Gaining the knowledgeGaining the knowledgeReverse Mortgage BasicsReverse Mortgage Basics

Provided byProvided by

BNC Bank Mortgage BNC Bank Mortgage

The HistoryThe History

A.A.R.P lobbied congress in the early A.A.R.P lobbied congress in the early 80’s for a program that would give 80’s for a program that would give seniors a way to convert equity from seniors a way to convert equity from the home to improve the quality of life.the home to improve the quality of life.

1988 the Department of Housing and 1988 the Department of Housing and Urban Development began to Urban Development began to administer the Home Equity administer the Home Equity Conversion Mortgage.Conversion Mortgage.

Insured by the Federal Housing Insured by the Federal Housing AuthorityAuthority

Types of Reverse MortgagesTypes of Reverse Mortgages

H.E.C.M FIXED RATE– loan fixed for life; H.E.C.M FIXED RATE– loan fixed for life; currently offering the borrower the most currently offering the borrower the most cash. However, all available funds must cash. However, all available funds must be taken at closingbe taken at closing

H.E.C.M monthly adjustable – Different H.E.C.M monthly adjustable – Different payment options like line of Credit or payment options like line of Credit or monthly payments. Based on the 1-monthly payments. Based on the 1-month LIBOR plus margin.month LIBOR plus margin.

HECM Saver in both fixed or adjustable: HECM Saver in both fixed or adjustable: Lower LTV in exchange for lower up-front Lower LTV in exchange for lower up-front costs.costs.

How it WorksHow it Works

NoNo repayment as long as the home is repayment as long as the home is used as the primary residence by the used as the primary residence by the homeowner.homeowner.

NoNo income requirements income requirements NoNo credit score requirements credit score requirements Qualifications are based on Home Value, Qualifications are based on Home Value,

Age, and current interest rates Age, and current interest rates ONLYONLY.. Borrowers Borrowers MUSTMUST continue to pay continue to pay

property tax and insuranceproperty tax and insurance

How it worksHow it workscontinued…continued…

This is a deferred interest loan. While the This is a deferred interest loan. While the customer is not required to make a customer is not required to make a monthly payment, interest will accumulate monthly payment, interest will accumulate each month. Customer can make each month. Customer can make payments.payments.

Beneficiaries have 12 months to sell or Beneficiaries have 12 months to sell or refinance the property.refinance the property.

Non-recourse loan, so borrowers and Non-recourse loan, so borrowers and beneficiaries never owe more than the beneficiaries never owe more than the home is worthhome is worth

Who Qualifies?Who Qualifies?

All parties on the Deed of Trust that All parties on the Deed of Trust that are at least 62 years or older.are at least 62 years or older.

Must have a Social Security number Must have a Social Security number and be able to prove date of birth.and be able to prove date of birth.

Borrowers must live in the home as Borrowers must live in the home as their primary residence.their primary residence.

Must attend CounselingMust attend Counseling

Types of PropertiesTypes of Properties

Single family, Single family, Owner-occupied two, three and four Owner-occupied two, three and four

unit complexesunit complexes Townhouses and condominiumsTownhouses and condominiums Mobile and manufactured homes, on Mobile and manufactured homes, on

permanent foundations, including permanent foundations, including condominiumscondominiums

PUDsPUDs

CalculationsCalculations

Based on the age of the youngest Based on the age of the youngest borrower.borrower.

Current interest ratesCurrent interest rates Value of the property, or the FHA Value of the property, or the FHA

reverse mortgage limit of $625,500, reverse mortgage limit of $625,500, whichever is lowerwhichever is lower

Distribution OptionsDistribution Options Lump SumLump Sum

All monies taken at closing.All monies taken at closing. Mandatory on the fixed rate HECMMandatory on the fixed rate HECM

Line of CreditLine of Credit Unused portion does not accrue interestUnused portion does not accrue interest Unused portion growsUnused portion grows

Term PaymentTerm Payment Set payment for a certain number of monthsSet payment for a certain number of months

Tenure PaymentTenure Payment Set payment for the life of the loanSet payment for the life of the loan

Any combination of the aboveAny combination of the above

Tax ConsequencesTax Consequences

The Reverse Mortgage by itself has The Reverse Mortgage by itself has no direct tax consequence because it no direct tax consequence because it is a loanis a loan

