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Home Equity Conversion Mortgage Counselor Exam Preparation Webinar Trainings Two Part Series, Part 2 of 2May 2, 2008
HECM Exam Preparation These webinar trainings are meant to prepare housing counselors for the AARP Reverse Equity Mortgage Exam. However, these webinar trainings should not be seen as all inclusive, and you may need to study additionally on your own to prepare for the exam. If you do not plan on taking the exam, these webinar trainings will provide you will an introduction to reverse equity mortgages, how they work, and how they compare to other options for homeowners.
Supplemental Training Materials Whether you plan to take the test or not, there are several documents we recommend you download and review, (all documents are available at (www.hecmexam.org/guide_study_materials.cfm): AARP’s Consumer Guide to Reverse Mortgages “Home Made Money” (46 pages) HECM Training Manual (146 pages) HUD Handbook 4235.1 REV-1 HECM Mortgagee Letters, Regulations, and Statue Technical Topics HECM Software
Agenda Welcome and Introductions Items to Review from Last Webinar QUESTIONS AND ANSWERS Proprietary loan products QUESTIONS AND ANSWERS Key Decisions (selecting a counselor, interest rate, time, lender) QUESTIONS AND ANSWERS Spending Your Home Equity (Leftover estimates, Estimate shortcomings, Investing) QUESTIONS AND ANSWERS
Agenda (continued) • Refinancing (HECM to HECM) • QUESTIONS AND ANSWERS • BREAK 10 MINUTES • General Overview of Additional Topics • General HECM Exam Information and Content • QUESTIONS AND ANSWERS • HECM Exam Registration and Scheduling Information • QUESTIONS AND ANSWERS • Study Planning • QUESTIONS AND ANSWERS • Closing Remarks and Poll Questions • Adjourn
Basic Forms of Home Equity Conversion • Two basic forms of home equity conversion: loan plans and sales plans. • Loan plans (reverse mortgages) you borrow against home equity • In sales plans, you sell your home and then rent it back from the buyer (sale leaseback), or sell the right to ownership to your home upon your death (sale of a “remainder interest”).
HECM Counseling • HUD’s Procedures and Requirements for HECM counseling are in Chapter 2 of the HECM handbook (4235.1 REV).These are subsequently clarified in detail in Mortgagee Letter 2004-25, 2004-48, and 2006-25. • Counseling protocol is updated online can be found at: www.hecmresources.org/protocol_9-15-05.pdf. However, this is not an official HUD document and its use it NOT required by HUD.
HECM Counseling • Counselors should always protect the confidentiality of the client and client’s advisors! Without client permission, counselors should share personal information about competent clients with no one, including family members and lenders.
HECM Counseling • HECM legislation outlines the information that MUST be provided to all prospective borrowers. In HUD-92902 (Certificate of Borrower Counseling). Amended in 2006, this more recent version is available at www.hud.gov/offices/adm/hudclips/index/cfm.
HECM Counseling • Counselors should avoid: • Making any direct, specific recommendations or referrals to any specific lenders or products; • Giving any “advice” that might be interpreted as influencing the homeowner’s decisions; • Applying their own value system or preferences to the homeowner’s situation or needs; and • Providing any opinion about the suitability of any loan for the client.
HECM Counseling • Counselors should stress that: • The decision to apply for the loan is the client’s decision; • The decision about the client’s eligibility for a HECM is the lender’s and HUD’s; and • The issuance of a HECM counseling certificate certifies that the client has received counseling.
HECM Counseling • Counseling protocol is divided into three main parts: • Initial contact • Individualized information packet • Counseling session • Who receives HECM counseling? • All borrowers of their legal representatives MUST receive counseling. • Non-borrower spouses.
HECM Counseling • Who receives HECM counseling? (continued) • Trust beneficiaries and persons with reversionary or remainder interest. • NOTE: For borrowers lacking legal competency, the counseling session must be conducted with a person holding a durable power of attorney, or with a court-appointed conservator or guardian.
Proprietary Loan Products • These are non-HECM reverse mortgage loan products. • Commonly referred to as “proprietary” mortgage products implying that the characteristics of the products were developed and are owned by a particular lender. • These products continue to grow as additional lending institutions have entered the lending arena.
Proprietary Loan Products • Counselors are prohibited from steering borrowers to particular products or lenders. However, they should be familiar with the various features of available products both HECM and proprietary.
