Retirement Living News

January 2009

HEADLINES  (Click on headline to read story)

• AARP Report Urges Adoption of Stronger State Laws 
  to Prevent Power of Attorney Abuse
• Project Examines How Boomers Will Confront and 
  Adapt to the Next 20 Years
• Recession Slowing State-to-State Migration
• New Census Data Shows Property Taxes Paid by Homeowners 
  Are Highest in New York and New Jersey Counties
• Seniors Can Now Use Reverse Mortgages to Purchase Homes
• FDIC Publishes Information About Usefulness 
  of Reverse Mortgages

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NEWS STORIES

AARP Report Urges Adoption of Stronger State Laws
to Prevent Power of Attorney Abuse 

A new report released last month from AARP's Public Policy Institute discusses the problem of power of attorney abuse and how state legislatures can protect vulnerable adults against it. A power of attorney (POA) is a legal document used by an individual to allow someone else to act on their behalf. It is commonly recommended by attorneys as a tool for planning for incapacity because a trusted person can stand in for an individual who can no longer make or communicate financial decisions. When used for planning, the POA generally is "durable," meaning it continues if incapacity occurs. The report explains how the new Uniform Power of Attorney Act (UPOAA) helps prevent, detect, and redress abuse, and provides resources to promote the enactment of this model law.

Vulnerable senior citizens are increasingly losing their life savings to unscrupulous individuals who have power of attorney over their finances, according to the report. By giving a spouse, adult child or other individual power of attorney, seniors can ensure that someone will manage their affairs if they become incapacitated. The individual who has power of attorney can do everything from writing checks to selling property. 

However, most states do not have adequate safeguards to guard against dishonest POA holders thereby giving them a license to steal. While national data is not available, some adult protective services agencies are reporting a sharp rise in financial exploitation cases involving power of attorney. The economic downturn is likely to give rise to more cases of abuse. 

Powers of attorney are regulated by state law and those laws vary substantially. In 2006, the Uniform Law Commissioners (ULC), who draft and propose model laws, approved the Uniform Power of Attorney Act. Among other goals, the UPOAA aims to promote autonomy and prevent, detect and redress power of attorney abuse. 

Some of the key provisions of the UPOAA that benefit and protect people who execute POAs include: 

• The clear statement of an agent's duties, including the agent's responsibility to act in good faith, within the scope of authority granted, and according to the principal's known expectations or best interest-as well as more specific duties such as preserving estate plans and cooperating with health care proxies; 
• Stringent requirements for exercising "hot powers"-- those with a high propensity for dissipating property or altering an estate plan; 
• The provision that a third party may refuse to honor a POA when the third party reports suspected abuse to an adult protective services agency or knows that someone else has made a report; and 
• Liability of malfeasant agents for damages, attorney's fees and costs.

Power of attorney is governed by state law, and state protections vary greatly, according to the AARP report. AARP is urging states to adopt a uniform law that would, among other things, require that a power of attorney document clearly state the duties of the person holding the POA. It would also make agents who abuse their powers liable for damages. New Mexico and Idaho have enacted the law, and 12 states are considering adopting it in 2009. These include Colorado, Georgia, Indiana, Maine, Maryland, Michigan, Nevada, Ohio, Oregon, Pennsylvania, Virginia, and Wisconsin. 

To read the 89-page report, click here. 
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Project Examines How Boomers Will Confront and 
Adapt to the Next 20 Years

Baby Boomers may not recognize themselves and their surroundings by the year 2028 as a result of an evolving global environment and marketplace. How they adapt and mitigate risk as we move into the future is the subject of a new project by the Institute for the Future done in conjunction with the Met Life Mature Market Institute. 

Titled Boomers: The Next 20 Years, Ecologies of Risk, the three-phased project looks at how baby boomers will age over the coming decades. The first phase mapped boomers' 20-year horizon, identifying seven big stories that will shape their future (boomer map). The second phase consisted of interviews with boomers to define 10 action types that help to understand how different boomers will make different choices as they confront challenges of the future. The final phase, "Ecologies of Risk," uses these insights to create focused forecasts of the boomers' world. 

According to researchers, boomers will distribute the stress and burden of managing risk across networks of people, some based on kinship and others on affinity or interest. They will plan more, work longer and become more entrepreneurial. They also will take part in peer-to-peer networks of people that will perform some of the financial services that banks and other financial institutions perform today. 

