1 / 22

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

mahola
Download Presentation

What’s New with Reverse Mortgages?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  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

More Related