Category Archives: baby boomers

How reverse mortgages staged a comeback

Professor Chris Mayer has a lesson for ­homeowners: Reverse mortgages, which let older Americans tap their home equity without selling or moving, aren’t as risky as some say. In an online video, he brushes aside “common misconceptions,” including fears about losing your home.

Mayer, a real estate professor at Columbia Business School, isn’t an impartial observer. He’s chief executive officer of a company that sells reverse mortgages. He’s trying to rehabilitate one of the U.S.’s most-­reviled financial products—part of a broader push that relies in part on academics with interests in the mortgage industry.

The host of Mayer’s talk was the American College of Financial Services, a school that trains financial planners and insurance agents. Until recently, it had a task force funded by reverse mortgage companies, which each contribute $40,000 a year. They include Mayer’s firm, Longbridge Financial, and Quicken Loans’ One Reverse Mortgage.

To show the need for reverse mortgages, industry websites cite a Boston College retirement research center run by Alicia Munnell, a professor and former assistant secretary of the Treasury Department in the Clinton administration. She once invested $150,000 in Mayer’s company, though she’s since sold her stake.

The six-year-old task force cites key successes. Mainstream publications have run articles quoting positive research on the loans, and financial planners are growing more comfortable recommending them. The Financial Industry Regulatory Authority, the securities industry’s self-regulatory agency, in 2014 withdrew its warning that reverse mortgages should generally be used as “a last resort.”

Mayer and Munnell said they’ve fully disclosed, in research, appearances, and interviews, their financial interest in the lender. Columbia and Boston College both said they approved the arrangements.

The professors and industry officials say these government-backed mortgages deserve a second look, partly because of a series of federal reforms in recent years designed to protect taxpayers and consumers.

“We are looking to help people responsibly incorporate home equity in their retirement planning,” Mayer said of Longbridge.

Reverse mortgages let homeowners draw down their equity in monthly installments, lines of credit or lump sums. The balance grows over time and comes due on the borrower’s death, at which point their heirs may pay off the loan when they sell the house. Borrowers must keep paying taxes, insurance, maintenance and utilities—and could face foreclosure if they don’t.

While even critics say the mortgages can make sense for some customers, they say the loans are still too expensive and can tempt seniors to spend their home equity early, before they might need it for health expenses.

Fees on a $100,000 loan, based on a $200,000 home, can total $10,000. Because the fees are typically wrapped into the mortgage, they compound at interest rates that can rise over time. Homeowners who need cash could be better off selling and moving to less expensive quarters.

“The profits are significant, the oversight is minimal, and greed could work to the disadvantage of seniors who should be protected by government programs and not targeted as prey,” said Dave Stevens, CEO of the Mortgage Bankers Association until last year and a commissioner for the Federal Housing Administration in the Obama administration.

Academics represent a new face for an industry that’s long relied on aging celebrity pitchmen. The late Fred Thompson, a U.S. senator and Law & Order actor, represented American Advisors Group, the industry’s biggest player. These days, the same company leans on actor Tom Selleck.

“Just like you, I thought reverse mortgages had to have some catch,” Selleck says in an online video. “Then I did some homework and found out it’s not any of that. It’s not another way for a bank to get your house.”

Michael Douglas, in his Golden Globe-winning performance on the Netflix series The Kominsky Method, satirizes such pitches. His financially desperate character, an acting teacher, quits filming a reverse mortgage commercial because he can’t stomach the script.

In 2016 administrative proceedings, the U.S. Consumer Financial Protection Bureau accused American Advisors, as well as two other companies, of running deceptive ads. Without admitting or denying the allegations, American Advisors agreed to add more caveats to its advertising and pay a $400,000 fine.

Company spokesman Ryan Whittington said the company has since made “significant investments” in compliance. Reverse mortgages are “highly regulated, viable financial tools,” and all customers must undergo third-party counseling before buying one, he said.

The FHA has backed more than 1 million such reverse mortgages. Homeowners pay into an insurance fund an upfront fee equal to 2 percent of a home’s value, as well as an additional half a percentage point every year.

