1. Reverse Mortgages for Real Estate Professionals Eric Rittmeyer, CRMP Fidelis Mortgage PWAR – Fall Conference 10-15-15

2. What is a Reverse Mortgage? A Reverse Mortgage or Home Equity Conversion Mortgage (HECM), is a unique loan that enables senior homeowners to convert part of the equity in their homes into cash without having to sell the home, give up title, or take on new monthly mortgage payments. Reverse Mortgages are available to individuals 62 or older who own their home.

3. History of Reverse Mortgage -First Reverse Mortgage was done in 1961. -Originally thought of as for destitute widows. -President Reagan signs reverse mortgage insurance legislation in 1988. -First government insured Reverse Mortgage settles in 1989. -51,642 Reverse Mortgages were endorsed in FY 2014.

4. How does this differ from a Conventional loan? Income and credit requirements (4/27/15 Financial Assessment). No monthly payments are required. Loan does not get paid off until: -Borrower(s) pass away. -Borrower(s) sell the property. -Borrower(s) no longer occupy the property.

5. Reverse Mortgage Qualifications All individuals on title must be 62 years or older. Home must be primary residence. Most condominiums & PUD’s are okay. Any existing mortgage loans must be paid off. Mandatory counseling session by HUD approved housing counselor.

6. Calculating Eligible Amount 3 factors determine amount received. -Appraised value or maximum claim amount. (whichever is less). *TEMP INCREASED to $625,500 through CY15* -Age of the youngest borrower. -Current interest rate (Expected Rate). No restrictions on how funds can be used. Proceeds are non-taxable.

7. Payment options Tenure – Receive set amount indefinitely. Term – Receive set amount for a period of time. Line of Credit – Access money as needed. Lump Sum – Receive all proceeds at one time. Modified plan combining all together. Plan can be changed at any time.

8. Pro’s and Con’s of payment plans Different individuals, Different needs. Tenure (+) Payments never stop. (-) Payments do not increase. Term (+) Amount set by borrower. (-) Payments can run out.

9. Pro’s and Con’s of payment plans Line of Credit (+) Amount of credit line grows. (-) Can exhaust credit line. Lump Sum (+) Immediate access to funds with no pymt. (-) No credit line access.

10. Interest Rates Adjustable Rate - 1 month or 1 year LIBOR (London Interbank Offered Rate) plus a margin. Fixed Rate - Varies from lender to lender.

11. **Recent program changes** Upfront MIP either.50% or 2.50% of Max Claim Amount (based on current mandatory obligations). Limit on draws for first 12 months. Seasoning of existing mortgages on property. Underwrite to determine ability/willingness to pay future property charges. Possible set-aside for property taxes.

12. Financial Assessment (4/27/15) The lender must evaluate the “willingness and capacity to timely meet his or her financial obligations and to comply with the mortgage requirements.” Minimum residual income requirements (not normal debt to income ratios). Possibility of “Life Expectancy Set-Asides.”

13. FA Residual Income Table Table of Residual Incomes by Region Family Size Northeast Midwest South West 1 $540 $529 $529 $589 2 $906 $886 $886 $998 3 $946 $927 $927 $1,031 4 + $1,066 $1,041 $1,041 $1,160

14. Adjustable vs. Fixed Adjustable -Tend to have lower rates. -Rates can go up or down monthly. -Credit line, monthly disbursements. Fixed -Must take all money available. No credit line.

15. Up-Front & Financed Costs Borrower is provided with an itemized estimate of closing costs (GFE). Typical Loan Costs -Appraisal, title insurance, FHA mortgage insurance, origination fee, recording fees, other typical and customary closing costs. Out of pocket expenses -Appraisal, counseling fee to HUD approved agency.

16. Property Eligibility and Appraisal Home must meet FHA guidelines. Termite is not required unless noted by appraiser. Most home repairs can be funded through the loan.