Proprietary Loan Products • In general counselors should counsel borrowers to examine the following features in relation to proprietary loan products: • The amount of money the borrower will receive • The closing costs associated with the product • How the borrower will be able to access the funds • Eligible properties • The structure of the interest rate of the loan • The index used by the lender to calculate the interest charged on the loan and how much and how frequently the interest rate can changes on an adjustable rate mortgage
Proprietary Loan Products • In general counselors should counsel borrowers to examine the following features in relation to proprietary loan products (continued): • Whether to proprietary product contains a creditline growth rate • Whether the product allows the borrower to make partial repayment
Types of Proprietary Loan Products • Fannie Mae, Home Keeper reverse mortgage • Fannie Mae, Home Keeper for home purchase mortgage • Financial Freedom, Cash Account Advantage • EverBank Reverse Mortgage, Reverse Select • Generation Mortgage, Generation Plus • Lender Lead Solutions, Simple60
Fannie Mae, Home Keeper Reverse Mortgage • Developed in 1996 • Product was developed to address needs of those who could not be served by a HECM • Available in all states to homeowners 62 years old and older • Eligible property types: • Owner-occupied single-family homes • Condominium units meeting Fannie Mae’s guidelines
Fannie Mae, Home Keeper Reverse Mortgage • Eligible property types: (continued) • Planned unit developments • Qualified properties held in a trust and/or leasehold • Ineligible properties: • Multi-unit properties, even if owner occupied • Cooperative units
Fannie Mae, Home Keeper Reverse Mortgage • Loan: • Amount of funds determined by borrower’s age and number of borrowers at time of application. Unlike HECM principal limit is based on blending of ages of borrowers. • The lower of the appraised value or Fannie Mae lending limit of $417,000. • The current or expected interest rate is NOT part of this calculation. • No mortgage insurance premium.
Fannie Mae, Home Keeper Reverse Mortgage • Borrower may receive funds from this product as: • Fixed monthly payments for as long as at least one borrower occupies the home as principal residency (tenure plan) • Creditline • Combination of monthly payments and creditline
Fannie Mae, Home Keeper Reverse Mortgage • Borrowers are charged an origination fee that may not exceed 2 percent of the APV of home, a monthly servicing fee, and other closing costs. • Interest rate for this product adjusts monthly and is equal to a fixed spread above the index rate. The rate may never rise above 12 percentage points above the initial rate.
Fannie Mae, Home Keeper, FOR HOME PURCHASE • Enables seniors to obtain a Home Keeper reverse mortgage in connection with the purchase of a new home in a single transaction. • Why use Home Keeper for purchase? • Reduces out of pocket expenses for consumer • Eliminates any new monthly mortgage payment
Fannie Mae, Home Keeper, FOR HOME PURCHASE • Case Study: • 76 year old woman sells her home for a $75,000 profit and wants to buy a new home costing $115,000. To avoid a mortgage payment on the new house, she would need to pay $115,000 in cash. This means what? Could this woman purchase the new home by combining her money with a Home Keeper reverse mortgage?
Fannie Mae, Home Keeper, FOR HOME PURCHASE • It means she needs to come up with $40,000 in cash from her savings or some other source. • She could use her sales proceeds and combine it with a Home Keeper reverse mortgage. • It would look like this: • Sales price of new home: $115,000 • Profit from sale of old home: $75,000 • Home Keeper loan: $40,000 • Additional cash from borrower: 0 • Monthly payments: 0
Financial Freedom, Cash Advantage Plan • A division of IndyMac Bank • As of February 2008, second largest reverse mortgage originator. • Designed to meet needs of borrowers whose home values are in excess of 203(b) lending limits. • Available in all states to homeowners 62 years old and older
Financial Freedom, Cash Advantage Plan • Eligible property types: • Single-family detached homes • Condominiums (some restrictions apply) • Planned Unit Developments (PUDs) (some restrictions apply) • 1 to 4 rental unit (one must be owners occupied) • Co-ops (New York State only) • Ineligible properties: • Manufactured homes DO NOT qualify
Financial Freedom, Cash Advantage Plan • Loan: • Amount of funds determined by borrower’s age at time of application. Unlike HECM principal limit is based on blending of ages of borrowers. • The appraised value of the home has not set limit. A home must be valued at least $75,000 to qualify. • Interest rate is adjustable and based on 6 month LIBOR. The rate is reset semiannually and has a lifetime cap of 6% above the expected interest rate, but no periodic cap. • No mortgage insurance premium.
