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THE BASICS OF REVERSE MORTGAGES . . . SENIORS . . . Enjoying their golden years

THE BASICS OF REVERSE MORTGAGES . . . SENIORS . . . Enjoying their golden years For training purposes only and not intended for consumer distribution. WHAT IS A REVERSE MORTGAGE?.

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THE BASICS OF REVERSE MORTGAGES . . . SENIORS . . . Enjoying their golden years

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  1. THE BASICS OF REVERSE MORTGAGES . . . SENIORS . . . Enjoying their golden years For training purposes only and not intended for consumer distribution

  2. WHAT IS A REVERSE MORTGAGE? A reverse mortgage is a home loan that allows seniors 62 years or better to convert the equity in their home into cash without having to repay the loan. The only requirements are that they live in their home as their principal residence, maintain the home and pay their taxes and insurance on the property. Home Equity Conversion Mortgage, also known as HECM loans are reverse mortgages that are insured by the Federal Housing Administration (FHA) which is part of the U.S. Department of Housing and Urban Development (HUD). The borrower does not have any limitation* on how they use the reverse mortgage proceeds. They can use them to pay for medical expenses, home repairs, travel or other living expenses. 2.

  3. REVERSE MORTGAGE HISTORY Great Britain originally developed reverse mortgages in the 1930s The first known reverse mortgage in the United States was made in 1961 by Deering Savings & Loan In 1981 the White House Conference on Aging recommended that “FHA should develop an insurance program for reverse mortgage loans” The first HECM mortgage was written in 1989 by James B. Nutter 3.

  4. THE NEED FOR REVERSE According to an AARP study 90% of senior baby boomers want to remain in their homes. Reverse mortgages allow our seniors to access the equity in their homes while allowing them to stay in the property. The number of American seniors will double between 2000 and 2030 with baby boomers turning 62 years old and becoming eligible for the Reverse mortgage program. Less than 3% of seniors have a Reverse mortgage today and that percentage is expected to grow significantly. 4.

  5. REVERSE MORTGAGE FAST FACTS A HECM (Home Equity Conversion Mortgage) reverse mortgage is a FHA (Federal Housing Administration) insured program for seniors. Homeowners must be 62 or better and have equity in their home. Borrowers do NOT need to own their home “free and clear” in order to qualify for a Reverse Mortgage. In fact, the most common use is to pay off existing mortgages. Borrowers can eliminate their current monthly mortgage payments (if any). Borrowers retain title to and own their homes as long as they continue to live in and maintain the home, pay property taxes and homeowners insurance. There is no prepayment penalty if the borrower pays off the loan or sells the home. Proceeds may be used for any purpose- from everyday necessities to setting aside a cash reserve. Federal benefits, including Social Security are generally not affected by Reverse Mortgage Proceeds. In order to understand exactly how they will be affected, we recommend that all of our customers consult their Federal benefits administrators or financial advisors. 5.

  6. HOW DOES A REVERSE MORTGAGE WORK? Unlike a traditional mortgage where mortgage payments must be made each month a Reverse mortgage pays the borrower. Many seniors who do not qualify for traditional financing are eligible for a Reverse mortgage. With a Reverse mortgage the loan is not due until the borrower no longer occupies the home as their principal residence, maintains the home and pays taxes and insurance on the property. 6.

  7. FORWARD VS REVERSE PAYMENTS Traditional or Forward Mortgage Reverse Mortgage Payments are due monthly Interest is included in the monthly payment and paid to the lender every month MIP is included in the monthly payment and paid to the lender every month Servicing charge is built into the interest rate which is charged each month Payment is due when the borrower no longer lives in the home Interest is added to the balance every month MIP is added to the balance every month A Servicing fee is added to the balance each month

  8. HECM FEES The costs on a reverse mortgage are very similar to forward mortgages. They include: Appraisal (paid upfront) Flood Credit Counseling fees (paid upfront) MIP (Upfront of 2% of Principal Limit and monthly of 1.25%) Servicing Fee Origination Fee (max of $6,000) Title fees 8.

