Reverse Mortgages (HECM) Helping Seniors

What is a Reverse Mortgage?

· A reverse mortgage is a non-recourse loan that allows homeowners to access a portion of their home equity. (Traditional refinance) or create an equity reserve via down payment. (Purchase).

· Also know as a HECM, which is an acronym for Home Equity Conversion Mortgage.

Initial Eligibility Requirements

To be eligible, all borrowers must:

· be age 62 or older.

· live in the home as their primary residence.

· participate in a government approved counseling session.

· have the ability to pay property taxes, insurance and any maintenance charges.

HECM Product Options

FHA Insured Programs:

National Lending Limit $625,500 · Fixed Rate

· Monthly Adjustable (10 point cap) · Annual Adjustable (5 point cap) Proprietary Program:

Urban’s HomeSafe Jumbo Program · Fixed Rate Only

How Much Can You Receive?

Principal Limit Factor (PLF) is based on 3 components:

· Age of the youngest borrower (or non-borrowing spouse if under age 62). · The Max Claim Amount (MCA) which is the lesser of the lending limit or

appraised value of the property.

How Much Can You Receive – Example*

Property Value $300,000

Age Age Age

62 76 90

Available Funds $157,200 $186,600 $225,000

PL Factor 52.4% 62.2% 75%

What Are The Costs?

· Traditional 3

_{party closing costs}

· Possible Origination Fee – No underwriting or processing fees

· MIP:

Ø 2.50% of the MCA if 1st _{year distributions exceed 60% of}

available funds

Ø .50% of MCA if 1st _{year distributions are less than 60% of}

available funds

What About Repayment?

· There are no principal, interest or mortgage insurance payments required for as long as at least one borrower still lives in the home as their primary residence. Once the last borrower either passes away or permanently moves, the loan will be due and payable. Non-borrowing spouses can live in property if they were married at application and it is their primary

residence.

· Due to the non-recourse feature, the borrowers or their heirs will never owe more than value of the house, regardless of the outstanding loan balance

Should the loan balance exceed the value of the property, family members may

HECM Loan Options / Payout for Refinances

Fixed Rate Products:

· Single lump sum distribution only - cannot exceed the greater of Mandatory Obligations (Payoffs and closing costs) plus 10%, or 60% of available funds.

· Most appropriate use is for large payoffs to eliminate monthly payments.

Libor Products:

· Distributions can be in cash, term or tenure payments, line of credit, or any combination of these.

· Distribution method can be changed at any time.

· Partial repayments are available for future draws at a later date.

Understanding the HECM LOC Option

When compared with a traditional line of credit:

· HECM LOC’s have no payment requirements. Traditional Lines of Credit require at least interest payments.

· HECM LOC’s have no term limits as long as residency and maintenance requirements are met. Traditional Lines of Credit have term limits,

generally 10 or 15 years. Then they amortize or have balloon payments. · HECM LOC’s cannot be cancelled, again as long as residency and

The HECM LOC Growth Rate

The HECM LOC has a growth rate, unlike traditional lines of credit, which is equal to the Libor Index, plus the Product Margin, plus 1.25%. It compounds monthly on the available LOC.

EX: Property Value $350,000, Age 62, Initial HECM LOC $183,400.

Understanding the HECM LOC (cont.)

· Payments can be made on the outstanding balance if desired.

· Payments INCREASE the available credit line dollar-for-dollar.

· Funds can be withdrawn again at a later date.

How Can The Strategic Use of Home Equity

With A Reverse Mortgage Help Enhance and

Manage Wealth??

“New academic research demonstrates how HECMs can play a

vital role in retirement planning –

not just as a tool of last resort

but as a strategic way to provide greater financial flexibility to

seniors with ample savings.”*

Strategic Use

–

Diversify Real Estate Holdings

Using a HECM to Purchase a Second Home:

· 70 year old wants to purchase $350,000 vacation condo in Florida.

· Owns a $650,000 home in Connecticut

_–

· Draws $216,172 from HECM proceeds in year 1 for condo down payment (cash withdrawals restricted to 60% in year 1)

· Withdraws balance of $144,116 in year 2 to pay off condo. Owns 2 homes now with no payments other than

Taxes, Insurance and Maintenance, and has diversified his real estate holdings to help hedge

Strategic Use

–

Hedge Against Declining

Real Estate Values

In 2006, a 62 year old in Las Vegas owns a home worth $400,000, and secures a $235,000 HECM LOC.

HECM LOC had increased in value to $281,720.

By 2011 the home was only worth $262,000.

· Since 1987, residential Real Estate has appreciated 3.4% on average but certain regions have experienced much higher or lower rates.

HECM LOC’s have guaranteed growth rates regardless of what is happening to the value of the property which can insure against

The HECM For Purchase

• HECM for purchase is a program that allows older borrower to purchase a new principal residence AND obtain a Reverse

Mortgage in a single transaction. As with a traditional Reverse Mortgage, all borrowers must be 62 or older to qualify.

• Older borrowers can use a Reverse Mortgage to purchase a new principal residence and downsize from their current residence, or relocate to other areas due to family, economics or any other

HECM For Purchase – Special Considerations

It is important to remember the following details about a HECM for Purchase:

• There can be absolutely NO Seller Concessions • There can be absolutely NO Lender Credits

• Borrower MUST choose Title Company and pay for Owner’s Title; Seller can still pay Doc Stamps on Deed.

• Sales contracts should be for 60 days • New construction must have a CO issued

$400,000 Cash Customer

• But what if that is too much house for them at their age @

$715,000? That’s a lot of house!

• You can sell them the same house AND a rental to buy what

they want and give them more money each year.

Line of Credit Example

66 Year old couple sells their home up north (or locally) and moves to South Florida, and you’re their Realtor!

– Sold home for $300,000

– Purchase Price of new home is $400,000

– Cash needed for HECM Purchase = $219,600*

– Left over funds $80,400 ($300,000 sale minus $219,600 required)

Line of Credit Example (cont)

What to do with that extra $80,400?

• Put it in the bank, earn 0.25% and pay taxes on the earnings?

• Or pay down HECM loan balance and establish a line of credit (HECM LOC) for $80,400.

– After 10 years, at current rates, the HECM LOC would be worth $119,089. – If interest rate rose just 2%, after 10 years the HECM LOC would be worth

$145,409.

Closing / Questions?

Brandon Crysler- NMLS# 162096

Producing Branch Manager

Southern Home Loans a division of Goldwater

Bank, NA

Office: 352-622-1521 Cell:352-553-94581