Understanding Reverse Mortgages - Mortgage …...Understanding Reverse Mortgages Their Role in Our...

Understanding Reverse Mortgages

Their Role in Our Economy and the Business Opportunities Created

Peter BellPresident & CEONational Reverse Mortgage Lenders Association

Presentation Overview

DemographicsHousehold

Wealth Profiles

What is a Reverse

Mortgage

Originating HECM Loans

Business Opportunities

Demographics

Source: Joint Center for Housing Studies, Housing and Tenure Projections 2016

The number of Americans age 65 and older will more than double by 2060(US Census Bureau, 2014)

Aging in America

By 2030, there will be more than 74 million adults aged 65 and older in the U.S., accounting for 20% of

the population.

For the first time in our nation’s history, the 65 and older cohort will eclipse the total number of

Americans who are under 18 years old.

This aging population will have longer lifespans and more years

spent in retirement, outside of the paid workforce -- one in four 65-year-olds today are expected to

live past age 90 and one in 10 are expected to live past 95.

Household Wealth Profiles

Falling Short: 50% of households are “at risk” of being unable to maintain their pre-retirement standard of living in retirement.

Retirement Insecurity

For many older Americans, making their meager resources last over an unknown period of time is a primary stress factor.

They are one mishap away from facing a personal financial crisis.


Social Security provides most of the retirement

income for about half of households 65 and older

But replaces only 40% of pre-retirement earnings


Only 29% of households on the cusp of retirement (aged 50-64) will leave the workforce with a

traditional pension, compared to 49% of today’s 65-and-older

households.

A majority, 60%, of US workers report that their total household

savings and investments, excluding the value of their home and any defined benefit pension,

is less than $25,000.

Household Demographics # in Millions

Total Households116M

Owner Occupied

74M

Mortgage Free 15M

Aged 65 & Older 21M

Home Equity

Home equity has the potential to enhance retirement security because the homeownership rate generally exceeds ownership rates for most financial assets.

According to the Federal Reserve’s 2013 Survey of Consumer Finances:

65.2 percent of American households owned their primary residences

49.2 percent had retirement accounts

19.2 percent had cash-value life insurance policies

13.8 percent had stocks, and 10 percent had savings bonds (Bricker et al. 2014)

Senior Home Equity

The equity accumulated in a home, to many American families, represents the largest component of personal wealth.

Typical retiree households might have one or two incomes from Social

Security, a modest pension and/or limited income from low-yielding fixed-

income instruments, and, perhaps, a diminished 401(k) account.

The equity they have built up in their home is often, by far, their greatest

asset, an important resource for funding their future.

The homeownership rate among older Americans is nearly 80% and in the

fourth quarter of 2016, homeowners aged 62 and older held a combined $6.2

trillion in home equity, a $170 billion increased over the previous quarter.

Since Q1 2000, home equity has increased more than $4 trillion, since

the National Reverse Mortgage Lenders Association and data analytics firm Risk Span, Inc. first reported the aggregate amount of senior home equity as part

of the Reverse Mortgage Market Index.

Senior Home Equity

Reverse Mortgage Market Index

Equity Extraction

Tools

What is a reverse mortgage?

You spend a career supporting your home and then when you retire, your home supports you

What is a reverse

mortgage?

A reverse mortgage, in simple terms, is a home equity loan that creates liquidity for older homeowners and does not need to be repaid until the borrower moves, sells the house, or passes away.

What is a reverse

mortgage?

Loan amounts are determined by a formula based on the home’s appraised value, the youngest borrower’s age, and current interest rates.

What is a reverse

mortgage?

Borrowers, or their heirs, typically repay the loan with either proceeds from the sale of the house or with funds available from other assets.

What is a reverse

mortgage?

Reverse mortgages were designed to help seniors, aged 62 and older, convert equity into cash that could be used to supplement a fixed retirement income and pay for medical and other daily expenses.

What is a reverse

mortgage?

Over time and with the help of financial planning experts, we’ve learned reverse mortgages are a versatile and beneficial tool in a comprehensive retirement income plan

What makes a reverse mortgage a good way to access home equity?

Flexibility

Borrowers choose how they want to receive loan

proceeds

Borrowers choose when to make

P&I repayments

(Monthly or wait until they are

required to do so at the end of the

loan)

Borrowers can use loan proceeds without

restriction

What’s a HECM?

