What’s New with Reverse Mortgages? LTC Briefing on Housing & LTC St. Paul, MN August 6, 2004.
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Transcript of What’s New with Reverse Mortgages? LTC Briefing on Housing & LTC St. Paul, MN August 6, 2004.
What’s New with Reverse Mortgages?
LTC Briefing on Housing & LTCSt. Paul, MN
August 6, 2004
Reverse Mortgages: The Right Choice for Some
80.6% of older households (headed by people 62+) own the unit they live in 72% of those homes have no mortgage $2 trillion locked up in equity among 62+ 58% of older owner households meet HUD definition of low income (< 80% of median) 84% of older homeowners want to stay in their homes and never move
Reverse Mortgage Definition Loan Against Home Equity Provides Cash Advances to Borrower Requires No Repayment Until The
Last Surviving Borrower Sells, Moves out Permanently or Dies
Generally Larger Advances to Older People in Highest Valued Homes
Definition: Other Forms of Home Equity Conversion
Property Tax Deferral/Relief Deferred Payment Loans for Home
Repairs/Improvements Sale Leaseback Transactions Remainder Interest Plans
3 Types of Reverse Mortgages Single Purpose: Home Repairs/Prop Taxes
Income Based; Limited Uses; Lower Cost Sponsored by Non-Profits/Local Governments
Federally Insured by HUD HECM: Home Equity Conversion Mortgage Any purpose, any state (TX limitations) Largest amounts of $ at lowest cost for most
Proprietary from Fannie Mae and Financial Freedom: + Value = + Cash + Cost
HECM Eligibility
All borrowers 62 years of age or more Own/occupy 1-4 unit residential
property Most condos and PUDs, no coops Property must be in good condition* Must pay off any existing mortgages* Can use proceeds for 2 * items above Independent counseling provided by
public/nonprofits before application
How Much Can a Homeowner Get? Based on 3 Factors
Age of Youngest Borrower or Joint Life Expectancy of All Borrowers Interest Rates (and other Loan Fees) Rates Fixed or Tied to Index Property Value or Program Limits (as applicable) Calculator for HUD and Fannie Mae
products: www.aarp.org/revmort
HECM Cash Advances: 5 Payment Options (Utilization 5/00)
Term: Monthly Advances for Fixed Number of Months or Years (6%)
Tenure: Monthly Advances for As Long as Remain in Home (6%)
Line of Credit: $ on Demand (68%)
Modified Term: 1 & 3 (12%) Modified Tenure: 1 & 4 (8%)
HECM Example: Monthly Advances for As Long As One Borrower Remains in Home (Tenure) or Line of Credit Available Age of $150,000 Home $300,000 Home
Youngest Tenure or LOC Tenure or LOC Borrower
65 $ 444 $ 74,260 $ 677 $ 113,199
75 $ 599 $ 89,580 $ 906 $ 135,493
85 $ 917 $ 106,211 $ 1378 $ 159,493
Assumptions as of 8/04: 5.96% Expected Rate, 3.62% Initial Rate
+ 2% Mtg Ins Premium + 2% Origination Fee + $35 monthly servicing fee;
where program equity limit = maximum for all high cost areas ($221,160)
Business is Booming HECMs = 90-95% of market share Interest Rates Lower Than Ever in History Increasing Public Awareness & Outreach Property Values Continue to Appreciate Retirement Plan & Investment Setbacks 50% Increase Last Year to 18,000 closings 28,000 HECMs bought by Fannie Mae in 2003
HECM’s Complementary Option:Fannie Mae’s HomeKeeper
Equity Share Feature No Longer Available Very Limited Market Share Single Family Homes and Condos Only Higher National Equity Limit ($333K versus
HUD range from $154K to $290K by county)
No Term, Modified Term Options Unlike HECM, no creditline growth Couples Underwritten Jointly = Less $
“Jumbo” Reverse Mortgage Cash Account and Cash Account High
Benefit from Financial Freedom Marketed to high valued homes
($600,000+) Available in most but not all states High Benefit Option = Annuity Purchase
Guarantees Income for Life Separate Counseling by FinFree Staff Calculator at www.financialfreedom.com
Comparing Products?? “You Better Shop Around!”
AARP Does Not Endorse Any Lenders or Products Equity Limits Vary by Product Household Size Affects Payout Creditline Growth: How Much & Often Costs & What’s Left Over in Equity Get Independent Information and Make Product Decisions Before Contacting a Lender
Consumer Protections Now in Place
Counseling Required by Law Independent Non-Profit/Public
Agencies Better Understand Transaction and
Alternatives Protection of Non-Recourse Limit
Never Owe More Than House is Worth Truth-in-Lending Disclosure Rules
Total Annual Loan Cost (TALC) Rate
Importance of Counseling
Free to consumers through AARP Foundation Counseling Network
Personalized software analysis to identify all costs and fees
Counselors provide info on less costly alternative programs & services
See www.hecmresources.org
Caution: Reverse Mortgages Aren’t for Everyone
Local Program or Service May Be Faster and Cost Less VERY Expensive Way to Borrow
MoneyShort Term, Especially If Not Much Principal Drawn Down In That Period
Consumers Must Do Their HomeworkBefore Making Any Decision
Caution: RM Generates “New” Cash for Vulnerable
Creditline Flexibility = Reward and Risk Some Consumers Don’t Manage Large
Sums of Money Well Potential Abuse by Professionals or
Family Members Estate Planners Service Fee Abuses in
1997 led to more consumer protections
Current Project: Improving Quality, Availability & Access Collaborating with 43 Counselors who met
High Score on 2002 National Computer Based Competency Examination, additional 54 in ‘03
Subgrants of $1.1 mil. made to 36 agencies
AARP: Identify, Screen and Refer Clients for Counseling (FYO4 goal: 9K)
Counselors: Follow Detailed Protocol & Receive Ongoing Technical Assistance
Client Notification, Tracking, Alternatives Database and Invoicing on Shared Website
AARP Consumer Resources
Home Made Money: A Consumer Guide to Reverse Mortgages - 46 pages (Spanish version now in development)
For free single copy call AARP at 800-424-3410 (ask for stock
#D15601) www.aarp.org/revmort - web version
of guide, downloadable pdf, plus reverse mortgage payment calculator
Additional Technical Information and Resources
National Center for Home Equity Conversion in St. Paul, MN www.reverse.org Ken Scholen, Author of Home Made
Money and webmaster, teleworks at AARP
Telephone: 651-222-6775 EMail: [email protected]
For More Information…
Ms. Bronwyn Belling/ AARP Foundation, Reverse Mortgage Education Project 601 E Street, N.W., Room B5-540 Washington, D.C. 20049
202-434-6044 (Voice); 434-6068 (Fax) 434-6082 (Counseling Referrals)
EMail: [email protected]
For More Information…
Mary Schindler Catholic Charities of St. Cloud, MN 911 N 18th Street St. Cloud, MN 56303
320/650-1668 or 800/830-8254 X2668 (FAX) 320/650-1672
EMail: [email protected]