If the funds are reinvested, any If the funds are reinvested, any interest earned could have tax interest earned could have tax consequencesconsequences

The client will need to consult a CPA The client will need to consult a CPA to determine tax liability of each to determine tax liability of each investmentinvestment

FeesFees100% of fees can be financed into the loan100% of fees can be financed into the loan

Origination fee – (WAIVED by BNC)Origination fee – (WAIVED by BNC) 2% of the first $200K of the home value2% of the first $200K of the home value 1% of the value above $200K1% of the value above $200K $2,500 minimum; $6,000 maximum $2,500 minimum; $6,000 maximum

F.H.A. mortgage insurance – 2% of the F.H.A. mortgage insurance – 2% of the home value plus 1.25% of the principal home value plus 1.25% of the principal loan amount monthly.loan amount monthly.

Standard third party closing costsStandard third party closing costs Service Set aside Fee – (WAIVED by BNC)Service Set aside Fee – (WAIVED by BNC)

Repair Set AsideRepair Set Aside

Allows the lender to hold a portion of Allows the lender to hold a portion of the proceeds from the closing to the proceeds from the closing to insure the borrower completes the insure the borrower completes the necessary repairs if needed. necessary repairs if needed. Borrower usually has 6 months to Borrower usually has 6 months to complete.complete.

HECM PurchaseHECM Purchase

Like a normal HECM Re-fi, the principle limit will be Like a normal HECM Re-fi, the principle limit will be calculated based off of the age of the youngest calculated based off of the age of the youngest borrower, the current interest rates, and the lowest borrower, the current interest rates, and the lowest of the appraised value, sales price or lending limit. of the appraised value, sales price or lending limit.

Proof of funds to close.  The following are not Proof of funds to close.  The following are not acceptable: grants, seller contributions or secondary acceptable: grants, seller contributions or secondary financing.  All Retirement funds must be liquid. financing.  All Retirement funds must be liquid.

Any repairs that are required by FHA guideline must Any repairs that are required by FHA guideline must be performed before closing.  Seller is responsible be performed before closing.  Seller is responsible for ALL repair costs. for ALL repair costs.

The borrower must occupy property within 60 days The borrower must occupy property within 60 days of closing. of closing.

HECM Purchase cont.HECM Purchase cont.

Documentation requirements (not limited to):Documentation requirements (not limited to): Fully Executed Sales Contract Fully Executed Sales Contract Amendatory Clause (can be an addendum to sales contract Amendatory Clause (can be an addendum to sales contract

and must be dated on or before the contract date) and must be dated on or before the contract date) Property Condition Disclosure (completed by seller) Property Condition Disclosure (completed by seller)

Application Documents (found in Reverse Vision Application Documents (found in Reverse Vision application)application)

Escape Clause Escape Clause Lead-based paint seller’s disclosure Lead-based paint seller’s disclosure For your protection get a home inspection For your protection get a home inspection Important Notice to Homebuyers – 92900B Important Notice to Homebuyers – 92900B Real Estate CertificationReal Estate Certification

The ProcessThe Process

Gather borrowers info, create a Gather borrowers info, create a specific proposal of options/scenarios specific proposal of options/scenarios to fit their needs.to fit their needs.

Borrower attends HUD approved Borrower attends HUD approved counseling, and obtains certificatecounseling, and obtains certificate

Take application (1009)Take application (1009) Pull case number, and run Pull case number, and run

verifications: LDP, CAIVRS and EPLSverifications: LDP, CAIVRS and EPLS

The ProcessThe Processcontinuedcontinued

Order Appraisal, Title, Flood, and credit. Order Appraisal, Title, Flood, and credit. Remember, the borrowers cannot incur Remember, the borrowers cannot incur any costs until they attend counseling.any costs until they attend counseling.

Upload file for underwritingUpload file for underwriting Loan is set to closeLoan is set to close Loan funds after 3 – day rescission periodLoan funds after 3 – day rescission period IT’S THAT SIMPLE…..IT’S THAT SIMPLE…..