HECMs are reverse

mortgages that are insured by

the Federal Housing

Administration

Home Equity Conversion Mortgage

Brief History of HECM Among the requirements contained in the original statute were:

Adequate third-party counseling including

explaining other

financial options

A fixed or variable

interest rate or future sharing of property

appreciation

A list of disclosures

to be delivered at

least 10 days before

closing

Borrower protection

against disappearance

of lender & obligations beyond fair

market value of their home

at sale

Scheduled reports to Congress

“To meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by increasing costs of meeting health,

housing and subsistence needs at a time of reduced income, through insurance of home equity conversion mortgages to permit the conversion

of a portion of accumulated home equity into liquid assets.”

The National Housing Act of 1987, Section 255 outlined the specifics of the demonstration program. The purpose of the program was:

HECM & FHA

Insurance

HUD’s HECM program offers FHA insurance for lenders who originate reverse mortgages to

senior homeowners.

• Subject to the FHA’s loan limit of $679,650

• Some lenders offer proprietary loans including “jumbo” reverse mortgages for high value homes

HECM and FHA Insurance

Borrower pays the insurance fees, and those charges are added to the borrower’s outstanding principal balance.

Private sector lenders, not the federal government, make reverse mortgages.

HECM and FHA Insurance

Insurance protects lenders against losses on their loans.

• These lenders must be FHA-approved, and the program statute and regulations determine the loan amounts available to borrowers.

The borrower is required to pay an upfront Mortgage

Insurance Premium, as well as an annual Mortgage

Insurance Premium.

HECM is a Non-Recourse Loan

At the resolution of the loan, if the loan balance exceeds the value of the collateralized property, HUD reimburses the lender for the

difference, up to a Maximum Claim Amount.

Source: Understanding Reverse

• Homeowner maintains ownership and title, not the lender

• One homeowner must be 62 or olderNon-borrowing spouses may be under 62

• Monthly mortgage payments are not required

• SS or Medicare are not affected by draws

• The borrower can sell the home at any time

• Age, interest rates, and home value determine principal limits

The Basics

• Pay property taxes

• Pay home insurance

• Pay all other property charges

• Occupy home as primary residence

• Maintain home

Borrower Requirements & Responsibilities

Out of pocket costs• Appraisal fee and Counseling fee

Closing costs• Origination fee• Initial Mortgage Insurance Premium (IMIP)• Traditional third party fees

Ongoing Costs• Mortgage insurance • Interest• Servicing fees (if applicable)

What are the Costs?

• Upfront costs:• Initial FHA mortgage insurance premium (IMIP)

• Origination fee

• Third party costs

• Ongoing costs:• Interest charges

• FHA mortgage insurance premiums

• Servicing fees if charged

Borrower costs & obligations

Key Terms

Principal Limit

1

Maximum Claim Amount

2

• Principal Limit Factors (PLFs)• Not the same as Loan-to-Value (LTV)

• Based on Age and Expected Interest Rates• Older borrowers GENERALLY have higher PLFs

• Borrowers with younger spouses may have lower PLFs

• Expected Rates are calculated using the 10-year LIBOR SWAP

• “Principal Limit Factors” - Percentages (%)

• “Principal Limits” - Dollars ($)

Principal Limit Calculations

PLF TableAge R0 PLF0 R1 PLF1 R2 PLF2 R3 PLF3 R4 PLF4 R5 PLF5 R6 PLF6 R7 PLF7

4% Interest Rates

62 4.000 0.470 4.125 0.462 4.250 0.454 4.375 0.447 4.500 0.439 4.625 0.431 4.750 0.424 4.875 0.417

63 4.000 0.477 4.125 0.469 4.250 0.461 4.375 0.453 4.500 0.446 4.625 0.438 4.750 0.431 4.875 0.423

64 4.000 0.483 4.125 0.475 4.250 0.468 4.375 0.460 4.500 0.452 4.625 0.445 4.750 0.438 4.875 0.430

65 4.000 0.490 4.125 0.482 4.250 0.474 4.375 0.467 4.500 0.459 4.625 0.452 4.750 0.444 4.875 0.437

66 4.000 0.497 4.125 0.489 4.250 0.481 4.375 0.474 4.500 0.466 4.625 0.459 4.750 0.452 4.875 0.445