The report makes a number of predictions about boomers' future lives and offers a glimpse at business and marketing opportunities targeted to this group. Among them are: 

Family: New Relationships, New Responsibilities - Emerging patterns of marriage, remarriage and childbearing, including alternative family arrangements, will change the way we currently view family. Families will be "chosen," not just inherited. There will be peer caretaking and social care matching services. Boomers will be challenged by greater distance between family members and greater responsibility for the financial well-being of children and grandchildren, contributing to slowed personal wealth accumulation. 

Global Economy: More Competition, More Collaboration - Boomers will be the first generation to age in a truly global economy, giving them access to more learning resources, new ways to collaborate, financial products from around the world and healthcare abroad or "medical tourism." 

Community: Gaps and Gains - Boomers will use new ways to build communities to close the gap created by decreased mobility, polarization, social fragmentation and health challenges. Like their younger counterparts, they will participate in online social networks, virtual retirement communities and community blogging. They will be challenged by elder abuse, anti-boomer backlash and ageist zoning laws. 

Environments: Unsustainable Pasts, Sustainable Aging - A degradation of the environment will bring risks from new diseases and fewer sustainable food and energy sources. These challenges will bring food and energy collectives, do-it-yourself products and green technology. 

Personal: Health and Identity - Boomers will live longer but will suffer from new chronic diseases and widespread depression from aging, illness and other concerns. They will manage their health differently with biometrics and online tools that will challenge privacy, but will allow them to share and benefit from new information found on all parts of the globe. 

Institutions: Dissatisfaction, Distrust, Reinvention - An erosion of the trust people have had in institutions will bring new banking/investment vehicles, peer-to-peer loans and new structures to manage new capitals. Financial security will be threatened by diminished government and employer safety nets and low personal savings. 

"Faced with increasing longevity and the need to have lifetime income, boomers will likely reset their compasses," said Sandra Timmermann, director of the MetLife Mature Market Institute. "An adaptive disciplined and flexible self is the best asset that they can bring to the future." 

To view a copy of the 8-page report, click here: 
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Recession Slowing State-to-State Migration

The recession and housing bust have slowed migration throughout the U.S., keeping more Americans in place, according to a new report from the Census Bureau released last month covering the period from July 1, 2007 to July 1, 2008. Such states as New York, Massachusetts and New Jersey are holding on to more of their residents. For the first time since the early 1970s, more people left Florida for other states than moved in during the 12 months ending July 1. Nevada, among the four fastest-growing states for 23 years in a row, slipped from No. 1 to No. 8. Michigan lost people for the third straight year. 

Utah was the nation's fastest-growing state during the one-year period as its population climbed 2.5 percent to 2.7 million. Arizona was the second fastest-growing state, increasing 2.3 percent. 

Texas, North Carolina and Colorado completed the top five, each with a growth rate of 2.0 percent. Nevada, which had been among the four fastest-growing states each of the last 24 years, grew 1.8 percent and ranked eighth over the most recent period. 

Texas gained more people than any other state between July 1, 2007, and July 1, 2008 (484,000), followed by California (379,000), North Carolina (181,000), Georgia (162,000) and Arizona (147,000). 

The only two states to lose population were Michigan and Rhode Island. Michigan's population declined 0.5 percent (46,000), while Rhode Island's fell 0.2 percent (2,000). 

California remained the most populous state, with about 36.8 million people on July 1, 2008. Rounding out the top five states were Texas (24.3 million), New York (19.5 million), Florida (18.3 million) and Illinois (12.9 million). 

Other highlights: 

• On the whole, the Northeastern states have gained population at an increasing rate since 2005, a turnaround from their declining growth rates from 2000 to 2005. 
• Six of the 10 fastest-growing states from 2007 to 2008 were Rocky Mountain states: Arizona, Colorado, Idaho, Nevada, Utah and Wyoming. Three others lined the South Atlantic coast: Georgia, North Carolina and South Carolina. 
• The West was the fastest-growing region (1.4 percent) between 2007 and 2008, but the South added the highest number of people over the period (1.4 million). 
• The estimated July 1, 2008, population for Puerto Rico was 4 million, up by 0.3 percent (13,000) from one year earlier. 

The turnabout in the fortunes of Florida and Nevada is striking. During the first half of the decade Florida was No. 1 in attracting people from other states. Now it has more people going the other way. Nevada had begun to diversify its economy which had been dominated by gambling, tourism and hospitality industries but it may have been too late. 

Leading States by Population Change (July 1, 2007 to July 1, 2008) 

To view the population rankings for all 50 states, click here. 
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New Census Data Shows Property Taxes Paid by Homeowners Are Highest in New York and New Jersey Counties

New data released by the Census Bureau shows that over a three-year period (2005-2007) taxes paid by homeowners in New York and New Jersey counties were the highest while several Louisiana parishes paid the least. This information is based on the data from the Census Bureau's American Community Survey which now includes three-year averages for places where the population is greater then 20,000. 