Financial Freedom, Cash Advantage Plan • Borrower may receive funds from this product as: • Creditline • Initial lump sum with creditline • Cash out option – only a lump sum advance
Financial Freedom, Cash Advantage Plan • Borrowers are charged an origination fee that may not exceed 2 percent or $2,500 whichever is greater. • Borrower pays third-party closing costs • Borrower must draw a minimum of $500 after closing. • Borrower can make partial or full payments to creditline.
Selecting a Counselor • To be eligible for a federally insured HECM, the borrower must discuss the loan with a counselor employed by a nonprofit or public agency approved by HUD. • To find the HUD-approved counseling agency nearest you call 1-800-569-4287,or search online at www.hud.gov/offices/hsg/sfh/hecm/hecmlist.cfm/.
Selecting a Counselor • Borrowers may also request HUD-approved HECM counseling through the AARP Foundation’s Reverse Mortgage Education Project. • These counselors are required to use loan analysis and comparison software that meets the model specifications. • Network counselors provide in-person counseling in their local areas, and counseling by telephone in other areas nationwide.
Selecting a Counselor • For current information on requesting HECM counseling services from these counselors, go to www.hecmresources.org/network.cfmor call 1-800-209-8085. • This counseling generally takes at least one hour. When provided by telephone, it typically requires two or more calls.
Selecting a Time • In the future, a borrower may be eligible for larger cash advances because they will be older and your home is likely to be worth more. So timing is key. • Borrowers can use the calculator at www.aarp.org/revmort to see how much difference an older age or greater home value could make.
Selecting an Interest Rate • HECM lenders must offer an interest rate that is tied to the one-year U.S. T rate (Treasury Security rate). Once a year, this rate can increase or decrease by the same amount as any increase or decrease in the T-rate. • But this “annually adjustable” rate cannot change by more than 2 percentage points up or down per year, nor by more than 5 total points up or down over the life of the loan.
Selecting an Interest Rate • HECM lenders may also offer a lower “monthly adjustable” rate that can increase or decrease each month by the same amount as any increase or decrease in the T-rate each month. • But the only limit on this rate is a 10 percentage point cap over the life of the loan.
Monthly Versus Annual Interest Rate • The advantages of the monthly adjustable rate are: • you get larger loan advances; • when rates fall, your rate will drop sooner than an annually adjusting rate; • your rate will be lower than an annually adjusting rate for as long as increases in the T-rate are less than 3.6 percentage points per year or 6.6 points over the life of the loan; and • your rate can decrease by more than 2 points per year, and by more than 5 points over the life of the loan.
Case Study: Monthly Versus Annual Interest Rate • How much greater would the loan advances be when selecting a monthly versus an annually adjusting interest rate? • A 75-year-old single borrower living in a $250,000 home could get a creditline of about $127,000 from an annually adjustable HECM versus about $157,500 from a monthly adjustable HECM. • What would be the benefits of the annual interest rate?
Monthly Versus Annual Interest Rate • The main advantage of the annually adjustable rate is that a lower interest rate will be charged on your loan balance whenever T-rate increases are greater than 3.6 points per year or 6.6 points over the life of the loan. • Also, when rates increase, your rate will not rise as soon as a monthly adjusting rate will.
Monthly Versus Annual Interest Rate • Most HECM borrowers select a monthly adjustable rate. • Borrowers selecting an annual rate are generally concerned that rising rates might exceed the annual rate’s caps for extended periods.
Selecting a Lender • The most complete lists of HECM lenders can be found online at www.hud.gov/ll/code/llplcrit.html/. • Enter your city or select your state, place a checkmark in the “HECM” box, and click the “SUBMIT” button. • Borrowers need to consider cost, origination services, loan servicing, and a lender’s professional commitment to meeting consumer needs.
Cost • Generally the only HECM loan costs that lenders control are the origination fee and the servicing fee. So be sure to find out the dollar amount that each lender you are considering would charge you for these fees. • Although third-party closing costs are not likely to vary much from lender to lender, you might want to check these as well. • At present, HECM interest rates do not vary from one lender to another. So check out the latest information at www.aarp.org/revmort.
Origination Fees • The level of service a lender provides may be more difficult to assess than cost is, but service can be important. You will want your loan officer to be knowledgeable, experienced, and respectful. • You will also want a loan officer who respects your knowledge and preferences and helps you reach your own decisions.