67 4.000 0.504 4.125 0.496 4.250 0.488 4.375 0.481 4.500 0.473 4.625 0.466 4.750 0.459 4.875 0.452

68 4.000 0.511 4.125 0.503 4.250 0.496 4.375 0.488 4.500 0.481 4.625 0.474 4.750 0.467 4.875 0.460

69 4.000 0.518 4.125 0.510 4.250 0.503 4.375 0.496 4.500 0.488 4.625 0.481 4.750 0.474 4.875 0.467

70 4.000 0.522 4.125 0.515 4.250 0.507 4.375 0.500 4.500 0.493 4.625 0.486 4.750 0.479 4.875 0.472

71 4.000 0.522 4.125 0.515 4.250 0.507 4.375 0.500 4.500 0.493 4.625 0.486 4.750 0.479 4.875 0.472

72 4.000 0.524 4.125 0.516 4.250 0.509 4.375 0.502 4.500 0.494 4.625 0.487 4.750 0.480 4.875 0.474

73 4.000 0.532 4.125 0.524 4.250 0.517 4.375 0.510 4.500 0.503 4.625 0.496 4.750 0.489 4.875 0.482

74 4.000 0.539 4.125 0.531 4.250 0.524 4.375 0.517 4.500 0.510 4.625 0.503 4.750 0.496 4.875 0.490

75 4.000 0.547 4.125 0.540 4.250 0.533 4.375 0.526 4.500 0.519 4.625 0.512 4.750 0.505 4.875 0.499

76 4.000 0.553 4.125 0.546 4.250 0.539 4.375 0.532 4.500 0.525 4.625 0.518 4.750 0.511 4.875 0.505

77 4.000 0.562 4.125 0.555 4.250 0.548 4.375 0.541 4.500 0.534 4.625 0.527 4.750 0.521 4.875 0.514

78 4.000 0.571 4.125 0.564 4.250 0.557 4.375 0.550 4.500 0.544 4.625 0.537 4.750 0.531 4.875 0.524

79 4.000 0.576 4.125 0.569 4.250 0.562 4.375 0.555 4.500 0.549 4.625 0.542 4.750 0.536 4.875 0.530

80 4.000 0.585 4.125 0.578 4.250 0.572 4.375 0.565 4.500 0.559 4.625 0.553 4.750 0.546 4.875 0.540

81 4.000 0.595 4.125 0.588 4.250 0.582 4.375 0.575 4.500 0.569 4.625 0.563 4.750 0.557 4.875 0.551

82 4.000 0.605 4.125 0.598 4.250 0.592 4.375 0.586 4.500 0.580 4.625 0.574 4.750 0.568 4.875 0.562

83 4.000 0.615 4.125 0.609 4.250 0.602 4.375 0.596 4.500 0.590 4.625 0.585 4.750 0.579 4.875 0.573

84 4.000 0.625 4.125 0.619 4.250 0.613 4.375 0.607 4.500 0.601 4.625 0.596 4.750 0.590 4.875 0.584

85 4.000 0.636 4.125 0.630 4.250 0.624 4.375 0.618 4.500 0.613 4.625 0.607 4.750 0.602 4.875 0.596

86 4.000 0.647 4.125 0.641 4.250 0.635 4.375 0.630 4.500 0.624 4.625 0.619 4.750 0.614 4.875 0.608

87 4.000 0.658 4.125 0.652 4.250 0.647 4.375 0.641 4.500 0.636 4.625 0.631 4.750 0.626 4.875 0.621

88 4.000 0.667 4.125 0.662 4.250 0.657 4.375 0.651 4.500 0.646 4.625 0.641 4.750 0.636 4.875 0.631

89 4.000 0.679 4.125 0.674 4.250 0.669 4.375 0.664 4.500 0.659 4.625 0.654 4.750 0.649 4.875 0.644

90 4.000 0.691 4.125 0.686 4.250 0.681 4.375 0.676 4.500 0.672 4.625 0.667 4.750 0.662 4.875 0.658

91 4.000 0.703 4.125 0.698 4.250 0.694 4.375 0.689 4.500 0.685 4.625 0.680 4.750 0.676 4.875 0.672

92 4.000 0.715 4.125 0.711 4.250 0.707 4.375 0.703 4.500 0.698 4.625 0.694 4.750 0.690 4.875 0.686

93 4.000 0.728 4.125 0.724 4.250 0.720 4.375 0.716 4.500 0.712 4.625 0.708 4.750 0.704 4.875 0.701

