Reverse Mortgage
Credit Union Mortgage Association 9693-A Main Street
Fairfax, VA 22031
Toll Free: (800) 231-8855 Ext. 128 Local: (703) 425-1204 Ext. 128
www.CUmortgage.net
Summary
What is a Reverse Mortgage?
Who would apply for this type of loan?
Reverse Mortgage Principles
Qualifications
Available Products
Loan Proceeds
Homeowners Responsibility
Determining the Principal Limit
Equity Options
Closing Costs
When is the mortgage paid back?
What happens to my home after I pass away?
Origination through Closing
Myth Vs. Fact
Growing Market
What is a Reverse Mortgage?
A Reverse Mortgage is a unique loan that allows
homeowners age 62 years and older to convert a
portion of their home equity into tax free income
or cash without having to sell the home, give up
title, or take on any additional monthly mortgage
payments.
Who would apply for a reverse mortgage?
Seniors living on a Fixed monthly income
Those who break even or are in the red at the end of each month
Seniors that have little or no reserves
Seniors who have built up equity in the home
Seniors who want to remain in their homes
Reverse Mortgage Principles
No monthly principal or interest payments required
May allow access to a portion of the home’s equity
Homeowner will never have to leave their home as long as it is occupied as the primary residence.
Due and Payable: All Servicing and MIP fees, Annuity, LOC advances, accrued interest and original principal balance will be repaid at the time of “Maturity” which is based upon pre-determined date after death or when the property is sold
Qualifications
All owners on title must be at least 62 years of age
All owners must occupy property as primary residence
Home does NOT need to be “Free & Clear”*
Eligible property must be either a SFR, Condo,
Townhouse, or manufactured home built after June 1976.
NO income restrictions or medical requirements
NO credit qualification requirements
* Basic qualifications typically require an equity position between 45-50%
Available Products
• FHA Insured Home Equity Conversion Mortgage (HECM)
• 10/2008 - National Lending Limit of $417,000
• 2/2009 – Temporary Lending Limit increase to $625,500
• 12/2009 – $625,500 Lending Limit extended until 12/31/2010
• 1/1/2011- Any loan not closed in by 2010 will default back to the Lending Limit of $417,000
• Proprietary Reverse Mortgages
• The products are designed for property values in excess of $1.5m. These programs do not carry the same government guarantee and are just
coming back into play after a being discontinued due to the squeeze in the credit markets
Loan Proceeds
All existing mortgage(s) or lien(s) on title must be paid
Supplement retirement income
Preserve home for spouse
Prevent foreclosure (loss of spouse or income)
Home repairs, improvements and/or modification
Short and Long term health care costs
Pay property taxes and homeowners insurance when due
Gifts to family members – early inheritance
Remove any financial burden off children
Reserves for any other unexpected expense
Wants – Luxury Items
Homeowners Responsibility
Property must be occupied as primary residence
All premiums due for Homeowner Insurance
All payments due for Real Estate taxes
Any other HOA or Condo Dues
Must maintain property in average or better
condition
Determine the Principal Limit
The Principal Limit is determined based upon the following variables:
AGE: Age of the applicant(s) (in case of couples, the Principal Limit is calculated based on the younger of the two and both must be at least 62 years of age to qualify)
CURRENT INTEREST RATES: Either HECM Fixed Rate or the HECM LIBOR ARM Programs
COLLATERAL: The value is based upon the lesser of the appraised value or the FHA lending limit of $625,500*
* The $625,500 is available until 12/31/2010 at which point will default back to the original lending limit of $417,000.
Calculator: WWW.CUMORTGAGE.NET
Calculating the Principal Limit
Equity Options
Homeowner can tap into the equity using any of the following equity options.
Single Lump-Sum advance
* Line of Credit allows members to draw on available funds whenever necessary
*Annuity – Term or Tenure; Fixed regular monthly income payments to the member
* OR a combination of ALL the options above (Example: ½ lump sum; ¼ line of credit; ¼ monthly income/annuity
payments)
Reverse Mortgage loan proceeds are Tax-Free
* These Equity Options are only available under the HECM Adjustable Rate Mortgage (ARM) program
* *Special Note** Mortgage Interest is only tax deductible at the point in time in which the loan is repaid.