After the last housing crash, taxpayers had to make up a $1.7 billion shortfall because of reverse mortgage losses. Over the past five years, the government has been tightening rules, such as requiring homeowners to show they can afford tax and insurance payments.

In response to public concerns, Shelley Giordino, then an executive at reverse mortgage company Security 1 Lending, co-founded the Funding Longevity Task Force in 2012. It later became affiliated with the Bryn Mawr, Pennsylvania-based American College of Financial Services.

Giordino, who now works for Mutual of Omaha’s reverse mortgage division, described her role as “head cheerleader” for positive reverse mortgages research. Gregg Smith, CEO of One Reverse Mortgage, said the group is promoting “true academic research,” including work by professors with no industry ties.

In January, the American College cut its ties with the task force because the school, as a nonprofit institution, wasn’t comfortable being affiliated with an organization endorsing products, according to Vice President James N. Katsaounis. “A proper retirement portfolio is one that is well-balanced and diversified, which may or may not include reverse mortgages,” he said.

Mayer, the Columbia professor and reverse mortgage company CEO, said many older consumers could benefit from the loans because they can never owe more than their house is worth even if real estate prices plunge.

A former economist at the Federal Reserve of Boston with a Ph.D. from the Massachusetts Institute of Technology, Mayer joined the Columbia faculty in 2004 and currently co-­directs Columbia’s Paul Milstein Center for Real Estate. He wrote his first paper on reverse mortgages in 1994, when the FHA product was five years old.

In 2012, Mayer co-founded Longbridge, based in Mahwah, New Jersey, and in 2013 became CEO. He’s on the board of the National Reverse Mortgage Lenders Association. He said his company, which services 10,000 loans, hasn’t had a single completed foreclosure because of failure to pay property taxes or insurance.

While many colleges let professors engage in outside business activities, Gerald Epstein, a University of Massachusetts economics professor who’s studied academic conflicts of interest, said Columbia may need to scrutinize Mayer’s arrangement closely.

“They really should be careful when people have this kind of dual loyalty,” he said.

Columbia said it monitors Mayer’s employment as CEO of the mortgage company to ensure compliance with its policies. “Professor Mayer has demonstrated a commitment to openness and transparency by disclosing outside affiliations,” said Chris Cashman, a spokesman for the business school. Mayer has a “special appointment,” which reduces his salary and teaching load and also caps his hours at Longbridge, Cashman said.

Likewise, Boston College said it reviewed Professor Munnell’s investment in Mayer’s company, on whose board she served from 2012 through 2014. Munnell said another round of investors in 2016 bought out her $150,000 stake in Longbridge for an additional $4,000 in interest.

She said she now prefers another approach: States allowing seniors to defer property tax payments. The advantages include “no fee, no paperwork and no salespeople,” she said. In one way, she’s glad she exited her reverse mortgage investments.

“Anytime I had a conversation like this, I had to say at the beginning that I have $150,000 in Longbridge,” she said. “I had to do it all the time. I’m just as happy to be out, for my academic life.”

 

Source: Copyright Bloomberg News – Business News 13 Mar 2019

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Advice for retirees who must answer the question: Buy, sell or rent?

It wasn’t that long ago when the outlook for retirees focused on baby boomers downsizing and moving into smaller homes in the country — trading an urban lifestyle with a relaxing, rural retirement.

Fast forward 20 years, and many retirees are opting to stay in their homes for longer: renovating, upgrading and improving accessibility along the way.

A comfortable home is a comfortable lifestyle that many are not willing, or wanting, to give up.

The definition of “old” has changed.

Joseph Segal, the founder of Kingswood Capital, has just put his tony 22,000-square -foot home in Vancouver’s west side up for sale, for $63 million.

Why? Because they are downsizing to a smaller home in Vancouver.

“I’m an old man,” said the 92-year-old Segal, and “it’s a big place.”

Many of us are living longer and have healthier lifespans with various sources of retirement income, and ultimately we will ask the question: should we buy a condo, downsize to a smaller home or cash in and rent?

All options have pros and cons.

Is a condo right for you? 

Buying a condo may mean downsizing our footprint, but in many cases it doesn’t mean downsizing the cost.

Retirement communities are being pitched to seniors across the country with promises of amenities such as entertainment, hospitals to retail.

