1. Save money, live frugally, pay for your own long-term care, until you are broke, then have the government go after your estate (your house, mostly) for the balance, once you are dead. Pay for those who didn't save, through your tax dollars. (least optimal outcome)
2. Give away your money during your lifetime to your kids, or squander it on yachts and cars and end up broke, and then have Medicaid pay for it all. Have other people's tax dollars pay for your care. (maximum optimal outcome for you).
3. Shield your assets through trusts or other mechanisms (life estates, etc), so you can transfer wealth to you children while still having medicaid pay for your long-term care. Other people's tax dollars pay for your care. (Not as optimal as #2, but better for you than #1).
And the distinction between "shielding" assets from Medicaid and "squandering" them is pretty difficult to discern. If I give away all my money to my kids (which, thankfully, I don't have) during my life, how is this different than giving them all my money the day before I go into an assisted living center? Medicaid says the former is OK, while the latter is a No-No. If you see the difference, illuminate me.
(Note that if you, or a parent, were in the Iraq war or in Afghanistan, you may get the max Pell grant, period. Something to look into. $5500 doesn't buy back a lost limb, or a lost parent, though).
It was a program that subsidized interest payments and then "recaptured" the interest when you sold the house. When I sold my house, they recaptured all the subsidy from the profit of the sale. So, in terms of cost to the government, at least some of that was recaptured (although as guarantor of the note, perhaps not all costs, including their office overhead).
However, if the mortgage was paid off, there was no interest recapture. If I was clever, I suppose I could have rented the place out when I moved, used the rents to pay off the mortgage, and then pocketed the profits from the sale. I was not that clever. Others were, and used the system to buy homes, rent them out, and then pay them off at a reduced interest rate. Thanks, Uncle Sam, for the free house!
Every year, they would send me a form to fill out, to determine my subsidy level. At first I received a small subsidy, making my mortgage payment a staggering $218 a month. Then, as I made more money, the subsidy subsided and I paid the full amount - $240 a month (this was a long time ago!).
"Recreation expenses (Cigarettes, Bowling, etc.).....$__.______"
This told me volumes about how they perceived their borrowers - as rednecks who chain-smoked and spent all their money on new bowling shoes.
I didn't smoke and rarely bowled. I put down "beer" in that category. Got a good subsidy that year, too!
1. Houses would be cheaper, as available cash would be lower, depressing prices.
2. More people would rent, and thus landlords would make more money, and people would be less empowered through home ownership.
3. Other borrowing options would materialize, as banks realized the risks of home mortgages was offset by the fact that they are secured by collateral, not the U.S. Government. And if foreclosure wasn't such a hassle in places like New York State, banks would be more willing to lend without government guarantees.
And this guarantee is one reason why they are so quick to want to foreclose these days. The sooner they boot out the borrower, the sooner they get their Gub-ment guarantee money.
Again, unintended consequences of government incentives.