Tom Kelly: Reverse mortgages proposed as option for long-term care challenges

Should reverse mortgages become a more encouraged option to solve long-term care challenges? Is there a better place to turn to explore funding solutions to the escalating health care issue created by the rapidly accelerating growth of the senior population?

Several years ago, Dr. Barbara Stucki, a Bend, Oregon, researcher and consultant, completed a study on reverse mortgages for the National Council on Aging. Stucki found 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 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 they offer a concept of resilience,’’ Stucki said. “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 toward seniors who are at greater risk for needing Medicaid and could include:

Paying for some or all of the upfront loan costs, and/or servicing fees.

Bundling reverse mortgages with social services such as care assessment to help borrowers use their money effectively for aging in place, that is, at home.

Making it easier for reverse mortgage borrowers to participate in established community-based state 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 about 90% 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 could reduce the risk of institutionalization, compliment Medicaid and enhance quality of life for older adults, Stucki said.

The number of senior citizens in most states is expected to double during the next 20 years, and this will create major challenges in funding high-quality, long-term care.

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 the loans deplete a homeowner’s estate and their children’s inheritance. Proponents say the children would most likely have to pay for their parents’ care from the proceeds of the home sale. Also, by allowing the parents to stay in the home, some of the fees and spent home equity could be recovered by home appreciation.