  9. HOW MUCH MONEY CAN THE BORROWER RECEIVE? The amount of money a borrower is eligible to receive is determined by: The age of the youngest borrower when the loan is taken out Appraised home value or FHA lending limit Current interest rates Amount of equity available in the home Mortgage program and payment options chosen 9.

  10. HIGHTECHLENDING’S REVERSE PRODUCTS Our product lines are Forward Mortgages and Reverse Mortgages, we do not sell any other financial products which helps safeguard seniors from buying unsuitable financial products with their Reverse Mortgage funds. • HECM Fixed Rate Loans • HECM Adjustable Rate Loans • HECM for purchase • HECM to HECM refinances • Jumbo Product (brokered only) 10.

  11. FIXED RATE • The fixed rate will not change over the entire period of the loan which makes many borrowers feel more comfortable. • The fixed rate is a closed end loan. • The borrower will not be able to prepay the loan in order to later draw out funds from a line of credit • All funds must be drawn out at the time of closing in an initial draw (UPB). 11.

  12. ADJUSTABLE RATE PRODUCTS • Adjustable products have interest rates that change regularly, either every month or every year. Interest is added to the principal loan amount. • Like all adjustable mortgages, the rate is based on an index (Libor) plus a margin. 12.

  13. WHAT IS LIBOR? • London • Inter • Bank • Offer • Rate The rate used for LIBOR ARMS is published in the Monday Wall Street Journal. It is established by a small group of large London Banks. HighTechLending Inc. will be publishing the rates daily, there are 2 different Reverse Arms products, 2.25% margin and 2.50% margin. 13.

  14. HOW DOES THE INTEREST RATE AFFECT THE LOAN? The interest rate is one of the factors that determine the principal limit. Also, as interest accrues after funding it will affect how the balance grows over the life of the loan.

  15. MONTHLY ARM • Rate changes once per month • The rate can never go up more than 10% over the entire life of the loan • This “maximum rate” will be shown on the Note in the closing documents. • It is calculated as the initial rate +10%. 15.

  16. MONTHLY ARM EXAMPLE Our initial rate is 3.256% we just add 10% That makes our maximum rate 13.256% This is locked in for the life of the loan so no matter how high rates go the borrowers rate would never be more than 13.256% Also, if the rates go down the borrowers rate will go down as well! The rate adjusts just as the market does once per month 16.

  17. WHAT DO ALL THESE RATES MEAN? • Interest Index Rate • Margin • Interest Initial Rate • Expected Interest Rate • Grown Rate in Line of Credit • Interest Max Rate • Lending Limit • Maximum Claim • Principal Limit Gross • Origination Fees (2% of 1st $200,000, 1% of everything above based on Max Claim, cap of $6,000) • Upfront MIP (2% of the lower of appraised value or FHA Lending limit of $625,500) • Closing Costs • Service Set-Aside • Net Principal Limit Available for Payments 17.

  18. INDEX, MARGIN AND INITIAL INTEREST RATE • The actual interest rate charged to the borrower which is established prior to closing and cannot be changed. • On adjustable loans, this rate is the sum of the value of the index on the date the mortgage is closed plus the margin. • The index is the LIBOR 18.

  19. EXPECTED INTEREST RATE • The rate required by HUD to calculate the Principal Limit on adjustable Reverse loans. • Not the actual rate charged to the borrower. • Equal to the sum of the value of the 10 year LIBOR plus the applicable margin. It will be the lower of the value at time of application or doc drawing. 19.

  20. LENDING LIMIT/MAXIMUM CLAIM AMOUNT • The Lending Limit is set by HUD and is currently $625,500. • The Maximum Claim Amount is equal to the lesser of the Lending Limit or the appraised value, whichever is lower. 20.

  21. PRINCIPAL LIMIT • The Principal Limit is based on the interest rate, age of the borrower and amount of equity. • The Principal Limit is the total amount of funds available to the borrower. • The Net Principal Limit is the amount that is remaining after all fees and financed MIP are subtracted. 21.

