Reverse Mortgages 101

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Reverse Mortgages 101

• Presented by

 
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Southern California Story
BEFORE
AFTER
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How Can A RM Help A Client?

• Southern California story
• Before the Reverse Mortgage
• No ceiling/holes in roof/home should be condemned
  
• Monthly income less than 700/month
• Church members help client daily with food, etc.
• After the Reverse Mortgage
• New home to live in (See Picture)
• Monthly income is increased by over 900 per
  month
• She has money available now for travel,
  emergencies, etc.
• This Reverse Mortgage Changed Her Life!

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Myths about Reverse Mortgages

• The bank owns your home
• You can be forced to sell your home
• You pay taxes on the monthly income
• Debts from the Reverse Mortgage passes to your
  heirs
• You can outlive the loan and have to start making
  payments
• You cannot lend to a living trust
• There are guidelines about how you can use the
  money
• I have poor credit/FICO, I wont qualify
• The bank sells your home when you are gone

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History of Reverse Mortgages

• Before 1987
• High Fees Costs
• Shared Appreciation
• Forced Sale of Residence
• Heirs Responsible for any balance
• After 1987
• Capped Fees Costs
• Standardized Interest Rates
• Required HUD Counseling
• Required FHA Mortgage Insurance

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What is a Reverse Mortgage?

• This is a unique loan called a Home Equity
  Conversion Mortgage or H.E.C.M. designed for
  seniors that are 62 years of age and older.
  It allows them to get equity out of their home in
  the form of monthly income, an equity line of
  credit or immediate cash, tax-free, to use for
  any reason or goal they have, without ever having
  to make a payment on the loan, as long as they
  live in their home.
• If they do live in their home until death, the
  heirs will have the choice to refinance the loan
  or sell the home, pay the loan off and keep the
  remaining equity.
• The Mortgage Company Pays The Senior Instead of
  
• The Senior Paying Them!!

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What are some of the features, advantages, and
benefits of a Reverse Mortgage?

• They keep title to their home.
• They can keep their home in a living trust.
• All income is TAX-FREE.
• No restrictions on how they use the funds.
• Make no payments while living in their home.
• They cannot outlive the loan.
• There are NO changes to the property taxes.
• Guaranteed by the U.S. Department of Housing
  (HUD).

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Is a Reverse Mortgage Safe?

• YES! FHA fully insures the loan and guarantees
  that no debt ever passes to the heirs, above
  beyond what the home is worth.
• HUD participates in regulating the program and
  the industry to protect seniors, therefore, all
  reverse mortgage applicants must complete a HUD
  counseling session.
• In 2001, Congress passed legislation making
  Reverse Mortgages a permanent government program.

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What are their responsibilities?

• They are responsible to keep the Insurance and
  Taxes paid on their home.
• All property liens, if any, must be paid from the
  proceeds of the Reverse Mortgage.
• They must continually occupy their home (cannot
  be gone for more than 1 year at a time).
• They must maintain the home.

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How Does A Person Qualify?

• All persons on title must be age 62 and older.
• Have enough Equity in the home.
• Plan to keep their home as their Primary
  Residence.

A Reverse Mortgage has

• No financial qualifications.
• No monthly payments as long as they live in their
  home.
• Lower interest rates set by HUD.

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How much money will they be eligible for?

• Each county in every state has a lending limit on
  appraised values which is set by the Federal
  Government.
• From that lending limit, the youngest borrowers
  age, the current interest rates, and the equity
  in their home, we can determine how much a
  borrower will be eligible to receive. The older
  they are the more they qualify for.

How do they receive the money?

• Leave the money in the HUD program and take
  monthly payments to supplement their income
• Leave the money in the HUD program and take funds
  when they need them like a Home Equity Line of
  Credit
• Take all available funds as a Lump Sum
  disbursement
• Or a combination of the above.

