Reverse mortgage

Reverse Mortgages

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Vicki CheairsMetLife

281-855-1122

Reverse Mortgages

What is a reverse mortgage?

• A loan that allows homeowners age 62+ to

tap into their home equity; never have to

make payments on the loan; while still

living in and owning the home. There are

no restrictions on the use of the proceeds

from the loan. No ratios, no credit scores,

no income requirements.

History

• 19___ – First reverse mortgage loan originated in the USA

• 1987 to 1990 –

AARP & HUD completely overhauled the RM product

• 2001 – First RM in Texas (only 1 type)

• 2005 – Texas citizens voted in all reverse mortgage products

• 2008 – The Housing & Economic Recovery Act of 2008

Types of Reverse Mortgages

• HUD/FHA Home Equity Conversion Mortgage (HECM) - (Gov’t)

• Fannie Mae Home Keeper - (Conventional)

• Proprietary Products – (In-House)

• Jan 1, 2009 – FHA HECM for Purchase

• Proposed for October 4, 2010 HECM Saver-complete details forthcoming.

Growth of Reverse Mortgages– Prior to the year 2000, fewer than 55,000 HECMs

– 2007 alone, 107,000+ HECMs funded

An Expanding NeedEconomic factors

•Inflation

•People are living longer

Why? – Demographics

•Fixed incomes•Rising healthcare costs•Insufficient retirement savings•Existing debt, including a first or second mortgage

•Baby Boomers – Starting in 2008, 6,000 people per

day turn 62

•Tendency to underestimate life expectancy leads to

inadequate retirement savings/planning

Eligibility• The subject property must be the borrower’s

principal residence.

•Property meets U.S. Department of Housing and Urban

Development (HUD) minimum property standards

•Borrower(s) must maintain the property and pay the

annual taxes and insurance

•Youngest borrower minimum age of 62

•In the case of co-borrowers, at least one borrower must

occupy the property

Eligible Property

• Single family

• 2 – 4 units, as long as one unit is the

borrower’s primary residence (HECM and

PP only)

• Condominiums

• Planned Unit Developments (PUD)

• Manufactured Homes (FHA HECM only)

Non-Eligible Properties• At this time, the following property types are not

eligible for a reverse mortgage:

– Investment properties

– Vacation homes

– Second homes

– Properties with illegal accessories units or mixed use

properties where more than 25% is used for non-

residential purposes.

– Manufactured homes which are legally recorded as a

condominium or if property is not taxed as real estate.

– Two parcels on one deed.

Income Tax and Social Security

Impact

• Likewise, Social Security and Medicare benefits should not be affected.

• Note: Borrowers are to be encouraged to seek their own legal advice from qualified tax advisors, attorneys, or SSI benefits specialists for guidance as it pertains to their own unique situation.

The funds received through a reverse

mortgage are not considered income,

therefore, are not subject to reporting on

income tax filings.

Counseling

• Counseling may be performed in-person or via telephone.

• The counseling must be completed and the counseling certificate must be received by the lender with the borrower’s original signature and date before processing of an application can begin.

• List(s) of counseling services:– www.HUD.gov

– www.AARP.com

All borrowers are required to receive

counseling from a third-party counseling

agency.

Potential Upfront Out of Pocket Costs

for the Senior

• Counseling Costs

$0, $75, $125 (Maximum)

* Each counseling service or individual

counselor either collects upfront or it is

collected at time of closing (HUD-1)

• Appraisal Fee

$325 to $475

* Each lender has their own policy whether

they collect upfront, senior pays appraiser

directly, or collected at time of closing (HUD-1)

Repayment

• The loan is not due until the last remaining borrower no longer owns or occupies the home as their principal residence or defaults on the terms of the loan.

• A reverse mortgage is a non-recourse loan; meaning if the home is sold, the borrower or the estate will not owe more than the fair market value of the home, at the time the loan is repaid.

– Partial prepayments or complete repayment is permitted at any time without penalty.

Fees

• Origination

• Mortgage Insurance

-Non Recourse

• Other Financed Cost

-Appraisal

-Title Insurance

-Credit/Flood Cert/Doc Prep, etc

Loan Service Set Aside

Loan Comparison

Payment Plans• Reverse mortgage borrowers can choose from

several payment plan options:– Tenure: Borrower receives a monthly check for as

long as they live the home.

– Term: Borrower receives a monthly check for a specified time period

– Line of Credit: Borrower can establish a line of credit equal to the principal limit.

– Lump Sum: A lump sum of cash paid to borrower at funding.

– Modified Tenure: A combination of tenure and line of credit.

– Modified Terms: A term plan combined with a line of credit

Processing Time

• On average, it takes 4 – 6 weeks to process, close, & fund a reverse mortgage.

• Funding is 3 days after closing (Right of Recession period)

What delays processing, closing, fundings?– Title issues from the past

– Federal debt or liens

– Trusts – All types

– POA’s – Power of Attorneys

– Family members

Proposed Upcoming Changes

• October 4th

• Ongoing Mortgage insurance increase

from .50% to 1.25% per month

• Principle limit decrease between 1 to 5%

with older borrowers receiving greater

decrease

• HECM Saver

Reverse mortgage

Documents

Transcript of Reverse mortgage