Moving Forward with Reverse Mortgages

reverse mortgageUntil recently, we haven’t thought too highly of reverse mortgages.  High fees and expenses and inflexible settlement options made reverse mortgages problematic for aging homeowners and their heirs.    Now, important changes including the Reverse Mortgage Stabilization Act of 2013 and more recently last April HUDs (Department of Housing and Urban Development) “Financial Assessment” have made reverse mortgages safer for both borrowers and lenders.  These changes have lowered the upfront costs and put protections in place to ensure the borrower has a capacity (income test) and willingness (credit) to maintain the property and afford taxes/insurance going forward.  With the growing “Aging in Place” movement across the nation, reverse mortgages have become a potential strategy in retirement planning.  Let’s look at two examples.

First, keeping your existing home.  Let’s say you have a large home with an existing mortgage and would like to live there another 5-10 years and reduce your current expenses.  A reverse mortgage might be an answer. You can use the Home Equity Conversion Mortgage (HECM) program to pay off your existing loan and even open a line of credit for future needs.  The maximum principal limit or loan amount is based on the value of your home, the age of the youngest owner, and interest rates.  Since this loan is insured by FHA (Federal Housing Administration) there is a maximum value of the house of $625,500.  Let’s say you are 75 and your spouse is 74.  Age 74 produces a principal loan amount of approximately 60% of the home value; i.e. a $375,000 line of credit (“LOC”).  Further, let’s say that you have a current mortgage of $300,000. This existing mortgage will need to be paid off at closing, so the net LOC availability would be approximately $75,000 which can be used for emergencies, travel or whatever you wish.  Going forward, no monthly mortgage payments would be required and the current payment of let’s say $1,000 no longer goes out each month, therefore increasing your monthly cash flow. Plus the line of credit increases each year by 1.25% above the interest rate so there are potentially more funds available down the road.

Before we leave this example, let’s discuss how a reverse mortgage is paid off.  Assuming you are joint borrowers, the loan must be paid off at the earliest of 1) when you both move out, 2) when you sell the house, or 3) when you both die.  Also since this is a non-recourse loan you, your estate, or your heirs will never owe more than the value of the home at the time of sale.  On the other hand if there is still equity in the property at the time of sale, that remains with you, your estate, or your heirs.

Second, purchasing a house.  Let’s assume, on the other hand, you decide to downsize by selling your existing home.  Let’s say you find a new home for $500,000 that you love and traditionally would have to seek financing or pull from other assets to complete this new purchase.  However, using a reverse mortgage for purchase you qualify again for approximately 60% or a $300,000 loan.  The net result is you only have to bring $200,000 of your net proceeds from the “big house” sale to complete the purchase. The remainder of your sales proceeds could be invested and ultimately spent or left as part of your legacy.  Again, you will not be required to make principal or interest payments on the new house while you live there.  And, again, this is a non-recourse loan, regardless of house prices, interest rates and how long you stay there, you will never owe more than the value of the home at the time of sale.  And, if there is still equity when it sold, you, your estate or heirs will receive it.

As you can see, reverse mortgages may be an excellent strategy for some seniors.  Of course, every family’s situation is unique and full details are needed to determine if a reverse mortgage is appropriate.

In Charleston, we have found a great source of information on this topic, David Heilman of Franklin Funding.  David is one of 130 professionals across the country who have obtained the Certified Reverse Mortgage Professional® (“CRMP®”) designation.  These folks not only know what they are doing, they have committed to ethics standards concerning their work.  David is part of a national organization, National Reverse Mortgage Lenders Association, whose website, provides information on reverse mortgage lenders across the country, some of which have the CRMP® designation.

We expect reverse mortgages to be a strategy that will be of benefit to more of our clients in the future and wanted to let you know some of the basics and DWM’s ability, collaborating with appropriate professionals, to help guide you through the process of due diligence and implementation.  Please give us a call if you have a question.





Our Charleston Office is Moving on March 29, 2016!

2016-03-28 we are moving truck3
Our Charleston office is moving tomorrow, March 29th, to:

            104 CHURCH STREET

            CHARLESTON, SC 29401

Our main phone number remains the same: 843-577-2463 as does our fax: 843-937-9407.

We’re three buildings south of Broad Street on the east side of Church St.  And, here’s the big thing, we have four permanent parking spots across the street for clients and guests.  Assured parking places and more space for our growing business were the principal reasons for the move.

Elise and Les bought the building last June.  Built in 1800, it housed a law firm on the first floor and had two apartments on the second floor until this past September.  Now, after six months of renovation and restoring its old urban rustic charm, the first floor will become DWM’s Charleston office and Elise and Les will make the second floor their home.

