REVERSE MORTGAGE BASICS What is a reverse mortgage

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 Counselor’s Role • Remain objective and sensitive to each client’s 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 – HUD’s 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 7610. 1 • 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