Many choose to be closer to families along with the desire to live in accommodations that are maintenance free. It can be enticing.

On the other hand, the concern over new costs such as condo fees or retirement residence fees can be worrisome.

Is it time to downsize?

In a hot real estate market, the temptation to cash in and lock in your appreciation can be overwhelming.

But before you do, Ted Rechtschaffen, president and CEO of TriDelta Financial, said in a BNN interview to ask yourself: is the house I’m in now too large or too difficult for me to manage?

And consider where your wealth is concentrated. Do you have too much of your wealth tied up in real estate? You have to live somewhere. So do you buy or rent? Unless you plan on living in a home for at least 6 years, you might be better off renting.

Bottom line

I’ve never been a fan of trying to time the market. You have to get it right at least twice. Going in and getting out.

Consider your lifestyle, potential longevity and retirement funding options. Even if you don’t pick the peak of the market you are still holding on to the lottery ticket that doesn’t have an expiration date.

You get to cash in when you need to, or want to.

Source: CTV – Patricia Lovett-ReidChief Financial Commentator, CTV News

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4 things credit unions do that make banking with them better

On a scale of one to 10, how much do you like financial advisors?

Be honest…

Unsurprisingly, you’re not the only one. It turns out a lot of millennials have a” negative perception of financial advisers,” according to a millennials and wealth management report by Deloitte.

It also points out that word-of-mouth and personal recommendations significantly influence around 50% of millennials. Yep, they’re more likely to “consult peers and media” instead of using a financial adviser and those who do use an advisor are likely to cross-check the facts using external sources.

So you could say that there’s a sense of distrust felt by youth in Canada when it comes to banking. If you have to question your bank that much, maybe it’s not the one for you. Banking should be easy because you don’t need any unnecessary stress factors in your life.

Luckily, you have another option (no, not carrying cash on you 24/7) – banking with a credit union. These financial institutions act in the interest of their members and work to make things better in your local community (without the drab financial advisor spiel).

With that in mind, we’ve compiled a list of four lovely things credit unions do.

They’re involved with the community

Credit unions understand that most young families in Ontario are dealing with large amounts of debt ranging from credit cards to student loans, and mortgages. Understanding the impact of heavy debt loads on the future of young people, credit unions want to step in and help any way they can. Aside from helping with debt management, they’re also involved in grassroots programs in their communities. Credit union staff members volunteer thousands of hours each year to help local non-profits and community initiatives. And they also help their communities thrive by hiring locally, keeping their members’ dollars local, and reinvesting their profits back in the local area. 

They’re environmentally friendly

Given the very nature of their cooperative model, it should come as no surprise that over the years, many credit unions have been recognized as Canada’s Greenest Employers. In fact, Ontario’s credit unions have made environmental performance a key part of their growth strategy, and are engaged in a full spectrum of operational improvements. But it doesn’t end there, they also have social and environmental finance innovations aimed at improving every aspect of their operation – from carbon neutrality and paperless banking to responsible investing, assistance for green start-ups, and social enterprise.

They help individuals, local businesses, and charities

The act of charity is centered around helping people in need. And since credit unions strongly believe in helping people, it’s only natural that they’re involved in a variety of charitable endeavours. From local sponsorships, to grants, bursaries, and even financial literacy blogs, credit unions are pretty much dedicated to helping everyone. They also support local community events and non-profit organizations through donations. When several provinces were suffering from floods earlier this year, multiple credit unions across Canada rallied to donate $150,000 to the Red Cross at a moment’s notice.

They offer tailored financial advice

Credit union staff ensure products are tailored to the specific financial needs of each customer. This means you’re not going to hear about investment portfolio options when you simply want to set up a savings account (unless you want to). Irrespective of your current financial situation, credit unions can help you tackle debt, save for a large purchase, or plan for a stress-free retirement. With the expertise to provide financial guidance to help their members build a strong foundation for their future, it’s no wonder that more and more Canadians are switching to credit unions. Will you?

Source: DailyHive.com – Daily Hive Custom ContentDec 11, 2017 

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Who gets what in a blended family with no will?

