Reverse Mortgages and Retirement Planning

1. Reverse Mortgages and Retirement Planning Financial Planning Association July 19, 2005 Trish Kauker, Business Development Manager Trish.kauker@aig.com 877-244-1532

2. The Senior Profile: • Concerns – • Health • Quality of Life • Money • Living beyond assets • Burden on children • Want to stay in home as long as possible • May want to move closer to family

3. Reverse Mortgage History • 1961 First reverse mortgage (RM) loan made by Deering Savings & Loan in Maine • 1984 First open-ended, risk pooling RM offered in New Jersey • 1987 Congress passes FHA RM insurance proposal Fannie Mae & Freddie Mac announce intention to purchase RM • 1989 HUD selects 50 lenders by lottery to make FHA-insured RM • 1990 Congress increases FHA insurance authority to 25,000 loans • 1995 HUD publishes regulations allowing Direct Endorsement lenders underwriting authority on HECM loans • FNMA introduces the conventional RM – “Home Keeper” • ABA House of Delegates adopted a resolution that supports continued development of RMs as a viable option for older homeowners

4. Common Misconceptions • “The lender takes the house” • Homeowner retains full ownership • Reverse Mortgage is a loan • “I can be thrown out of my home” • Homeowner can stay in home until loan maturity event occurs • “I can owe more than my home is worth” • Homeowner can never owe more than value of home • “My heirs will be against it” • Experience demonstrates heirs are in favor of Reverse Mortgages

5. Reverse Mortgage Basics Reverse Mortgages are non-recourse loans that allow senior homeowners age 62 years of age or older to convert home equity into cash • Borrower will always retain title • NO income or credit qualifications • NO monthly mortgage payments • NO repayment is due until they sell the house or move out permanently • Interest may be tax-deductible upon loan repayment • Proceeds are tax-free

6. Current Reverse Mortgage Products: • HUD/FHA Insured - HECM • Maximum Lending Limit - $312,895 • Fannie Mae – Home Keeper • Maximum Lending Limit - $359,650 • Jumbo Loan Product – CASH Account • Standard Option • Zero Point Option • Simply Zero Option • Virtually No Home Value Limit

7. FHA HECM • FHA Mortgage Insurance (MIP) • 2% charged at loan closing, financed into loan balance • FHA guarantees that the borrower will receive all payments that are due them as long as they live in the property • Ensures that borrowers, their estate, or heirs are never liable for more than the market value of their home (non-recourse)

8. Consumer Education Requirements: • Required for all borrowers prior to application process • Safeguard for borrower: non-biased 3rd party ensures borrowers understand how RMs work, costs, benefits and options available • Face to face session with provider in home or office and optional telephone counseling if requested • HECM Counseling certificate will be issued to borrower

9. Eligibility Requirements: • Homeowners age 62 and older • Property title holder • Clear title at closing • Any existing liens must be satisfied at closing with loan proceeds • Foreclosures & bankruptcies can be considered

10. Property Requirements: • Must be borrower’s principal residence • Single family residence • 1-4 unit property as long as borrower resides in one of the units • Planned Unit Developments (PUDs) • FHA approved condominiums (spot approvals permitted)

11. Payment Plan Options: • Tenure Plan:equal monthly payments for life of loan • Term Plan:equal monthly payments for a specified period of time – determined by borrower • Line of Credit:advances available in any amount, at any time. Revolving feature allows access to partial repayments. Growth rate on available balance • Lump Sum:All available funds may be received at disbursement • Combinations: Any combination of the above is allowed. Payment plan may also be changed after closing at any time

12. Reverse Mortgage Interest Rates: Reverse Mortgages charge interest at a monthly, annual or semi-annual adjustable rate, depending on which loan is selected: Index - 1 year T-bill (FHA - HECM) – 5.02% Index - 1 month CD (FNMA - Home Keeper) – 6.75% Index - 6 month LIBOR (Jumbo - Cash Account) – 8.27% • Which means the interest rate that is charged can change periodically • However, this does NOT affect the amount of money borrower(s) receive • Rather this only affects the amount that will be required to be paid back when the loan becomes due and payable