  22. PAYMENT OPTIONS Reverse Mortgage borrowers have several payment options available. The borrower can chose the option that works best for them. • Fixed Rate: • Single Lump Sum Amount- Cash is sent at the time the loan funds for the entire amount of money the borrower qualifies to receive. • Adjustable Rate: • Single Lump Sum Amount- Cash is sent at the time the loan funds for the entire amount of money the borrower qualifies to receive. • Tenure-Regular Monthly Cash Advance- A check is sent each month for as long as one or more borrowers live in the home no matter how long that is. • Term- A monthly payment is sent for a fixed period of months selected. • Line of Credit- This lets the borrower draw out funds as needed. • Any combination of these! 22.

  23. REPAIRS The HECM loan allows the borrower to have a repair set aside and complete repairs after closing. The underwriter determines which repairs must be completed on the property. All repairs must be completed within 12 months from the date of closing. In most cases we can accept appraiser estimates for repairs with a total cost to cure of under $2,000. Cost to cure amounts over $2,000 must be documented with a contractors bid. Repair escrows are only allowed for repairs up to 15% of the maximum claim amount. Repairs 15%-30% of the maximum claim amount must be completed prior to closing. Repair Set-Aside amount is determined by 150% of the contractor’s bid or 200% of the appraiser’s estimate of repairs 23.

  24. HOW DOES A BORROWER QUALIFY? Homeowners must be 62 years of age or older The property must be the borrowers PRIMARY residence The home must meet minimum FHA property standards Any liens must be paid off at closing All borrowers, POA’s, Guardians and Conservators are required to complete a counseling session with an independent, third party counselor approved by HUD. 24.

  25. HECM COUNSELING All Reverse Mortgage Borrowers must attend a counseling session via phone or in person with a FHA approved counselor prior to processing of the loan. This was put in place by HUD in order to have an uninterested third party advise the borrower on the Reverse Mortgage Product and make sure that the borrower understands the loan they are applying for.

  26. HECM COUNSELING How does the borrower find a counseling agency? Brokers and Lenders are NOT allowed to steer a borrower to a particular counseling agency. Brokers and Lenders are NOT allowed to schedule counseling for the borrower or contact the counseling agency to recommend items to cover, etc. Brokers must provide the borrower with a list of counseling agencies and their phone numbers. The list must include national as well as local agencies (4 national, 5 within the state, 1 within driving distance). There is also a list of HUD approved counseling agencies at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?weblistaction=summary The borrower must call a counseling agency and set up a counseling session either in person or via phone. 26.

  27. HECM COUNSELING The Counselor will mail a copy of the counseling certificate to the borrower once the session has been completed. If requested they can also fax or email a copy of the counseling certificate. Once received the borrower, and any other parties counseled must sign and date the counseling certificate and forward it to the lender so the loan can go into processing. The counseling certificate must not be older than 180 days at the date of application. A certificate signed and dated by all parties must be in the file prior to any charges of the loan are incurred. This includes; appraisal, credit, flood certificate and FHA case number. If charges were incurred prior to the date the last person signed the counseling certificate the charges must be lender paid. (This does not include title charges, HUD will allow titles to be ordered prior to counseling) 27.

  28. HECM COUNSELING Signatures and Dates: • The Certificate must be signed and dated by: • Counselor • Borrower • Power of Attorney • Guardian • Conservator • It is very important that we have both a signature and a date. The counselors signature can be an electronic signature. We must have an ORIGINAL signature from all other parties. The loan can close with a faxed copy however, prior to funding we must receive the original signatures for all other parties. 28.

  29. TOP 10 REVERSE MORTGAGE MYTHS Myth #1 • If homeowners take out a reverse mortgage the lender will own their home. • Fact: False. • Homeowners still retain title and ownership to their homes during the life of the loan, and can choose to sell the home at any time. Homeowners must continue to pay taxes and insurance, live in and maintain the home. 29.

  30. TOP 10 REVERSE MORTGAGE MYTHS Myth #2 • There are restrictions on how reverse mortgage proceeds may be used. • Fact: False.* • There are no restrictions. The cash proceeds from the reverse mortgage can be used for virtually any purpose and borrowers should be cautious of lenders attempting to cross sell other products. Many seniors have used reverse mortgages to pay off debt, help their kids, make ends meet or to have a financial reserve. *Annuities are restricted. 30.