Q: What happens if I die, was previously married and had a will—but am now remarried (blended family) and have not written a new will? What happens to my estate if I die? How is it divided? Does my new spouse get all the assets? Or is it split between all children (his and mine)? Or do just my own children and spouse inherit everything? Or just my children?

—Donna

A: Donna, You ask, “What happens to your blended family if you die?”

The simple answer is that no one knows. No one can give you an answer without knowing your specific circumstances. You cannot get simple answers to comfort you. I’m not trying to scare you, but you need to get advice.

There are so many variables that determine who shares in your assets. Here are some variables that only involve children when parents die:

Minor Children Suffer Most

  • What are the ages of all children (his and yours)?
  • Are you supporting any children?
  • Are any children financially dependent?
  • Do you need guardians for children who are minors?
  • Should trusts be set up to invest minor’s inheritances?
  • Is any child on government assistance?
  • Should discretionary trusts be used for spendthrift children?
  • Do estranged children have claims to your estate?
  • Did you promise to pay for their children’s education or wedding?

You can protect minors with a will and estate plan.

Government Rules May Divide Your Estate

What happens if you don’t take the time to prepare an estate plan?

The government has a will for you that cannot be varied.

Governments have rules to divide your estate among your next of kin. These rigid rules are not flexible. These rules dictate who controls your money and who is your executor. They also decide who gets what and when.

What about Spouses and Wills?

Another set of variables applies to your spouse.

  • What if your new spouse has more wealth than you?
  • Should your money go to your spouse or your children?
  • What if your spouse requires a full-time personal service worker?

You Need to Reduce Taxes

Government tax rules apply if you have no will. As you can imagine, the government does not give you any tax breaks. You will pay the maximum in income and probate taxes.

You cannot use any tax deferrals or tax reduction options. You need to learn how to designate some assets like tax-free savings accounts and registered plans. You may need to protect your assets from creditors or prior spouses.

All of these variables affect what your family receives if you die. These examples do not consider lawsuits from prior spouses. All lawsuits waste your money and incur legal costs and delays. Lawsuits also destroy families and wipe out estates.

Estate Planning Can Avoid Lawsuits

You need to consider tax, estate and family laws. You need good professional advice to get it right.

Remember: estate planning is what you do for the people you leave behind.

If you love your family, find the time and write a will.

Source: Moneysense.ca – by  

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Indebted seniors among Canada’s most at-risk sectors

Indebted seniors among Canada’s most at-risk sectors

 

Indebtedness among Canada’s elderly population is on the rise, according to academics and financial experts at an international conference at Ottawa’s Carleton University last week.

Contributing to this trend—not just in Canada, but worldwide as well—are multiple pressures that include easy credit, unreliable pension plans, divorce among seniors, unmonitored spending by people with dementia, and financing the needs of younger family members.

Compounding the issue is a similar growth in the number of people in late middle age who are quitting employment or taking on even greater debt, either to care for their aging parents or to help their adult children buy their own homes.

“There is the worldwide phenomenon of older people who go into debt to help their children,” Carleton University School of Public Policy and Administration professor Saul Schwartz said, as quoted by the Ottawa Citizen.

Earlier this year, a global survey commissioned by HSBC found that 37 per cent of young Canadians who currently have their own homes used the “Bank of Mom and Dad” as a source of funding. Meanwhile, 21 per cent of millennial home owners moved back in with their parents to save for a deposit.

Schwartz, who was one of the conference’s organizers, added that Canadian seniors suffer from a lack of source that provides impartial advice.

“You can talk to your bank. But if the advice is free, it’s probably not unbiased,” he explained.

A study conducted by Equifax Canada and HomEquity Bank last year uncovered that 16.5 per cent of people aged over 55 were carrying mortgages. The average mortgage balance in this demographic swelled from $158,000 in 2013 to $176,000 in 2015.

Bankruptcy trustees Hoyes, Michalos & Associates Inc. have warned that seniors were the fastest-growing risk sector for bankruptcies.

“The share of insolvency filings for debtors aged 50 and over increased to 30 per cent in our 2015 study compared to 27 per cent in 2013,” the Ontario-based firm warned, adding that on average, debtors aged over 50 held unsecured debt of over $68,000 (over 20 per cent higher than the average debtor).