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Scenario 1A
62 Year Old Client Cannot Afford Their House
Payments

• Client calls you to discuss listing their home.
• What are the options?
• List 400,000 house now, Approximately 20,000
  Commissions
• Refer to us for a Reverse Mortgage consultation
  and they continue to live in their home.
• Specifics
• They want to stay in the house
• They would repair the home during the Reverse
  Mortgage Process
• They introduce you to their kids who have been
  supporting them financially each month
• The kids want to sell their home and buy up
• The client is extremely loyal to people that
  assist them
• The kids like to refer to their friends
• You choose option 2, and they do the Reverse
  Mortgage

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Scenario 1 - Outcome

• This month The parents do the Reverse Mortgage
  and have a monthly income and free up 1000/month
  for the kids (they do not need to assist any
  more). They advise the kids to list the home
  with you when they are gone.
• Next month The kids list their 400,000 home
  with you and purchase a 600,000 home through you
  (50,000 in commissions).
• Years later You have sold listed homes for 4
  of the kids friends. You listed the parents
  home and it was in good shape and showed well
  because of the repairs done as part of the
  Reverse Mortgage. It sold for 500,000 (25,000
  in commissions).

Total Commissions Generated - 155,000
(Parents/Kids/Kids Friends)

• You served the best interest of your client
• You got more commission now.
• You expanded your sphere of influence.

• You banked a future listing/commission.
• Your listing was more saleable.
• You are a professional.

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• Parents Get To Stay In Their Home

Parents Home
Kids Get New Larger Home
For Sale (Sold)
Kids Home
Kids Refer Friends
For Sale (Sold)
You Get A Listing Later
Parents Home
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Scenario 1B
25 Year Old Couple Looking To
Buy Their
First Home with You!

• Tell you that their grandparents will help with
  cash to close.
• Grandparents can assist with 2000 cash and own
  their home outright.
• Option
• Grandparents do a reverse mortgage and make
  50,000 of their 220,000 credit line available
  to the grandkids who buy a 400,000 home.
• The grandparents have two other grandkids that
  they decide to help with 50,000 each and you
  sell them each a 400,000 house.
• Outcome
• You now have three (3) buyers in a real estate
  market that needs buyers and you have generated
  60,000 in commissions.

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Scenario 1C
62 Year Old Couple Wants To Buy A 2nd Home
In The Mountains

• They own their home outright.
• Option
• They do a Reverse Mortgage and have a 220,000
  credit line available.
• They purchase a 2nd home in the mountains for
  200,000 cash and keep 20,000 in the credit
  line for future needs.
• They do not have a payment on their primary
  residence or the 2nd home!
• Outcome
• You help them realize their dream of a 2nd home
  and generate 10,000 in commissions.
• OR
• The client uses the 200,000 to buy a positive
  cash flow rental property for 350,000 generating
  17,500 in commissions.

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Scenario 2

• Before the Reverse Mortgage
• 58 year old couple - cant retire at 62 not
  enough in savings/investments worried about the
  mortgage.
• Home current value 400,000 current mortgage
  balance 90,000 (1400/mo)
• Have Auto Balance 10,000 (450/mo), Credit Card
  Balance 5,000 (150/mo)
• We Refi them to 160,000 Refi to a 5-year
  interest only mortgage
• The additional 50,000 cash goes into an interest
  bearing account (Money Market)
• It is set up to autopay their interest only
  mortgage payment for 5 years
• At the end of the 5th year, when they reach age
  62, we refinance their interest only loan with a
  Reverse Mortgage and get rid of the mortgage
  altogether.
• After the Reverse Mortgage
• Client no longer has a mortgage payment, auto
  payment or credit card payments
• Client may now invest 2,000/mo into their own
  programs to help them catch up on their
  retirements and now, may have the choice to
  retire at 62.

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Scenario 3

• Client takes a Reverse Mortgage and chooses a
  combination program (monthly payments lump sum)
  and creates a lifetime income for themselves and
  uses a lump sum amount to create a program that
  protects them against long-term care, provides a
  death benefit if there is a premature death and
  creates a tax-deferred investment.
• 70 year old male client Owns Home Outright
  Current Value 450,000
• With a Reverse Mortgage they qualify for about
  200,000 tax-free.
• They leave 100,000 in the Reverse Mortgage
  program to create lifetime monthly income of
  885/month
• They withdraw 100,000 to give to their financial
  planner to create a plan of action to protect
  their assets by creating a larger benefit with
  the money, e.g.
• Invests 100,000 into his new program (70 yr old
  male, non-smoker)
• Creates a death benefit of about 175,000
• Creates an annuity for 100,000 that will
  compound and grow at 3
• Creates a long-term care benefit of 325,000
• At the end of five years, it becomes completely
  liquid again for the client to take with no
  penalty plus the 3, or he can roll it again for
  another 5 years and create a higher death
  benefit, a larger long-term care benefit or allow
  to grow compound at 3 for another 5 years.

