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What’s New with Reverse Mortgages?

What’s New with Reverse Mortgages?. LTC Briefing on Housing & LTC St. 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

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What’s New with Reverse Mortgages?

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  1. What’s New with Reverse Mortgages? LTC Briefing on Housing & LTC St. Paul, MN August 6, 2004

  2. 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

  3. 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

  4. Definition: Other Forms of Home Equity Conversion • Property Tax Deferral/Relief • Deferred Payment Loans for Home Repairs/Improvements • Sale Leaseback Transactions • Remainder Interest Plans

  5. 3 Types of Reverse Mortgages • Single Purpose: Home Repairs/Prop Taxes • Income Based; Limited Uses; Lower Cost • Sponsored by Non-Profits/Local Governments • Federally Insuredby 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

  6. 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

  7. 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

  8. 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%)

  9. 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 LOCTenure 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)

  10. 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

  11. 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 $

  12. “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

  13. 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

  14. 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

  15. 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

  16. Caution: Reverse Mortgages Aren’t for Everyone • Local Program or Service May Be Faster and Cost Less • VERY Expensive Way to Borrow Money Short Term, Especially If Not Much Principal Drawn Down In That Period • Consumers Must Do Their Homework Before Making Any Decision

  17. 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

  18. 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

  19. 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

  20. 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: SCHOLEN@aol.com

  21. 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: bbelling@aarp.org

  22. 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: mschindl@gw.stcdio.org

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