 

Source: Mortgage Broker News – by Ephraim Vecina15 Aug 2017

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How to choose the right home for your budget

how-to-choose-the-right-home-for-your-budget

As a first-time homebuyer, affordability is an important factor when purchasing the right home. Wondering how to find the right home for your budget? Try our three-step plan for determining how much home you can afford, so you can choose – and successfully close on – the right home for your lifestyle and price point.

 

Step 1: Dream it 

It’s easy to get caught up in other people’s ideas of the perfect starter home – design magazines and TV programs sell you on what’s hot now. Ignore the hype and sit down to itemize what’s most crucial to you and your family. Make a list of your top priorities, so you can find the right home for your budget.

Here are some key issues to consider.

Transportation

Do you need easy access to public transportation? Is dedicated parking for your car essential, or will street parking suffice? Would a secure bike locker be crucial to your commute

Recreation

Do you need a walkable park for your kids or dog? Would an on-site gym help you manage your hectic schedule?

Space

How many bedrooms do you need now? What about three to five years from now? (That is, is a baby on the horizon?) Do you need a home office for your side gig? Is a big, open-plan main floor essential, given your high-volume entertaining?

Lifestyle

Do you have the time and inclination to sacrifice hours each week to maintain a house and yard? Would you rather come home after work to a turnkey property each night? Do you want a condo with all the amenities, or would you sacrifice bells and whistles for a lower maintenance fee?

Can’t find the perfect home?Why not build yourself? Build a custom home and finance it with as little as 5% down. Find out how

Look over your list and differentiate between the must-haves and the nice-to-haves. Chances are, you might not find your entire wish list on a starter-home budget, so it’s important to know your priorities.

Step 2: Crunch some numbers

Just as important as knowing what you need in a first home is knowing what you can afford. Price dictates not only how much home you can buy but also what neighbourhoods you should be looking in.

Sit down with your partner to assess your income, debts, savings and investments, so you can anticipate how much money will be available for a down payment, and how much you can afford to pay each month in home carrying costs (mortgage payments, taxes, heating, etc.).

how-to-choose-the-right-home-for-your-budget

Work out the monthly budget you’ll need to cover your responsibilities as a new homeowner, and start living on it now, so you can see how sustainable it is. If you find that it’s cramping your lifestyle, you will have to reassess whether homeownership is right for you, or consider a lower-priced home. 

Step 3: Assemble your real estate pros 

Once you’re ready to buy, build your real estate team: a REALTOR® or real estate agent, a mortgage specialist, a home inspector and a real estate lawyer (or notary, in Quebec). These are the pros you’ll count on to get you the keys to the right home for your budget.

Your first point person is your REALTOR® or real estate agent. Be forthright about your priorities and budget, as well as the neighbourhoods you’d like to live in. A REALTOR®’s insights are priceless, especially as they pertain to affordability. BONUS: A good REALTOR® will have the inside scoop on up-and-coming neighbourhoods that offer more bang for your homebuying buck.

The mortgage specialist is your next priority because mortgage pre-approval is essential in today’s real estate market. While it’s useful to attend open houses and check listings beforehand, most sellers won’t consider offers from potential buyers without pre-approval. Your mortgage broker will also have real-world insights into affordability, so tap into that resource early.

Next, have that home inspector on speed dial to ensure that any home you make an offer on is a home you can afford – without any major hidden costs (such as faulty wiring, asbestos or termite damage in need of remediation).

Finally, a real estate lawyer (or a notary, in Quebec) will ensure that things run smoothly with your real estate transaction, including researching the title, checking whether there are liens against the property, and verifying the accuracy of legal descriptions of the property. The lawyer also makes sure that everyone is paid appropriately, so you can take ownership of your first home without any financial bumps.

 

Source: Genworth – HomeOwnership.ca

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Millennials not giving up on the detached-home dream, despite soaring record-high prices

There are options for that detached home for millennials, but they ultimately mean sacrificing something along the way.

Millennial are not giving up on the dream of owning a detached home, despite national prices soaring to record levels, buoyed by average prices that routinely reach seven figures in hot markets.