We’ll look forward to welcoming each of you to our new spot.

Hopefully, for March 29th only, our office internet and phone may not be working.  However, we will continue to receive and send email and communicate via our mobile technology.  You can also contact Brett at  or call him in Palatine at 847-934-6262.  Or feel free to call Les on his cell phone at 843-901-0088.  We all know he doesn’t lift heavy boxes, so he’ll be standing around all day awaiting your call!

Don’t Be A Victim!

tax theftIn today’s technology driven world, the unfortunate reality is that cyber breaches will happen. The Internal Revenue Service recently announced that cybercriminals gained access to personal data from more than 700,000 taxpayer accounts in 2015. A majority of the information is taken from the IRS database, but hackers are beginning to use aggressive and threatening phone calls or emails impersonating IRS agents to gain information directly from taxpayers. It’s important to know how to protect yourself from these unsolicited phone calls and emails and what to do if your information has been compromised.


The IRS, and many states, are now encouraging tax returns to be electronically filed. Many people believe by electronically filing, they are more susceptible to having their information compromised. This is not accurate. These cybercriminals are attacking the IRS online application called “Get Transcript.” This application allows for taxpayers to obtain prior-year tax return information. Whether a taxpayer files electronically or not, each taxpayer has the ability to pull this type of transcript. By accessing prior year tax data, cybercriminals are able to file false returns with more accuracy, making it harder for the IRS and states to detect. The IRS estimated that the government paid out about $5.8 billion in fraudulent refunds to these cybercriminals in 2013.


If the IRS detects that a suspicious return has been filed, they will send a letter to the taxpayer asking to verify certain information. However, most taxpayers become aware of suspicious activity when they try to electronically file their return. The IRS will reject any return immediately if their database shows a duplicate filing for any Social Security number (SSN). This is an advantage of electronically filing versus paper filing. If a taxpayer’s return is rejected and suspects fraudulent activity has occurred, the IRS recommends paper filing your return and attaching a completed Form 14039, Identity Theft Affidavit. Going forward, the IRS would offer free credit protection and issue a specific identification number to use with the filing of future tax returns.


While fraudulent returns are out of taxpayers’ control, taxpayers are able to limit the personal information they release. Scammers have started using phone calls, emails and text messages impersonating IRS agents to gain information directly from taxpayers.  These scammers use the IRS name, logo and fake websites to try and steal money and information.


The IRS has seen an approximate 400 percent surge in phishing and malware incidents so far in the 2016 tax season. The phishing schemes cover a wide variety of topics including, information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information. Some of their emails will include links that carry malware which can infect taxpayers’ computers and allow criminals to access personal information.  If a taxpayer happens to receive a suspicious email, the IRS asks taxpayers to forward the email immediately to


The impersonated telephone scammers are typically aggressive and want the taxpayer to act immediately. The scammers will ask taxpayers to pay their tax over the phone or even ask for personal information if a refund is due. These scammers will also leave voicemail messages asking for an urgent callback. If a taxpayer is suspicious about a phone call, they should hang up immediately. The IRS asks that the taxpayer contact TIGTA immediately using their “IRS Impersonation Sam Reporting” webpage or by calling 800-366-4484.

Here are several tips that will help avoid these scams:


The IRS will NOT:

  • Call and demand immediate payment. The IRS will not call about payments without first sending a bill or notice in the mail.
  • Demand tax payments and not allow taxpayers to ask questions or appeal the amount owed.
  • Require a taxpayer to pay an outstanding payment using credit or debit cards.
  • Ask for debit or credit card numbers over the phone.
  • Threaten to bring in local police or other agencies to arrest the taxpayer if they do not pay.
  • Threaten taxpayers with a lawsuit.
  • Initiate correspondence with taxpayers using email or text message.


Here at DWM, we advise our clients and other taxpayers to get their CPA, or tax professional, involved immediately with any correspondence from the IRS, especially ones involving tax-related identity theft. Corresponding with the IRS can seem overwhelming, so get help. For those clients that self-prepare their returns, we ask that you let us know if you receive any notices or suspect suspicious activity involving your tax information. We’ll do everything we can to help you not become a victim.

Diversification vs. Chasing Performance: And the winner is…

2016-03-16 Annual Asset Class Performance1Our regular readers have come to expect an updated version of this “Asset Class Performance” chart about once a year.  (Click on it to enlarge.) It’s a little like running the Charleston’s Cooper River 10k Bridge Run once a year.  It puts things in perspective.  Things that go up, also go down.