13. Application Overview: • Appraisal required: property must meet FHA minimum standards • Credit report: tri-merged in-file required to verify judgments, etc. • Proof of date of birth • Proof of Social Security number • Proof of consumer education • Copy of homeowners insurance policy

14. Borrower Compliance: • Occupancy • Annual certifications sent by mail, borrower must sign & return • Property Maintenance • Maintained in same condition as closing, with required repairs completed • Taxes & Insurance • Proof of payment required with annual renewal

15. Loan Repayments: • Automatically due & payable • Last surviving borrower vacates property • Sale of property • Title conveyance • Not principal residence for more than 12 consecutive months

16. Repayment Process: • Amount due = loan balance + interest & fees • Payoff will be due in one lump sum payment • Typically paid from the sale of home • Timeframe = “good faith efforts” to market – typically 180 days • NON-RECOURSE FEATURE: neither the borrower nor their heirs will be liable for more than the current market value of the property at time of payoff

17. Hospital/Health Care Costs Repay existing mortgages Reduce burden on children Home repair/Improvement Pay property taxes Daily expenses Travel, Something special Gifts 67% 55% 50% 50% 38% 29% 14% 3% Uses for Home Equity Conversions

18. HECM Examples*:

19. FNMA – Home Keeper Mortgage: • Allows senior homeowners easy access to their home equity • Similar in structure to the FHA HECM • NO income qualifications • NO credit qualifications • NO monthly mortgage payments • Home Keeper for home purchase feature

20. Property Requirements: • Principal residence only • Single family property • Planned Unit Developments (PUDs) • FNMA approved condos (spot approvals permitted) • NO multi-family properties permitted

21. Payment Plan Options: • Tenure Plan: equal monthly payments for life of loan • Line of Credit: advances available in any amount, at any time. NO growth rate • Lump Sum: All available funds may be received at disbursement • Combination: Any combination of the above is allowed. Payment plan may also be changed after closing at any time

22. Home Keeper Examples:

23. Home Keeper for Home Purchase: • Allows seniors to purchase a new home without using all their personal resources to fund the purchase • Flexibility that is not available through standard purchase money mortgages • Attractive NO mortgage payment feature makes this a viable financial tool

24. The Purpose : • Senior (62 or older) wants to purchase a home that better fits their lifestyle • Has access to funds via savings, investments, sale of current home • Doesn’t want to make monthly payments • Doesn’t want to tie up all of their personal funds in the purchase of a home • May want funds for updates/modifications

25. The Process: • Senior completes required consumer education • Senior identifies new property & lender will estimate reverse mortgage amount • Senior applies for Home Keeper and negotiates home purchase • Senior determines combination of personal funds and RM funds to be used • Senior completes origination process with lender

26. Benefits: • Purchase a home with NO monthly payments • NO repayment due as long as they live in the property • More flexibility than “forward” mortgages • Lower down payment and keep more cash • Qualify for higher priced home • NO income qualifications • NO credit qualifications • NON-RECOURSE features

27. Jumbo CASH Account • Proprietary product with NO restrictions on how the funds are used • Proceeds are NOT taxable • Similar to home equity lines with no required monthly repayment until loan matures • Provides maximum equity release with virtually NO maximum home value limit

28. Similar to FHA & FNMA loans • NO income or credit qualifications • Minimum age requirement of 62 • Primary residence • Counseling by an independent counselor conducted via telephone • Existing liens to be satisfied at closing • Non recourse loan • Repayment process • Home must meet FHA standards • Borrower compliance

29. Standard Option • Origination fee = Scaled percentage of home value • Maximum origination fee of 2% • No prepayment penalty • Open-ended revolving line of credit • Unused line of credit grows by 5% per annum • Minimum draw is $500

