Borrowers must receive reverse mortgage counseling ..

1
Reverse Mortgages for Senior Homeowners

• Cindy Stokes
• Utah State University
• (adapted from AARP information)

2
A Little History

• 1979 Federal Home Loan Bank creates Reverse
  Mortgage concept
• 1989 HUD/FHA introduces HECM
• 1989 Fannie Mae agrees to purchase HECM loans
• 1996 Fannie Mae creates HomeKeeper
• 1998 HECM becomes permanent program

3
Home Equity Conversion Mortgage

• Designed by HUD
• Insured by FHA
• Payments continue as long as one homeowner
  remains in home
• Loan balance not due until borrowers die or leave
  the home
• Total due lender cannot exceed value of home at
  time of sale

4
HECM Basic Requirements

• Borrowers must be at least 62 years old
• Home must be FHA approved
• Borrowers must live in home as principal
  residence
• At least one homeowner must reside in home at
  time of closing
• Home must be free of debt or nearly paid off
• Borrowers must receive reverse mortgage
  counseling
• Owners must not be in, or filing for, bankruptcy.
  
• Owners can be in foreclosure.

5
HECM Counseling Required

• 2-hour session
• HUD-approved counseling agency
• Free of charge
• Includes discussion of other alternatives
• Certificate of HECM Counseling issued, good for
  180 days

6
Safeguards

• Loan never becomes due until last homeowner
  leaves the home
• Payments continue even if payments exceed value
  of the home
• No repayment required of amount paid out in
  excess of value of the home
• If lender fails, FHA will make payments
• FHA covers any shortfall if amount due exceeds
  value of the home

7
Forward vs. Reverse

• Forward Mortgage
• on 100,000 loan
• Each payment
• from borrower
• to lender
• Principal decreases

• Reverse Mortgage with 100,000 loan
• Each payment to borrower from lender
• Principal increases

Up the Down Staircase
8
Reverse Mortgage Features

• No income-qualifying requirements
• Title to property remains in borrowers name
• Borrower remains responsible for payment of taxes
  and insurance
• Total loan balance not due until last homeowner
  leaves the property
• Total amount due lender cannot exceed value of
  home at time loan is repaid

9
HECM Eligibility Requirements

• All owners must be at least 62 years old
• Home must be their principal residence at least 6
  months of year
• At least one homeowner must reside in home at
  time of closing
• Borrowers must receive reverse mortgage
  counseling

The Homeowners
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HECM Eligibility Requirements

• Can be single-family, 1 to 4 unit owner occupied,
  FHA-approved condominium, PUD, or manufactured
  home
• Must meet minimum FHA property standards

The Home
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HECM Eligibility Requirements

• Any existing mortgage must be paid off at closing
• HECM must be first mortgage but can be used to
  pay off existing debt
• FHA mortgage insurance required
• Origination and Servicing fees

The Loan
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How Much Can Be Borrowed

• Total amount available is based on
• Age of borrowers
• Value of property
• Average interest rate

13
How Much Can I Get?

• Location, Location, Location
• Market value at time of closing
• Maximum loan limits
• Equity in the home
• Age of borrowers
• Interest rate

14
Reverse Mortgage Calculator

• When were you born?
• When was your spouse or co-owner born?
• How much is your house worth?
• Your ZIP Code
• http//www.rmaarp.com/

15
Four Basic Plans

• Tenure - Monthly payments for life
• Term - Monthly payments for set number of
  years
• Line of Credit - Draws in amount and time of
  borrowers choosing
• Lump Sum - Total amount available drawn at
  closing

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Tenure Plan

• Monthly payments for life
• Advances are secured by mortgage or deed of trust
  
• Amount of payment remains fixed
• Interest, insurance, and servicing fees added
  each month
• Total loan balance increases every month
• No payment due until last homeowner dies or
  leaves the property

17
Term Plan

• Amount available calculated same as for Tenure
  Plan
• Payments made for set number of years
• Borrower designates number of years
• At end of term, payments stop
• Repayment of total loan balance not due until
  last homeowner leaves the home
• Monthly amount received depends on length of time
  payments are desired

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Amount of Monthly Payment

• Actual amount to be received monthly is based on
  
• Location of home
• Value of home
• Equity in home
• Age of youngest homeowner
• Interest rate at time of closing

19
Line of Credit Plan

• Line of credit established based on equity
• Homeowner can draw any amount at any time until
  available principal is depleted
• Interest is charged only on amount drawn
• No repayment is required until last homeowner
  either dies or leaves the home
• Amount of cash available increases
• Needs to be used to be cost-effective

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Lump Sum Plan

• Calculated same as Tenure or Term
• One lump sum of all available funds drawn at
  closing
• Can be combined with tenure or term plan
• Interest is calculated and charged each month
  along with insurance and servicing
• Total balance becomes due whenever property is
  sold

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The Process

• Step 1 Counseling
• 2-hour session
• Certificate of HECM Counseling good for 180 days
• Step 2 Find a Lender
• www.hud.gov
• www.fanniemae.com
• www.aarp.org

22
Things to Consider

• Cost - Origination Servicing Fees
• Experience - Number of Reverse Mortgages
• Servicing - Administrative Costs
• Commitment - Professional Relationships

23
Closing Costs for RM Loan

• Total Annual Loan Cost (TALC)
• Application Fee
• Appraisal and Credit Check
• Origination Fee
• Preparation and Processing
• Closing Costs/3rd Party Closing Costs (varies)
• Title search and insurance, survey, inspection,
  recording fees, property tax
• Mortgage Insurance Premium
• HECM loan
• 2 of value or 2000 can be financed

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Monthly Costs for RM Loan

• Adjustable Rate Interest
• Adjust monthly or annually
• U.S. Treasuries plus margin
• Mortgage Insurance
• HECM ½ of loan amount charged monthly
• HomeKeeper averages .8 annual, charged monthly
• Service Fee
• Ranges from 25 to 35 per month
• All costs charged monthly and added to principal
  loan balance.
• Periodic status statements sent out every 3
  months.
• No payment is due until mortgage loan is paid
  off.

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Additional Costs

• Homeowner Insurance and Property Tax
• Maintenance and Repairs

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Due Payable

• When last homeowner dies, sells the home, or
  permanently moves out
• Failure to pay Property Taxes
• Failure to pay Homeowners Insurance
• Failure to Maintain and Repair home

27
Other Default Conditions

• Declaration of Bankruptcy
• Perpetration of fraud or misrepresentation
• Eminent Domain or condemnation
• Renting out part of the home
• Trying to add a new owner to the title
• Trying to take on new debt against home

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Repayment

• Pay off loan balance and keep home
• Sell home and pay off loan balance and keep any
  difference
• Hand over the home to the lender to sell
• Time frame
• 6 months
• two 3 month extensions

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Key Decisions

• Who else should I involve in considering this
  loan?
• Which counselors should I choose?
• Have I given due consideration to all my choices?
• When would be the best time to take out a reverse
  mortgage?
• What interest rate should I choose?
• Which lender should I choose?
• How should I use this loan?

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AARP Booklet Home Made Money

• To order a complimentary copy by phone
• Call 1-800-209-8085.
• To order a complimentary copy online
• http//www.aarp.org/money/revmort/revmort_basics/a
  2003-04-07-homemademoney.html