Rather than limiting all seniors on their use of proceeds, why not incorporate incentives which reward those who pay down their balance due as the Canadian program seems to. While some limits for the most financially strapped seniors may be needed, it seems the vast majority should be regulated by incentives for keeping their loans as low as possible. This leaves the financially responsible in charge of their own financial decisions, a good thing.

Because of its usefulness in cash management, the periods to test the paydowns should be once every 4 to 5 years rather than annually.

"HomEquity Bank also offers a discount program that further reduces the interest rate on a CHIP Home Income Plan to as low as 3.25% to customers who pay their full interest annually."

Wow, this really grabbed me. I would love a product like that, and I think "financial Planners" would also. Gobble, Gobble (I hate turkey).
Re: a question in a recent article in the NYT or WSJ regarding the issue of paying RM interest and the tax consequences, this article really resonates.

dduck12,

Can you please cite the article you are referring to? Thank you and enjoy Thanksgiving.

It was a question on paying interest each year and can one deduct on income tax as with other mortgages.

http://online.wsj.com/article/SB100014240527487...

dduck12,

Typical of AARP spokespeople, Ms. Nancy Thompson should only reply to questions she knows the answer. Ms. Thompson is just plain wrong. An unnamed "tax expert" gave the same silly answer some weeks ago in the Money section on MSN. It is sad people who have never done any research on the issue come up with these wild guesses.

The authority on point is a public ruling the IRS issued way back in 1980. It has the highest authority the IRS can give next to a regulation. Simply go to

http://www.legalbitstream.com/scripts/isyswebex...

That Revenue Ruling was the basis that the IRS changed their Publication 936 last year when I questioned their guidance on this important issue and submitted my basis (Rev. Rul. 80-248) for reaching the conclusion that their guidance was wrong.

However, I agree with Nancy Thompson on one slant she presents. If borrowers are not planning how to use the deduction it will generally be wasted. Many do not have the taxable income to make tax planning a cost effective venture. Unfortunately most tax advisors are as unaware of the issues as Ms. Thompson so I advise seniors to choose their tax advisors very carefully.

Still hate turkey, but like Thanksgiving and thank you for the information; thanks for the citation.
Does a payer of interest each year receive the same 1099, that you get for a forward mortgage?
And, back to the original article, what I nice product it seems like and I guess no U.S. products yet?

dduck12,

Servicers issue Form 1098 whenever they determine that interest has been paid in a calendar year. However, I must add two caveats. Payments related to HECMs are applied in a specific order when received. It is applied first to accrued MIP and the excess, if any, is then applied to accrued servicing fees, with any excess applied to accrued interest. If the payment is greater than the total of the accrued MIP, servicing fees, and interest, the excess is applied against principal.

Form 1098 shows the amount of interest that the service provider has determined has been paid. The deduction is then determined under the home mortgage interest deduction rules. Those rules are described in IRS Publication 936. If elected, other rules may apply.

One of the benefits of HECMs is the ability to maximize the benefits of interest deductions. This may require that several years of interest be paid in one year and deducted all in one year and not paid and not deductible in others. This generally requires the help of a skilled tax professional who is knowledgeable and competent on reverse mortgages. The technique is called bunching.

For many seniors, taxable income is so low that the cost of annual tax planning could far exceed its benefits.

I apologize but I do not understand the final paragraph.

1098, not 1099, you see why I'm not an accountant; thanks for the clarification. The availability to do bunching for tax deductions could be handy for some folks to offset extra income taxes due, like an asset sale. I know, unfortunately, most folks using RMs don't usually have this situation, but it could come in handy especially for those wishing to minimize the loan balance. I believe in flexibility and options when it comes to financial planning, as do most financial planners; it makes the RM a more attractive tool.
As to my last paragraph, I guess I know the answer, there is no comparable U.S. Product available.

dduck12,

While your point about fluctuating income is well taken, it is also true that bunching is a great technique to artificially but legally increase itemized deductions over a period of years when used in conjunction with the standard deduction. With wealthier taxpayers, who have high itemized deductions each year, this technique will usually have less (or no) value. With low income borrowers, the technique may be futile.

Although they currently produce the most proceeds, fixed rate HECMs are not nearly the cash management tool that the adjustable rate HECM can be if there is sufficient cash available through a line of credit. Imagine obtaining interest deductions with no net cash outlay through proper use of the cash available through the line of credit. If borrowers with available lines of credit learned the tax rules, they could effectively utilize their interest deductions and generate thousands in cash over the life of the HECM instead of taking all the deductions in the year of payoff when much of the deduction may exceed their adjusted gross incomes and thus be wasted; or as I call it, ineffective forced bunching.

Having performed many independent fee based financial planning and cash management engagements in conjunction with income tax and estate planning engagements, the HECM line of credit is perhaps one of the most useful cash management tools encountered. It is particularly effective in implementing specific income tax strategies. You should explore it with a competent income tax planner; you might be pleasantly surprised.

You know what they say about attorneys who represent themselves; too many times the same is true of financial services advisors who do their own income tax planning. The problem lies in finding competent income tax planners who are familiar with HECMs. I face the same problem with planning for myself and close relatives.

This topic might be great if it could be put into an approved continuing ed (CE) course for CPAs, CLUs, ChFCs, CPAs and others, as your industry reaches for more professional respect. Of course your industry may already be doing this.
BTW: I think the average CPA is not too keen on RMs. I've always had problems with them with products that they only see as money being spent. They seem to have a blind spot sometimes for benefits and long-term planning. (I also may be paranoid, since they cost me many a sale.)

dduck12,

Despite what some promote, over the years I have heard of more and more continuing education courses being offered to financial professionals on reverse mortgages. Unfortunately most emphasize how participants can use the proceeds to sell their services or “wares” and not enough on how seniors can use the proceeds to improve their own cash and financial position.

Another CPA offers a far better continuing education course on reverse mortgages to financial professionals in Colorado as does an attorney who provides CLU hours to Florida attorneys. It is interesting that NYU (not far from your home) has a classroom/“web based” credential program in which those in the reverse mortgage industry can receive some limited training in such principles; it is far too short, however, to provide little more than an overview.

I love how you show CPAs twice. I can tell you have had problems with CPAs in the past. So that you and I are clear, CPAs rarely advise clients to enter into any transactions for which they do not have an engagement to review the transaction. The reason is there is huge risk of being blamed for what clients (or their heirs) might later consider a bad decision with little if any upside. Like I tell my fellow mortgage bankers, no one ever paid me to find what is right about a transaction only for what I see is wrong and if possible how to resolve those problems. The kind of situations you describe, clients generally do not want to pay the CPA the fees necessary to reach a meaningful conclusion.

CPAs know your loyalty is to the insurer and the customer (as it should be), not to them. Your determinations do not reduce the professional legal liability (beyond mere E & O coverage) of the CPA. In cases where we are asked to give our impressions without being engaged to perform a formal review, the best advice we can render is to state that “based on the information at hand don’t do it.”

Let me clarify, I don't think of you as merely a CPA, au contraire, I consider you a CPAE (CPA Extraordinaire).
I hope your industry reaches out with more CE courses, especially along the tax, income planning aspect of RMs.