30. Zero Point Option • Origination fee = NONE • Minimum draw at closing = 75% of maximum available proceeds • Closing costs capped at $3,500* • NO prepayment penalty; partial prepayment not allowed for first 5 years • Full repayment permitted at any time * Excluding applicable state or local taxes

31. Simply Zero • Origination fee = NONE • Closing costs = NONE* • Draw at closing = 100% of maximum available • NO prepayment penalty; partial prepayment not allowed for 5 years • Full prepayment permitted at any time • Lowest cost reverse mortgage loan product available *Excluding applicable state or local taxes

32. Cash Account Examples:

33. Cash Account Examples:

34. Typical Retirement Assets Illiquid Liquid

35. Typical RetirementIncome Cash IRA, 401K Stocks & Bonds $

36. Typical Retirement Income WithaReverse Mortgage $$$ Cash IRA, 401K Stocks & Bonds Reverse Mortgage

37. Reverse Mortgages and Retirement Planning Proceeds can be used to fund a variety of financial products including: • Annuities • Long term care • Estate planning • Life insurance • Investments • Charitable and family gifting • Retirement home purchase

38. Reverse Mortgage Case Study #1 • Client Profile: • Couple, both age 75 • Assets: • $2,500,000 home (primary residence) • Problem: • Clients wish to purchase LTC Policy • Solution: • Proceeds of $577,654 generated through use of reverse mortgage • Purchase SPIA, certain period 10-years on husband in amount of $124,359 • SPIA pays monthly premium of $1,223.92 to LTC carrier and at end of 10th year, policy is paid in full

39. Reverse Mortgage Case Study #2 • Client Profile: • 75 year old Male • Assets: • $300,000 home (primary residence) • Stocks, bonds & CD’s • Problem: • Client would like to increase monthly income to purchase Long Term Care Insurance • Solution: • Proceeds of $184,000 generated through a reverse mortgage • Purchase an AIG SPIA and receive $1,630.70 in additional monthly income • Long Term Care premium of $423/month for lifetime care

40. Reverse Mortgage Case Study #3 • Client Profile • 80 year old Female • Type II Diabetes & TIA (mini stroke) 10 years prior • Assets • $500,000 home (primary residence) • Income • $1,500 Social Security • $1,000 Pension • Problem • Increase monthly income to fund Long Term Care • Solution • $210,000 proceeds from RM • Purchase an AIG Impaired Risk Annuity generating $3,414/month in lifetime income

41. Reverse Mortgage Case Study #4 • Client Profile • 70 year old Male • $1,000,000 home (primary residence) • Income • $2,300 from Social Security • $1,000 Pension income • Problem • Client wants to purchase Life Insurance to reduce estate tax liability • Solution • $270,300 reverse mortgage proceeds • AIG SPIA provides $24,000/annually to purchase $700,000 in Life Insurance

42. The Older Population in the 21st Century: In the Year 2000 – • Persons 65+ numbered over 35 million • Persons reaching age 65 had an average life expectancy of an additional 17.9 years (19.2 - females, 16.3 – males) • Over 2 million persons celebrated their 65th birthday (5,574 / day) • People 65+ represent almost 13% of the population in 2000, but are expected to grow to be 20% of the population by 2030 • By 2030, there will be about 70 million older persons, more than twice their number in 1999

43. The Current Market • 21+ million senior homeowners • 60% of market is 65 -70 Huge demographic wave underway • 85% want to remain in home (AARP study) • $ 3 trillion in home equity • Loan volume has increased by 70% per year for the past two years • Fannie Mae studies show 90+% satisfaction rate

44. Online Reference Sources • National Reverse Mortgage LendersAssociationwww.nrmla.org • AARPwww.aarp.org • National Council on Aging (NCOA)www.ncoa.org • National Center for Home Equity Conversion(NCHEC)www.reverse.org

45. Contact Information: Trish Kauker, CSA AIG Bank Reverse Mortgage Division 1-877-244-1532 Toll free 1-302-661-8977 Direct 1-302-830-4534 Fax trish.kauker@aig.com