REVERSE MORTGAGE BASICS

What is a reverse mortgage? A loan available to seniors who either own their home out right or have significant equity in their home. Equity in the home is exchanged for cash –rising debt /falling equity. The loan typically does not have to be repaid as long as the borrower lives in the home Repayment includes the amount of the original loan plus all interest and any other fees and charges

Types of Reverse Mortgage Single Purpose Loans – Offered by some state and local government agencies and nonprofit organizations Proprietary Loans – Private loans that are backed by the companies that develop them Home Equity Conversion Mortgage (HECM) – is FHA insured to protect the borrower and the lender

HECM Characteristics This is a nonrecourse loan –borrower and heirs are protected All Borrowers must be at least 62 years of age. House must be owner occupied – 1- 4 units – Manufactured homes with certain limitations – Condominiums are allowed with certain requirements – Planned Unit Developments (PUD) may be allowed – Meet minimum property standards There are no credit score requirements or income requirements** The amount the borrower can access is based on: – the age of the youngest borrower – the value of the house – the interest rate – Loan type -Standard or Saver Counseling is mandatory

Payment Options Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence. Term - equal monthly payments for a fixed period of months selected. Line of Credit - unscheduled payments, at times and in amounts of borrower's choosing until the line of credit is exhausted. Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home. Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

Why Consider A Reverse Mortgage? To eliminate the existing mortgage To eliminate other debt-credit cards, personal loans, etc To improve cash flow – cover living expenses For emergency or unexpected expenses For home repairs or improvements To cover the cost of medical or in-home care To improve the standard of living/travel – fun money To help family members To downsize to a smaller or different residence, First time homebuyer (HECM for Purchase) To add a spouse or access additional equity (HECM Refinance)

Important Considerations Are there other People living in the house? Will there be resources to pay taxes, insurance and maintenance costs? How long will the borrower remain in the home? Is now the right time for a reverse mortgage?

What is the Counselors Role Remain objective and sensitive to each clients needs and circumstances To educate the borrower on how reverse mortgages work, their costs and associated implications To help the borrower evaluate the appropriateness of a reverse mortgage for their personal and financial situations –FIT tool To discuss financial alternatives to reverse mortgages.-Benefits Checkup

To detect fraud and elder abuse – Report to appropriate HOC or – HUDs Office of Inspector General – Adult Protective Services To issue the Certificate of HECM Counseling as appropriate To provide on going support throughout the reverse mortgage process. To follow protocol!!

The Counselor Does Not Steer to any particular lender or product Tell a person if they should or should not get a reverse mortgage Determine official eligibility Provide legal, tax or accounting advice

Steps in the Counseling Process Intake Gather information Provide required documentation Counseling based on protocol See HUD Handbook Client file completion 20 items in Protocol 7.A.3 as required in the file Follow-up With-in 60 days

The Certificate of HECM Counseling Can only be generated through FHA Connection By a Reverse Mortgage Counselor who Works for a HUD Certified Agency And is Active on the HECM Roster