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What To Do Next?

• Call me on any scenario.
• We will walk through the options with your
  clients
• Each clients loan amount will be specific to
  their situation (age, home value, property
  location)
• We will coordinate with you and keep you informed
• We will direct client referrals back to you
• We will be available for client consultations and
  seminars
• This is a good alternative to the usual First
  Time Homebuyer Seminar
• Research your client database and see who might
  be eligible for a Reverse Mortgage
• Set up a consultation or seminar to let them know
  about this great option.

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• YOUR LOGO HERE

YOUR INFO HERE

• YOUR CONTACT INFO HERE

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Phase I Fill out the attached Phase I - Reverse
Mortgage Referral form and fax it to the YOUR FAX
NUMBER HERE. Please fill in as much information
as possible. We will contact the client, meet
with them, explain and educate them about the
Reverse Mortgage Program and walk them through
from start to finish. At close of escrow, the
referring branch office will receive compensation
in the amount of 500. Phase II Only Branch
offices loan officers that have been trained
certified will be able to participate. Branch
offices should appoint a reverse mortgage
specialist within their branch to complete the
training on the basics of Reverse Mortgages and
what is required of them in order to receive
compensation. At Phase II, you will be required
to educate your client, qualify your client,
refer your client to HUD counseling and then
contact APRMG to walk you through the rest of the
application process. Once you have walked
through three (3) loans with APRMG, you will then
be qualified to move to Phase III. For your
involvement in the sales process, following the
Phase II Guidelines, the branch office will be
compensated 25 of commissionable origination
fees. Phase III Only Branch offices and loan
officers that have been trained certified and
have closed and funded three (3) loans at Phase
II will be eligible to originate loans at Phase
III. In this Phase III, you will be required to
do educate your client, qualify your client,
refer your client to HUD counseling, originate
the loan, order all required appraisals and
inspections and all other required tasks as
outlined in the Phase III Agreement. Once all
reports and inspections are received you are to
forward the entire file to _______ for
processing. For your involvement in the sales
process, following the Phase II Guidelines, the
branch office will be compensated 75 of
commissionable origination fees which is 2
origination fee minus 400 processing fee. All
other branch fees apply.
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• Frequently Asked Questions
• 1. How do we get started?
• YOUR CONTACT INFO HERE
• 2. Can I stay at Phase I or Phase II if I dont
  want to get fully involved?
• Yes, we designed the phases so that each
  individual could have a choice as to how much or
  how little they want to get involved in the
  Reverse Mortgage transaction.
• 3. Why do we have to use APRMG to do Reverse
  Mortgages?
• Per Kurt and Bill, it is a protected class of
  clients and we will always have oversight on this
  program.
• Per the good lenders (i.e. ones that deliver
  loans in acceptable time frames), they will not
  accept individual branch loans and want loans to
  come through one point at APM that has expertise
  in the product.
• We are recognized by the lenders for our company
  volume, not individual branch volume, and future
  opportunities will come to us from our overall
  APM volume.
• We are able to establish a level of expertise to
  support timely turnarounds and troubleshooting.
• 4. When will we have a Phase 4?
• Not for the foreseeable future. There is a cost
  for infrastructure and support that must be
  accounted for, and is being met with the current
  business model.
• Any further opportunities will be driven by APM
  total volume, so more company wide participation
  can create opportunities for us in the future.
• 5. Can we use our own vendors (title, appraisal,
  inspectors)?
• You can, however, we want to establish that the
  vendor has experience with the product (FHA,
  Reverse Mortgage) to make sure that the service
  will meet the loan program needs.

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Q A Section