Even in the face of what the Toronto Real Estate Board says is a “troubling trend” in its market, Generation Y will not be deterred from their dream home, with 51 per cent of the cohort planning to purchase a detached home in the next two years, according to a survey by the Ontario Real Estate Association.

But planning and purchasing must be two different things, because the barriers to entry to the detached home market in Ontario have never been greater, at least in the city of Toronto where the average detached home sold for just over $1.2 million in July, according to the Toronto Real Estate Board.

Even accounting for the larger geographic region of the Greater Toronto Area — meaning,  a trip to suburbia — the average existing detached home sold for an average of $952,983 in July, according to the TREB numbers, released Thursday.

The real estate industry says provincial regulations encouraging density and choking off developable land has created the imbalance between supply and demand in the low-rise market, including detached homes.

“Housing policy is now top of mind for all levels of government. Policy makers need to be focusing on solutions to the sustained lack of low-rise inventory throughout the GTA,” said Larry Cerqua, president of TREB, in a statement. He refused a request for an interview.

Given the state of the market, what exactly makes this generation — defined in the OREA study as the group born between 1981 and 1992 — think they will actually be able to afford anything but a condo, let alone a detached home?

“I think what we are seeing in the research, there are a few factors. It’s obviously stage of life, as needs change, your requirement for a home changes,” said Fahed Malik, the director of marketing communications at OREA. “There is a need for a larger home and a detached home can give you that practicality.”

Part of what also drives them is this idea that real estate will always be a good investment. The survey, which was conducted online by Ipsos between May 31 and June 2, 2016 and is considered accurate to within 3.5 percentage points 95 per cent of the time, finds 77 per cent of Generation Y thinks real estate is a good investment. A year ago only 70 per cent felt so.

The desire to have the dog, the garage and 2.4 kids is strong no matter what generation you are talking about

Why wouldn’t they think real estate always pays off — property prices have had only one real dip in the GTA over the past 20 years, which is most of their adult lifetime. Even the Great Recession barely impacted prices between 2008-2009.

Ontario millennials are hardly alone in their  desire for a large, detached home. The demand is just as strong in British Columbia, which has seen the benchmark price for detached homes climb to almost $1.6 million in its largest city.

The provincial government in Victoria won’t let the dream die easily, and last month announced a 15 per cent tax on foreign purchasers in Vancouver in an effort to control prices in a market where the supply of detached housing is finite. Prices are destined to go higher in a market where supply is outstripped by demand, even if you do more to limit that demand.

There are options for that detached home, but they ultimately mean sacrificing something along the way. Elton Ash, regional executive of Re/Max of Western Canada, says that means a resurgence of interest in suburbia.

“The desire to have the dog, the garage and 2.4 kids is strong no matter what generation you are talking about,” he said, pointing out that detached home affordability question is not a pan Canadian issue. “I just did a road trip in Manitoba and visited a community 35 kilometres north of Winnipeg and the lot cost was $45,000. But it’s the same result as you move out of city cores, prices to get cheaper and that’s why bedroom communities are getting more popular.”

Living near the city’s downtown means downsizing your expectations. The OREA study didn’t ask people specifically where they would be willing to live to afford a detached home, but it’s now realistic for a person working in Toronto to live more than 100 kilometres away from her job.

The prices continue to drive that message home. Results from the Real Estate Board of Great Vancouver for July do show detached homes are pretty much unattainable for local residents, but the average attached home, which could include a rowhouse or townhouse, sold for $669,000 last month. That’s clearly more attainable goal.

Doug Norris, a demographer with Environics Analytics, said baby boomers are not retiring anytime soon, so the supply of ground level housing is likely not picking up. “They’re not moving until (age) 75 or so,” he said.

He says demographics drive demand for single family homes, but the reality of the economics is that means some level of compromise.

That same study from OREA found the second choice of generation Y buyers, after detached homes, was condo apartments at 28 per cent, followed by semi-detached at 18 per cent and row houses at 13 per cent.

Detached homes may be the first choice of that generation, but the reality of the marketplace means the percentages of those other options are going to rise — at least in Toronto and Vancouver.

Source: Garry Marr | August 4, 2016 2:31 PM ET

gmarr@nationalpost.com
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