The data below has been organized and presented by the Washington D.C.-based Tax Foundation whose mission is to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government. 

The top five most expensive counties to live in based on the average median real estate taxes paid over the last three years are Westchester County NY ($7,908), Nassau County NY ($7,7260), Hunterdon County NJ) ($7,708), Bergen County NJ ($7,370), and Somerset County NJ ($7,201). The five least expensive counties were in Louisiana: Vernon Parish ($115), Allen Parish ($116), Franklin Parish ($117), Richland Parish ($118) and Assumption Parish ($123). 

Looking at average median real estate taxes paid from 2005-2007 as a percentage of median home value, the following New York counties are the top five: Orleans (3.05%), Niagara (2.90%), Allegany (2.87%), Montgomery (2.86), and Monroe (2.84%). The counties with the lowest taxes as a percentage of median home value are all in Louisiana: St. John the Baptist Parish (0.122%), Ascension Parish (0.134%), Tangipahoe Parish (0.139%), West Baton Rouge Parish (0.145%), and St. James Parish (0.145%). 

For a chart of real restate taxes paid on owner-occupied housing for each of the more than 1,800 counties with populations greater than 20,000 for the years 2005, 2006 and 2006 (click here).  This table also shows the rankings of median real estate taxes paid by dollar amount. 

For rankings by median real estate taxes as a percentage of the median home value and as a percentage of the median income for household-owning units (click here) 
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Seniors Can Now Use Reverse Mortgages to Purchase Homes

As of the beginning of this month, home buyers 62 and older will be able to buy a house using a reverse mortgage, as long as it's their primary residence. Traditionally, people obtained reverse mortgages to take equity out of their existing homes to help them meet expenses, pay off the mortgage or pay the property taxes. 

But staff members at the Federal Housing Administration (FHA) noticed an increasing number of seniors selling their homes, buying new homes and then getting a reverse mortgage to pay off the new home, said Meg Burns, director, FHA office of single-family program development. "They were going through two mortgage transactions and paying all those fees," she said. "Seniors need to keep their money in their pocket." 

When the FHA staff members looked further, they found that the traditional reverse mortgage program designed to keep seniors in their home wasn't helping those who wanted to downsize, move to a house without stairs, move closer to their kids or move into active adult housing. 

With a reverse mortgage, the borrower takes the equity out of the home either as a lump sum, a line of credit, in a monthly payment or as a combination of these. The loan is repaid when the borrower sells the house or the last homeowner dies or moves out. The amount of the loan is based on the home's value and the youngest borrower's age. 

A new law that went into effect last fall imposed a $6,000 cap on origination fees, and that law applies to the Home Equity Conversion Mortgage (HECM) for purchase loan. Lenders can charge 2 percent of the first $200,000 of loan value plus 1 percent of any additional loan value. Consumers are still charged 2 percent for FHA insurance. 

The FHA insurance protects both the borrower and the lender. If the bank should go under, consumers still will receive their reverse mortgage. And if the home's value drops below the original loan amount when the senior dies or moves out, the insurance protects the lender. 

Consumers should expect to pay fees similar to a traditional reverse mortgage, with the additional fees relating to a purchase of a home such as recording fees and transfer taxes. Borrowers are still required to meet with a third-party, HUD-approved consumer counselor so they understand their options. 

Those using a HECM loan for purchase must buy a one- to four-family house. The HECM for purchase may be used for new construction that has been completed and received a certificate of occupancy. Purchasers must move in within 60 days of closing.
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FDIC Publishes Information About Usefulness of Reverse Mortgages

The Federal Deposit Insurance Corporation (FDIC) recently published Reverse Mortgages: What Consumers and Lenders Should Know. The report goes over the history of reverse mortgages and why the aging population presents such an opportunity to banks. 

While there is a big opportunity in catering to the aging demographic, the report notes that financial institutions have been slow to enter reverse mortgage lending due to the unique servicing and risk management challenges. For example, when the reverse mortgage was first introduced, banks were wary of booking potentially long-term loans that increase over time, do not have a predefined scheduled repayment stream, and for which there was no established secondary market. Lenders also faced uninsured crossover risk. 

However, the market changed in 1988 when the Federal Housing Administration launched the Home Equity Conversion Mortgage Insurance Demonstration. The pilot was eventually adopted permanently by HUD and the HECM was born. The HECM presented banks with a commercially viable loan product with strong consumer protections. 

The report goes into more detail about various aspects reverse mortgage lending and gives some good background information. To read a copy, click here and go to page14.   
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