Summary of Equity Options
Loan Terms
Summary of Closing Costs
When is the mortgage repaid?
The “Maturity Date” is the point in time in which the loan must be repaid. It is triggered by…
Death of the last vested owner on title
If the property has not been the primary residence for 12 months.
If the home is sold while the vested owner is still living
The “Amount Due” or payoff will include all accrued servicing fees, MI
premiums, interest, original principle balance and any draws taken from the LOC
The “Deficiency Balance” if any, at the time of sale will NOT be pass along to the estate. A reverse mortgage is known as a non recourse loan which means that the amount owed will NEVER exceed the value of the home.
Special Note: The Executor of the Estate has up to 12 months to satisfy the mortgage by selling the home.
What happens to the home after I pass away?
Typically the property will go into the name of the estate. The Executor of that Estate will decide what to do with the property. First, the Executor will need to consider what the house is worth and the amount needed to satisfy the lien.
1. REFINANCE: If the estate and children are looking to hang onto the home they can choose to refinance the property. They will have to secure enough financing to payoff the “Amount Due” to satisfy the loan balance at the time of “Maturity”.
Timeline: There is 6 month grace period which begins at the date of death.
2. SELL: They can also choose to sell the property. The property will have to be sold at current market value. After real estate commission the remaining proceeds must be enough to cover the “Amount Due”.
Timeline: After the six (6) month grace period, the Executor can file for two additional three (3) month extensions
Origination through Closing
Initial Conversation
Initial worksheets
Conversation Follow up
Reverse Mortgage Counseling
Application and RESPA Disclosures
Processing
Underwriting
Approval
Lock request
Closing
The process from start to finish usually takes between 15 – 20 business days
Myth vs. Fact:
Common Misconceptions Regarding Reverse Mortgage Loans
MYTH #1: The lender will own my house!
FACT: The homeowner retains ownership. The loan is secured by a Mortgage Note and Deed of Trust just like a conventional mortgage, however the member’s DO NOT MAKE MONTHLY PAYMENTS
MYTH #2: I can be thrown out of my house!
FACT: Homeowners can stay in the home until they move out of the home permanently (sale, death, etc.) It is the homeowners responsibility to keep the property taxes and the homeowners insurance current on the home
Myth vs. Fact:
Common Misconceptions Regarding Reverse Mortgage Loans
MYTH #3: I will owe more than my house is worth!
FACT: The loan balance will NEVER exceed the value of the home.
Reverse Mortgages are classified as Non-Recourse which means the amount owed can never be more that what the house is worth.
MYTH #4: The loan balance will exceed the property value!
FACT: If for some reason the loan balance exceeds the value of the
property the additional amount is “forgiven” and NOT responsible by the heirs
Myth vs. Fact:
Common Misconceptions Regarding Reverse Mortgage Loans
MYTH #5: My children are or will be against it!
FACT: Experience demonstrates, once educated on the benefits of a reverse mortgage the family tends to be in favor of it since it allows the parents to remain in the home without taking on any additional liabilities that they may not be able to manage without the help of the children or the heirs to the estate.
MYTH #6: The children will lose their inheritance!
FACT: Historically, most houses continue to appreciate over time. A high percentage of home still have enough equity to pass down as
inheritance – allowing them to sell or refinance the home at the time the loan matures.
Myth vs. Fact:
Common Misconceptions Regarding Reverse Mortgage Loans
MYTH #7: Reverse Mortgage loan proceeds will affect my Medicare and social security income!
FACT: Loan proceeds DO NOT affect Social Security or Medicare benefits. It is your “tax-free” money to spend as you please.
Medicaid: Please consult your tax advisor should you have any questions regarding Medicaid benefits.
MYTH #8: The costs of a Reverse Mortgage are too high!
FACT: Compared to other mortgage loans, cost are slightly higher due to the UFMIP premium. In most instances the benefits will outweigh the upfront closing costs. The major benefit of a Reverse Mortgage is NOT having a monthly mortgage payment and having the ability to tap into the homes equity.
The Potential & Growing Market
21+ million homeowners age 62 and older
Seniors age 65-70 make up 60% of the housing market
A study by the AARP indicates that 85% of these seniors want to remain in their home
$3 trillion in home equity available and growing
Studies show that 93% of seniors who chose a reverse mortgage are satisfied with its benefits
