ABA Banking Journal - September/October 2015 - (Page 39)

>>> REAL ESTATE LENDING THE cLOsING GAP How banks can help older adults use the equity in their homes to provide another source of retirement funding. bY mIKe mooNeY T oday, the three traditional sources of retirement income-savings, pensions and Social Security benefits- aren't always enough to enable older adults to live the retirement they imagined. This leaves many hardworking people financially ill-prepared for retirement. The numbers tell a very sobering tale: Studies show that 14 percent of U.S. residents age 65 and older have zero retirement savings. The median retirement account balance for near-retirees is just $14,500. And the average baby boomer has less than $50,000 in retirement savings. As a result, home equity is becoming increasingly important as a component of older adults' retirement plans. In fact, home equity as a percentage of home value rose from 39 percent in 2008 to 54 in 2014. The estimated aggregate value of home equity owned by older adults is $3.96 trillion, just 1 percent below its peak of $4 trillion in the fourth quarter of 2006. One way for older adults to access this equity as a retirement asset is through a reverse mortgage. Recent changes to the Federal Housing Administration's home equity conversion mortgage (HECM) program have made reverse mortgages a more viable option. The Reverse Mortgage Stabilization Act of 2013 has helped protect consumers and create a more sustainable program. Changes include new limitations on the amount that can be drawn at closing and in the first 12 months, a required financial assessment on each application to help ensure that borrowers can continue to meet their obligations as homeowners, an adjusted mortgage insurance premium (MIP) to more accurately price for risk and added protection for non-borrowing spouses. In addition to helping protect consumers, these changes reduce headline risk, ensure the stability of the program, broaden its appeal and have spawned newly designed products with more options to meet the needs of older adults. For example, Reverse Mortgage Funding LLC (RMF) has an innovative, low-cost HECM option that eliminates nearly all closing costs. All of this has caused financial advisors to take a fresh look at reverse mortgages, and more are recommending HECM loans for some clients as part of their retirement strategies. According to the Center for Retirement Research at Boston College, "Accessing home equity will become increasingly important in a world where retirement needs are expanding; people are living longer and facing rapidly rising health care costs; the retirement system is contracting; Social Security replacement rates are declining; and employer-provided pensions have shifted from defined benefit plans to 401(k)s where balances are modest. Reverse mortgages offer a mechanism for tapping home equity for those who want to stay in their home." aba.com/BankingJournal | ABA BANKING JOURNAL 39 http://www.aba.com/BankingJournal

Table of Contents for the Digital Edition of ABA Banking Journal - September/October 2015

CHAIRMAN'S VIEW
UPFRONT
PICTURE THIS
ECONOMIC OUTLOOK
POISED AND PROACTIVE ON THE FARM
MEETING CUSTOMERS WHERE THEY ARE
INVESTING IN STRONG RURAL COMMUNITIES
ABA COMPLIANCE CENTER INBOX
OPERATIONS
BANKS IN INSURANCE
REAL ESTATE LENDING
BOARD MATTERS
INVESTOR PERSPECTIVE
LEGAL BRIEFS
FROM THE STATES
COMPLIANCE
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - September/October 2015

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