Reverse Mortgage Reverse Mortgage Example #1Example #1

Current SituationCurrent Situation Mrs. Smith has a home worth 150,000 and has a current mortgage for Mrs. Smith has a home worth 150,000 and has a current mortgage for

58,000 with a payment of 642.00. Mrs. Smith also has some credit 58,000 with a payment of 642.00. Mrs. Smith also has some credit card debt for 12,000 and would like to do some minor home repairs. card debt for 12,000 and would like to do some minor home repairs. Mrs. Smith does not want to do a traditional mortgage because she has Mrs. Smith does not want to do a traditional mortgage because she has been late on many house payments and her credit is in the low 500’s. been late on many house payments and her credit is in the low 500’s. At the current rate and payments she has been offered she would not At the current rate and payments she has been offered she would not be able to afford the refinance with her limited monthly income.be able to afford the refinance with her limited monthly income.

New SituationNew Situation With a Reverse Mortgage Mrs. Smith was able to qualify for 85,000. With a Reverse Mortgage Mrs. Smith was able to qualify for 85,000.

She was able to pay off her mortgage, all her credit card debt, do She was able to pay off her mortgage, all her credit card debt, do 2,000 in home repairs and still put 13,000 in the bank for emergency 2,000 in home repairs and still put 13,000 in the bank for emergency purposes. Best of all she never has to make a payment so she does purposes. Best of all she never has to make a payment so she does not have to worry about getting foreclosed on. Not only does Mrs. not have to worry about getting foreclosed on. Not only does Mrs. Smith have the 13,000 she no longer has to make a house or credit Smith have the 13,000 she no longer has to make a house or credit card payment and is able to save an additional 900.00 a month!!!card payment and is able to save an additional 900.00 a month!!!

Reverse Mortgage Reverse Mortgage Example #2Example #2

Purchase with a REVERSE Mortgage……Purchase with a REVERSE Mortgage…… Mrs. Smith is 72 and owns a home worth 250,000 with a current Mrs. Smith is 72 and owns a home worth 250,000 with a current

mortgage for 108,000. She is going to sell her home and net mortgage for 108,000. She is going to sell her home and net 117,000 in proceeds.117,000 in proceeds.

She needs to find a realtor to help find a new home in the price She needs to find a realtor to help find a new home in the price range of 117,000.range of 117,000.

Options available for Mrs. Smith Options available for Mrs. Smith Find a house in the same area for $117,000 cash deal.Find a house in the same area for $117,000 cash deal. Find a house in the same area for $ 325,000 and use a reverse Find a house in the same area for $ 325,000 and use a reverse

mortgage to purchase with no monthly payment.mortgage to purchase with no monthly payment. Find a house in the same area for $150,000 and use a reverse Find a house in the same area for $150,000 and use a reverse

mortgage to purchase with no monthly payment AND keep mortgage to purchase with no monthly payment AND keep $63,000 in the bank… $63,000 in the bank…

The Potential MarketThe Potential Market

Today, more than 34 million Americans are over age 65. By 2030 Today, more than 34 million Americans are over age 65. By 2030 they will be almost 70 million to represent 20 percent of the they will be almost 70 million to represent 20 percent of the population (Census Bureau)population (Census Bureau)

There is an estimated 3 trillion in home equity in properties owned There is an estimated 3 trillion in home equity in properties owned by seniors; of the potential market only 2% market penetration by seniors; of the potential market only 2% market penetration has occurredhas occurred

85% of senior homeowners want to remain in their home for the 85% of senior homeowners want to remain in their home for the rest of their liferest of their life

Only 64% of Only 64% of retiredretired Americans say they are financially prepared Americans say they are financially prepared for retirement (Sun Life Financial survey, 2007)for retirement (Sun Life Financial survey, 2007)

Reverse mortgages are no longer just an option of last resort for Reverse mortgages are no longer just an option of last resort for poor seniors; they are also a poor seniors; they are also a strategic toolstrategic tool for retirement income for retirement income planning, long-term healthcare, and estate planningplanning, long-term healthcare, and estate planning

Reverse Mortgages are BOOMING!!!! It’s a Guaranteed way to Reverse Mortgages are BOOMING!!!! It’s a Guaranteed way to increase your income. GET STARTED TODAYincrease your income. GET STARTED TODAY

Reverse Mortgage SpecialistReverse Mortgage Specialist

David NeffDavid NeffSC Office: 843-839-4937SC Office: 843-839-4937

NC Office: 980-359-1120 x 53015NC Office: 980-359-1120 x 53015

Toll Free: 800-262-7175 x 53015Toll Free: 800-262-7175 x 53015

Email: Email: dneff@bankofnc.com