Take a look at REITs in 2006 and 2007. From first to last in performance. And, Emerging Markets from 2007 to 2008, same thing. Bonds were almost a top to bottom in 2008 and 2009 and after Emerging Markets topped in 2009, it took them two years to hit bottom. Do we see a trend here?  Yes, we do.

As we discussed at our seminars in October, we’re all hard wired to want to jump on to winners and discard current losers.  We have a short memory – we place more emphasis on recent performance rather than long-term.  Furthermore, our emotions are aided and abetted by the media- always happy to make an up-and-comer sound like the perennial winner for decades to come and an asset class that is struggling to appear to have no hope of ever turning around.

We saw it earlier this year.  After a fairly dismal year of returns for all asset classes in 2015, 2016 stock markets got off to a slow start and then accelerated downward as pessimism, exacerbated by uncertainty in the world economy, interest rates, oil prices, U.S. Presidential politics and the media drove down performance until the second week in February.  And then, the pendulum starting swinging the other way, pushing markets upwards for the last four to five weeks.

A lot can happen in just a few years.  If we were looking at this same chart for the ten years ended December 31, 2013, the top performers were much different.   Emerging markets were the top performer, followed by mid caps, small caps, REITs, international stocks and then large caps.  Going back even farther, large caps for the ten year period 2000-2009 were negative.  Of course, they’ve come back strongly in the last five years, up 12% per year.

The key is that there is no “silver bullet”- that is, there is not one asset class that provides a simple and magical solution to asset allocation.  To illustrate this, let’s say we had decided to “chase performance” by investing 100% each year in the top performer of the prior year.  We can start with the results of 2006 and invest in REITs in 2007.  For 2008, we’ll invest in Emerging Markets, the top performer in 2007, and so forth for each of the next nine years.  The result: an annualized return of -4%.

Okay, how about if we invest in the most underperforming asset class instead.  We’ll invest in TIPS in 2007, REITs in 2008 and so forth. Our result is only slightly better, -3% annualized return.

Lastly, how about being a disciplined investor, using all asset classes and maintaining a balanced allocation, for example, of 50% equity, 35% fixed income, 10% REITs and 5% commodities for ten years?  The result:  An average annual return of 5.2%. With annual inflation at 1.6% for the decade, that’s quite a respectable real return of 3.6% per year for the last ten years.

The moral of the story is always the same.  Don’t follow your emotional biases.  Don’t chase performance.  Don’t try to time the market.  Instead, focus on what you can control:

  • Maintain an investment plan that fits your needs and risk tolerance
  • Identify an appropriate asset allocation target mix
  • Structure a diversified portfolio between and within asset classes
  • Reduce expenses and turnover
  • Minimize taxes
  • Rebalance regularly
  • Stay invested
  • Stay disciplined

If you have any questions or need any assistance with any of the above, please let us know.  At DWM, we’re ready to help and are passionate about adding value.




Yes, Money can Mess up Marriages!

marriage and moneyThis morning as I was returning from my early morning gym routine, I listened to NPR’s Chris Arnold’s report on “How to Keep Money From Messing Up Your Marriage.”  He provided another story of a seemingly successful couple who were on the verge of divorce over money.  The husband was making more than his working wife and since they were splitting expenses down the middle, she always felt broke, frustrated and had developed overwhelming resentment. Quelle Surprise! It’s true- money can mess up marriages of all ages, income and assets.

Certainly, money isn’t the only source of marital conflict.  There can be disagreements about children, chores, communication and work.  But, money is certainly the most difficult to resolve. It’s often very difficult for couples to talk about money issues and resolve them.  Money can represent more than dollars and cents.  It can be used to express feelings and relationships.  It can be given to express love, power and respect. And, it can be withheld to humiliate, punish or control.

First, let’s look at five biggest blunders couples make with money based on a CNBC article a year ago:

  1. Believing that “love conquers all.” It takes hard work, communication and commitment to successfully manage money as a couple. Here’s a quiz you and your spouse can take and discuss:

Couples who enjoy a good relationship with money often have shared values, an appreciation of their partner’s perspective and an ability to find common ground.

