Improving the lives of older Americans Private Pay Consumer Financing Decisions ADRC-TAE teleconference Barbara R. Stucki, PH.D. Director, Use Your Home to Stay at Home Initiative December 6, 2007

© Copyright NCOA 2 Overview of the presentation  Private funding options for LTC.  Challenges of tapping home equity.  Counseling seniors on reverse mortgages.  Developing a new reverse mortgage demonstration program.  Input from participants.

© Copyright NCOA 3 Private Funding Options for LTC

© Copyright NCOA 4 Age 40 Age 65 Retirement Age 80 First signs of possible LTC need Age 85 LTC begins Death Early Planning Insurance Accrue Savings Home Equity Annuity Tax-Incentives Spend Down Late Planning Home Equity Conversion Use of Savings Transfer of Assets Medicaid Estate Recovery LTC planning timeline

© Copyright NCOA 5 One-third of seniors will need more funds to pay substantial, but not catastrophic LTC costs Average lifetime per capita cost at age 65 = $47,000 Distribution of Lifetime LTC Expenditures After Age 65 No expenditures (rely on support from family and friends) 42% $1- $9,999 19% $10,000 - $24,999 8% $25,000 - $99,999 5% Catastrophic $100,000+ Source: Kemper, Komisar & Alecxih; Inquiry; Vol. 42, Winter 2005/ % In 2000, median net worth among seniors was $110,000. Excluding home equity, median net worth was only $25,000.

© Copyright NCOA 6 Many seniors already tap home equity  One in three (32%) of senior homeowners in 2005 had some type of home loan vs. 23% in  Median loan size grew from $19,000 in 1997 (23% of home value) to $48,000 in 2005 (31% of value).  Seniors with homes worth $500,000+ (may be up to $750,000) no longer qualify for Medicaid LTC unless they take out a home loan.

© Copyright NCOA 7 Why older homeowners need help  Home equity is the most important asset of many seniors. Most seniors own a home (82%), even at older ages (75+: 78%). Seniors own about $2.5 trillion in home equity in total.  Decisions that seniors make about home equity will have big impact on families and the LTC system. About $1 trillion could be available through reverse mortgages for aging in place. Seniors who transfer the home lose control of their biggest asset.  Rising home values increase the risk that seniors could become victims of financial scams. Foreclosure is a growing problem due to the rise in sub-prime and exotic home loans. Borrowers risk impoverishment if they do not use loans wisely.

© Copyright NCOA 8 Challenges of Tapping Home Equity

© Copyright NCOA 9 Loan options to tap home equity  Conventional home equity loan/line of credit. Available from local bank. May offer lower costs for short- term needs. Risk of foreclosure and predatory loans.  Reverse mortgages. Help borrowers 62+ stay in the home for many years. 90% are HUD Home Equity Conversion Mortgages (HECM). Substantial upfront costs.  Single purpose loans – State or local programs to help with home repairs or property tax deferral. Low cost loans with funds targeted to specific purposes. Not available in all states or communities.

© Copyright NCOA 10 Reverse mortgage basics  The size of the loan is determined by the borrower’s age (more at older ages).  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 must pay for repairs, insurance, and taxes.

© Copyright NCOA 11 Consumer protections  Counseling for HECM loans is mandated by federal law. Describe the features and cost of reverse mortgages. Discuss other options to these loans.  Upfront HECM costs are regulated by HUD, and there are limits on fees and interest rate increases.  Lenders must inform borrowers of estimated loan costs.  Right to stay at home as long as pay property taxes, insurance, and home maintenance.  Never owe more than the house value at the time of sale or repayment of the loan.

© Copyright NCOA 12 Counseling Seniors on Reverse Mortgages

© Copyright NCOA 13 NCOA’s Reverse Mortgage Counseling Network  New national counseling program.  Started June 1, Pilot-tested through September.  Recruiting 10 new agencies now.  Brings together the best of the aging network and the best of housing and credit counseling. Partnership with AoA and Money Management International. 12 counselors from 8 ADRC/AAAs in 7 states (CA, IN, LA, MD, MN, MT, OH).  Offers a more robust RM counseling experience that helps potential borrowers review their: Ability to continue to live at home, and how long. Potential duration of funds to pay for key services. Eligibility for public benefits with BenefitsCheckUp. The Network can provide support and funding to ADRCs that offer reverse mortgage counseling.

© Copyright NCOA 14 Referrals to a RM Network counselor  Talk to private pay clients about using a reverse mortgage to solve immediate problems and to plan ahead. Can become an integral part of options counseling. Do not need to be the expert – can refer to a counselor in the NCOA-AoA Network.  Establish an ongoing relationship with private pay clients who take out a reverse mortgage to stay at home. Help borrowers use their funds wisely and live at home safely. Stretch loan dollars with support from public programs.  ADRCs become a critical link in consumer education on using home equity and reverse mortgages for health/LTC. Enhances one-stop shopping for advice on financial options. Increase consumer protections when seniors to go to the ADRC before they talk to a lender.

© Copyright NCOA 15 Developing a New Reverse Mortgage Demonstration Program

© Copyright NCOA 16 Putting together the pieces  Counseling and referrals are a good start. But we can do more for older homeowners with unmet financial needs.  Can ADRCs help reverse mortgage borrowers stay at home? Possibilities of offering ongoing advice, and a package of services and supports to leverage RM funds? Potential help at the end of the loan, and to transition out of the home, with seamless links to public programs?  Potential partnership with HUD to make reverse mortgages work better to help homeowners stay at home. Substantial upfront costs. Can we get a better deal? Can we develop a HECM loan that is better suited to frail/impaired elders?  There are billions of dollars at stake. ADRCs can play a key role to channel these funds for independent living.

© Copyright NCOA 17 Input from Participants

© Copyright NCOA 18 Questions for ADRCs  How actively is your agency working with private-pay seniors?  What financial challenges do seniors face? What role does your agency have in educating seniors about financial issues? Is counseling seniors about private financing options a high priority for your agency?  What tools do you currently use to advise private pay clients with financial issues? How might RM counseling through the RM Network fit with other agency activities? Any concerns?  What new strategies and tools could enhance your ability to help private pay clients make wise financial decisions for living in the community?

© Copyright NCOA 19 Barbara R. Stucki, Ph.D. Director, National Council on Aging Use Your Home to Stay at Home Initiative