17. Borrower’s Obligations Keep property taxes current. Maintain homeowners insurance. Maintain property in good condition. Occupy home as primary residence.

18. Repayment of Reverse Mortgage No repayment is required until borrower(s) move, sell, or pass away. Loan is paid, plus interest and MIP, when home is sold or refinanced. No penalty for early payment. Can refinance or sell at any time.

19. FHA Insurance Non-recourse loan. -Borrowers, heirs or estate can never owe more than the value of the property. -If the sales proceeds are insufficient to pay the amount owed, FHA will pay the lender the amount of the shortfall.

20. The Reverse Mortgage Process Initial consultation. Mandatory counseling. Application. Property appraisal. Clear title. Submission to underwriting. Settlement.

21. Required Documentation Proof of Identity and DOB (Photo ID). Proof of Social Security number (SS Card, or Medicare Card). Homeowners insurance information. Original counseling certificate. Mortgage statements (if applicable). Income / credit / asset documentation (eff. 4/27/15).

22. Common Misconceptions “The bank owns my home.” “My children will have to come up with money upon my passing.” “I can outlive my loan and be forced to move.” “I can never sell and move to a different home.”

23. Why? Okay, I’m a real estate professional, why do I need to know about Reverse Mortgages?

24. Reverse Mortgage for Purchase Up until Jan 2009, the Federally Insured Reverse Mortgage could not be used for the purchase of a new home. OPPORTUNITY!!!!!!

25. Purchase scenario Client contacts you to sell their home because they want to down size. They want to purchase a new home, but do not want to incur a new monthly payment. The normal solution would be to take the proceeds of their current home and use it all to pay cash for their new home. Mission accomplished… Right????

26. The Reverse Mortgage Solution Instead of using all of the proceeds from their sale, use the Reverse Mortgage. Here are a few examples….

27. The Reverse Mortgage Scenario #1 Proceeds from sale - $300,000 Purchase price of new home - $250,000 Appraised value of new home - $250,000 A 76 year old borrower could use the Reverse Mortgage to finance approx. $150k of purchase price (needs $100k for down payment; including closing costs). RESULT – Borrower buys new home, has no monthly payments, and gets to keep $200k in their pocket.

28. The Reverse Mortgage Scenario #2 Proceeds from sale - $300,000 Purchase price of new home - $625,000 Appraised value of new home - $625,000 A 76 year old borrower could use the Reverse Mortgage to finance approx. $375k of purchase price (needs $250k for down payment; including closing costs). RESULT – Borrower buys new home, has no monthly payments, and still gets to keep $50k in their pocket.

29. The Reverse Mortgage Scenario #3 Proceeds from sale - $300,000 Purchase price of new home - $250,000 Appraised value of new home - $250,000 A 76 year old borrower could use the Reverse Mortgage to finance approx. $150k of purchase price (needs $100k for down payment; including closing costs). RESULT – Borrower buys new home, has no monthly payments, and gets to keep $200k which is used to purchase a second/vacation home.

30. Reverse Mortgage for Purchase Highlights Great for borrowers who are downsizing, moving to one level, or need handicap accessibility. Gives the borrower more purchasing power. Limited income and credit qualification. No monthly payments.

31. Reverse Mortgage for Purchase Guidelines Must be borrowers own funds. Can not be borrowed money. (Gifts are allowed according to FHA’s gift policy). No seller concessions allowed. Must occupy residence within 60 days of settlement. Borrower can have no foreclosures in last 3 years. New construction – CofO must have been issued prior to application.

32. Reverse Mortgage for Purchase Overview Think AGE, not LTV. (Purchase Price) – (Reverse Mortgage) = Down Payment Needed. Reverse Mortgage is placed on NEW HOME; Departure home is not part of the transaction.

33. Questions???? Contact information: Eric Rittmeyer, President Fidelis Mortgage (410) 668-6501 Email: eric@fidelismtg.com Online: www.ReverseMaryland.com www.ReverseMaryland.com