  1. Practicing money silence. Often this silence is passed down from generation to generation, leading to miscommunication, misunderstandings and hurt feelings.  It is often the reason marriages end up in divorce and children become financially unprepared adults.
  2. Avoiding financial conflict. One recent survey showed that 80% of spouses admitted to hiding some financial purchases from partners-presumably to avoid a fight over the item. Not a good idea.  When you don’t openly discuss money you miss an opportunity to understand your partner’s viewpoint and resolve a problem in its early stages.
  3. Waiting to be financially rescued. Don’t blindly put your financial future in someone else’s hands.  If they die, become disabled or leave, you may have real problems.  Take adult responsibility for your money even if it is not your strong suit.
  4. Meeting with your financial advisor alone. While it may be more time efficient to delegate certain tasks, this is an important one to perform jointly.  It’s a great opportunity to talk about money together in the midst of your informed, caring, objective wealth manager, to understand and resolve financial differences and to make decisions about your future as a team.  In addition, if something happens to one of you, the other is not in the dark.

The commitment to work together for financial harmony should start early.  Couples considering marriage and newlyweds need to do the following:

  1. Give Yourself a Financial Checkup. Only about half of couples today know their partner’s credit score before marriage.  You need to know each other’s spending habits and preferences.  Understand your partner’s debt situation, if any, and work together on getting it paid down.
  2. Start to Develop Sound Savings Habits. Consider putting at least 10% of your combined income into savings each month before you are married.  Calculate what your share of the wedding costs will be and how you will fund and attain that goal together.
  3. Create a Budget. Put everything “on the table” including yours bills, obligations, income etc.  Group your expenses into needs, wants and wishes.  Make sure to budget for the wedding and honeymoon. And, agree on an amount of “fun money” each of you can spend each week or month without talking to the other first.
  4. Split up the Task of Finances. Once married, both should be part of the process.  One might pay the bills (pretty easy these days online), one might recap the finances monthly, one might be responsible for income taxes, one for insurance, etc.  You are accountable to each other.
  5. Decide how best to manage your money. Combine your funds into a joint account, use separate accounts, or keep separate accounts that link into a new joint account.
  6. Once married, update beneficiaries, withholdings and other paperwork. This applies to 401(k) s, life insurance, W-4s at work, etc.
  7. Have a Financial Date at least once a month. Talking about money should be a healthy, ongoing conversation.  Talk about your combined progress toward meeting your financial goals, future financial decisions and corrections, if needed, to your plan.

Unfortunately, love does not conquer all.  Our experience at DWM working with couples of all ages, incomes and assets over decades has shown us that hard work, commitment, regular communication, understanding of a partner’s perspective and an ability to find common ground is what is required to keep money from messing up your marriage.   Money can’t buy you happiness.  Yet, working and talking together about money goes a long way.



Protecting your Credit

credit report 3In these days of high alert for identity fraud, we think it is a smart financial plan to check on your credit report at least once a year. Federal law allows you to annually obtain free copies of your credit report from all three credit reporting agencies – Transunion, Equifax and Experian. If more copies in a year are needed, copies may be purchased individually or all 3 together. It may be a good strategy to stagger your requests throughout the year by ordering one report from a different agency every four months. This will help you track any fraudulent account applications or update any discrepancies that you find in your information. You can also elect to freeze your account with one or more of the credit agencies. This prevents anyone from obtaining credit in your name, including you! You can easily un-freeze your account, if applying for credit cards or mortgages, and then re-freeze it when you aren’t using it. It is a great extra safety measure.

There are several ways to obtain your reports and each of them will require a good deal of identity verification. The best way to order is by going online to You can request copies from all three agencies on this same site. You can also go to each credit bureau individually for other products, but they send you to the site for your free report. It is important to thoroughly read each page and follow the directions. All three reporting bureaus require a slightly different process and you will follow those processes through one at a time.   You will need to provide your current name, address, date of birth and social security number. If you have lived at your current address less than 2 years, you will need your previous address also. All three reporting agencies also ask you to identify some specific accounts or loans that you have now or may have had in the past in order to authenticate your request. This can really test your memory banks, so if you have a previous credit report handy, it may help you!

Each of the three bureaus will give you your credit report that can and should be either printed or downloaded (or both) at that time. Equifax will let you create an account where you can view your report for up to 30 days. Each credit bureau also has a system for online disputes, if you find an error. Follow the directions within each page.

You may also contact each credit agency directly to request the copy of your report or register a dispute on items that appear in your report. They will require you to send a written authorization letter with copies of 2 forms of ID (SS card and Driver’s license). Each bureau may have slightly different requirements for this.   Please let us know if you find anything on your report that concerns you and DWM will be happy to help. Here’s how to contact the credit agencies directly:

Equifax Information Services                 Experian                                       Transunion                                

(866) 229-7861                                    (888) 397-3742                            (800) 916-8800