  31. TOP 10 REVERSE MORTGAGE MYTHS 31 Myth #3 • Homeowners cannot get a reverse mortgage if they have an existing mortgage. • Fact: False. • With enough equity, borrowers may be able to pay off their existing mortgage or other debt with the reverse mortgage. The reverse mortgage must be in first lien position, so any existing mortgage must be paid off. Seniors who take out reverse mortgages are free to do anything they want with their reverse mortgage proceeds. Paying off an existing mortgage is the number one reason our clients take out a reverse mortgage. 31.

  32. TOP 10 REVERSE MORTGAGE MYTHS Myth #4 • Only low-income seniors get reverse mortgages. • Fact: False. • Although some seniors may have a greater need than others for the monthly proceeds or lump sum funds reverse mortgages offer, most simply prefer to be free of monthly mortgage payments. Without monthly mortgage payments many homeowners find they can maintain their existing quality of life and build their savings to help with future expenses. A growing number of people who have no immediate need are taking out these loans so they can have a financial cushion for future expenses. 32.

  33. TOP 10 REVERSE MORTGAGE MYTHS Myth #5 • If a borrower outlives their life expectancy, the lender will evict them. • Fact: False. • Reverse mortgage lenders put no time limit on how long seniors can stay in their homes. Since homeowners still own the property lenders cannot evict them, provided they follow the program guidelines. 33.

  34. TOP 10 REVERSE MORTGAGE MYTHS Myth #6 • Reverse mortgage lenders pressure seniors to buy additional financial products. • Fact: False. • HighTechLending Inc. offers forward mortgages and reverse mortgage products; we do not sell seniors any other financial products. Not every reverse mortgage lender operates that way. In fact, HighTechLending Inc. has a policy to safeguard seniors from buying unsuitable financial products with reverse mortgage proceeds. 34.

  35. TOP 10 REVERSE MORTGAGE MYTHS Myth #7 • There are no objective advisors available to seniors trying to decide if a reverse mortgage suits their needs. • Fact: False. • Borrowers are required to work with independent, third party counselors approved by the U.S. Department of Housing and Urban Development (HUD). This educational session helps them make the right decision for their unique situations. 35.

  36. TOP 10 REVERSE MORTGAGE MYTHS Myth #8 • The borrowers children will be responsible for the repayment of the loan. • Fact: False. • Reverse mortgages are non-recourse loans. That means, if the property is sold to payoff the loan when the homeowner passes away or decides to leave the home for other reasons, the reverse mortgage debt will be paid off using the proceeds from the sale. The maximum amount owed is the current market value of the home. If the homeowner’s heirs want to keep the home, they would pay the balance in full to the reverse mortgage lender. 36.

  37. TOP 10 REVERSE MORTGAGE MYTHS Myth #9 • Reverse mortgage lenders take advantage of seniors. • Fact: False. • Seniors who have been victims of reverse mortgage lending schemes are extreme exceptions and typically victims of unsavory lenders. Consumers are urged to only work with lenders who are Better Business Bureau and National Reverse Mortgage Lenders Association (NRMLA) members and adhere to those organizations strict Code of Ethics and Standards for Trust. 37.

  38. TOP 10 REVERSE MORTGAGE MYTHS Myth #10 • Homeowners cannot always qualify for a reverse mortgage because of limited income. • Fact: False. • Unlike a traditional mortgage where mortgage payments must be made each month, a reverse mortgage pays the borrower. Because of this, many seniors who do not qualify for traditional financing are eligible for a reverse mortgage. 38.

  39. SUBMITTING YOUR LOAN All loans will be originated, processed and submitted to Underwriting through our HTL Reverse Software, ReverseVision. Installation: (contact Joan for set-up) www.reversevision.com/setup/setup.exe Use the HECM submission checklist, Lock Request and Draw Request found on the portal under Reverse Center. Processing can either be at the branch level once your processor has gone through training or use corporate processing.

  40. TOOLS • Use the link below for training manual • http://faq.reversevision.com/doku.php?id=handbook

  41. THANK YOU FOR ATTENDING Please contact Brad Byrnes, bbyrnes@HighTechLending.com with any questions or help with closing your Reverse loans.

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