Should reverse mortgages become an official option for helping to solve a state’s long-term-care challenges?
Some states have already begun the research. For example, Washington state’s Long-Term Care Task Force is hosting a series of community meetings aimed at exploring new funding solutions to the escalating health-care issue created by the rapidly accelerating growth of the state’s senior population.
Dr. Barbara Stucki, a Bend, Ore., researcher and consultant who recently completed a study on reverse mortgages for the National Council on the Aging, told the task force that one potential approach could be to create a system that more effectively manages long-term-care funding for community-based options. One component of the model would be for the state to offer incentives to encourage greater use of reverse mortgages among impaired elders.
Stucki, former senior policy analyst for the American Council of Life Insurance and AARP employee, is the project manager and lead author of National Blueprint for Increasing the Use of Reverse Mortgages for Long-Term Care.
“I think one of the main benefits of reverse mortgages is that it offers a concept of resilience,” Stucki told the task force. “If a person is living on a tightrope with only a small safety net underneath, then maybe the reverse mortgage makes the tightrope a bridge to something better.”
These incentives could be targeted to seniors who are at greater risk for needing Medicaid and could include:
- Paying for some or all of the up-front loan costs, and/or servicing fees;
- Bundling reverse mortgages with social services such as care assessment to help borrowers use their funds effectively for aging in place — that is, at home;
- Making it easier for reverse mortgage borrowers to participate in established community-based programs;
- Providing back-end protection to impoverishment through a program modeled on an existing long-term-care partnership program.
Stucki said incentives could be linked to the federally insured Home Equity Conversion Mortgage, which makes up approximately 90 percent of all reverse mortgages in the United States. Or, incentives could be incorporated into a state-designed and -run reverse mortgage program for long-term care. These efforts could open new possibilities for a more coordinated approach that can reduce the risk of institutionalization, compliment Medicaid, and enhance quality of life for older adults around the country, Stucki said.
“Everyone has a stake in the future of long-term care, and we want everyone to have a voice in designing that future,” said Dawn Morrell, task force chair. According to Morrell, the number of senior citizens in Washington will double over the next 20 years, and this will create major challenges in funding high-quality, long-term care.
“We’ve been very fortunate that our state is a national leader in having high-quality home care programs and healthy seniors, and this has helped to keep costs down,” said Morrell. “But with the rapid growth in the number of senior citizens and people with disabilities, designing a future system involves challenges that we need to plan for now.”
Minnesota is the only state now offering a reduction in fees if a reverse mortgage is used to implement a specific long-term-care plan.
Reverse mortgage borrowers make no monthly payments on their mortgage during its term. The loan comes due when the borrower permanently moves out of his or her home. Programs vary, yet the more popular plans offer both an initial lump sum for immediate needs and a line of credit that borrowers can access at any time.
Seniors can “outlive” the value of their home without being forced to move. The homeowner cannot be displaced and forced to sell the home to pay off the mortgage, even if the principal balance grows to exceed the value of the property. If the value of the house exceeds what is owed at the time of the homeowner’s death, the rest goes to the estate.
To qualify, consumers must be at least 62 years of age and own their own home. The home does not have to be paid off entirely, but the greater the equity, the greater the reverse loan amount. Age, location and loan type also factor in the reverse mortgage amount.
Opponents of reverse mortgages argue that the loans deplete a homeowner’s estate and their children’s inheritance. Proponents say the children would most likely have pay for their parents’ care from the proceeds of the home sale. And, by allowing the parents to stay in the home, some of the fees and spent home equity could be recovered by home appreciation.
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