived.

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DRA05 Restrictions on Medicaid Planning

• Penalty period starts at later of transfer or
  when would otherwise have qualified.
• Income first, requiring assets to be liquidated.
• Balloon annuities are countable.
• State annuity beneficiary to recover.

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DRA05 Restrictions on Medicaid Planning

• Life estates (transfer house PV of future rent
  currently deducted from size of transfer).
• CCRC assets countable if refundable.
• Limit loans, promissory notes, etc., to
  actuarially sound, no balloon payments and not
  cancelable by death.

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Medicaid is a Great Programfor Long-Term Care

• Provides LTC for destitute people.
• Loans so other people dont have to sell their
  home to pay for care.
• People can return to their home.
• Spouses can stay in the home.

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Medicaid Loans

• Interest-free loans.
• Long-term loans not repaid on death if spouse,
  disabled child, child care-giver lives in house.

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Paying back Medicaid...

• Federal law requires estate recovery. NOT a
  permanent exemption.
• Estate recovery intended to provide funds to
  other needy people
• Recovery from destitute
• is roundly criticized.
• As required by Public Law 104-191

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Positive Medicaid Reform

• Take Medicaid out of the loan business.
• Instead create government-backed private industry
  loans.
• So people with illiquid assets get a private loan
  instead of going on Medicaid.

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Advantages of the Private Loan Approach for the
Care Recipient

• Dignity not told that they are on welfare.
• Freedom use their money as they please.
• Better care more revenue for providers.
• More competition in the LTC market.
• More choice.
• Lower private pay fees.

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Advantages of the Private Loan Approach for
Medicaid-Certified Providers

• Non-destitute Medicaid recipients reclassified as
  private pay patients
• Increased income enables
• Higher salaries, hence staff retention.
• Better care.
• More attractive to traditional private pay
  patients

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Advantages of the Private Loan Approach for
non-Certified Providers

• Bias toward nursing homes and certified providers
  removed.
• Increased consumer control in selecting provider
  translates into more clients for them.

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Revenue Advantages of the Private Loan Approach
for the State

• Fewer people on Medicaid.
• Huge savings in
• Medicaid expenditures.
• Processing both Medicaid eligibility and Medicaid
  expenditures.
• Processing estate recovery.
• Increased taxes from providers staff,
  insurers, ins. brokers and lenders.

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Other Advantages of the Private Loan Approach
for the State

• More consumer choice.
• Financially stronger providers.
• Increased investment in LTC services.
• Improved State income AND reduced expenses.
• BETTER CARE and MENTALITY

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The New Paradigm Shift In Marketing Senior
ServicesInnovation in Reverse Mortgage and LTCi
Marketing!

• Valerie VanBooven RN, BSN, PGCM
• National Director of Marketing and PR for Next
  Generation Financial Services
• a division of 1st Mariner Bank

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The Way Things Were

• Only certain people were able to write reverse
  mortgages.
• Referring business away.
• Potential downside risk/benefits.

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The Way Things Are

• Financial planners and insurance producers can
  write reverse mortgages.
• They must become a W2 employee of a HUD-approved
  lender.
• 1st Mariner Bank program.

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Requirements

• Complete a 3 day basic training class, pass a
  background check and drug screen.
• Meet minimum production requirements.
• Meet annual compliance testing requirements.
• Abide by the rules for marketing and advertising
  set forth by the banks compliance department.
• Follow HUD regulations, including RESPA (Real
  Estate Settlement Practices Act).

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Case Design Strategies

• Selling more traditional LTCi Example
• Do the right thing for MORE clients.
• Earn commissions on the product and the reverse
  mortgage.
• Selling more asset based LTCi Example
• Do the right thing for MORE clients.
• Earn commissions on the product and the reverse
  mortgage.

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Marketing Strategies That Put You in the Spotlight

• Providing a needed community service
• Property tax issues and local municipalities.
• Home care costs and the reverse mortgage.
• The Church Program- What pastors learn in
  seminary.
• Education through radio and audio CD.
• Establishing credibility and trust

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Conclusions

• It is possible to write reverse mortgages without
  referring the business away.
• Using the reverse mortgage as a planning tool is
  a new and innovative way to market your services.
  
• Long-term care planning AND crisis management can
  be addressed- you can help almost anyone.
• Presenting the reverse mortgage concept as a
  community service is a valuable marketing
  strategy.
• Programs that include educating church leaders
  and marketing strategies like the radio show
  program build trust and credibility.

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• Comments and Perspectives
• Jim Mahoney, CEO
• Financial Freedom Senior Funding Corporation

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• Panel Discussion
• with
• QA