94 4.000 0.741 4.125 0.737 4.250 0.734 4.375 0.730 4.500 0.726 4.625 0.723 4.750 0.719 4.875 0.715

95 4.000 0.750 4.125 0.750 4.250 0.747 4.375 0.743 4.500 0.740 4.625 0.737 4.750 0.733 4.875 0.730

96 4.000 0.750 4.125 0.750 4.250 0.750 4.375 0.750 4.500 0.747 4.625 0.744 4.750 0.741 4.875 0.737

97 4.000 0.750 4.125 0.750 4.250 0.750 4.375 0.750 4.500 0.750 4.625 0.749 4.750 0.746 4.875 0.743

98 4.000 0.750 4.125 0.750 4.250 0.750 4.375 0.750 4.500 0.750 4.625 0.749 4.750 0.746 4.875 0.743

99 4.000 0.750 4.125 0.750 4.250 0.750 4.375 0.750 4.500 0.750 4.625 0.749 4.750 0.746 4.875 0.743

Reverse Mortgage Payment Plan Options

Payment Plan Description

Line of CreditBorrower funds are available as needed upon written request.

TenureBorrower receives all funds in fixed monthly payment.

Modified TenureBorrower receives a lower fixed monthly payment and a line of credit.

Term

Borrower receives fixed monthly payment for a fixed period or term.

X amount per month for Y months.

Modified TermBorrower receives a fixed monthly payment for a fixed period or term

and a line of credit.

One-Time Lump SumBorrower receives all funds at funding. Only available with a fixed

rate.

• Mandatory Obligations – Items that must be paid at closing (or the first year of the loan) like existing liens and closing costs.

• Examples:

• Lien payoffs

• Initial Mortgage Insurance Premiums (IMIP)

• Loan origination fee

• Third party closing costs

• First year distributions from a fully-funded LESA

• Repair set-asides

• And more

Disbursement Limits

Disbursement Limits

• Maximum Disbursement is the GREATER of:

60% of the Principal Limit, orMandatory Obligations + 10% of PL

• FIXED – One time at closing• ARMs – Within the first year

• Example: Principal Limit $200,000Disbursement Limit $120,000, or

MO + $20,000

Eligible homeowners obtain reverse mortgages for many reasons including:

• Repairing or modifying the home to meet the physical needs of getting older • Supplementing retirement income to meet expenses • Managing the costs of in-home care • Paying off an existing mortgage • Paying bills • Paying property taxes • Providing a source of funds for living expenses in lieu of liquidating financial investments during times of market downturn or disruption • Establishing a line of credit for use as a financial safety net • Helping retirement savings last longer • Purchasing a retirement home

Getting Started

The property must be owner-occupied.

Only primary residences qualify.

The maximum claim amount is $679,650 renewable annually

All borrowers must be 62 years old, or older.

HECMs are federally insured.

All borrowers must be US citizens or legal residents.

All borrowers must receive counseling. The reverse mortgage professional provides a list of 12 counseling agencies to the borrower.

Property

• Eligible Properties

• Eligible property types include the following:

• New or existing single family homes

• New or existing 2-4 units, as long as one unit is the borrower’s primary residence

• FHA-approved condominiums

• Manufactured homes that meet FHA standards

Property

Ineligible PropertiesIneligible property types include the following:• Investment properties• Vacation homes• Properties with illegal accessory

units, or mixed-use properties with more than 49% commercial use.

• Cooperatives• Bed and breakfasts• Single-wide manufactured

homes

Vesting• All properties must be vested in the name of

the borrower only in one of the following ways:

• Fee Simple: Absolute title to land, and the most common type of vesting.

• Life Estate: An estate whose duration is limited to the life of the party holding it, or some other person.

• Leasehold: A kind of rental agreement where the owner gives another the right to occupy or use the land for a period of time.

• Trust: A relationship in which one or more persons hold the individual’s property, subject to certain duties to use and protect it, for the benefit of others.

• Land Trust: An agreement whereby one party agrees to hold ownership of a piece of real property for the benefit of another party.

Counseling Application Processing Underwriting Closing

The Workflow Process


• Non-Borrowing Spouse, Guardians or Power of Attorney’s etc.

• Completed over phone or face to face• Check state requirements• Program eligibility, financial implications

and repaying loan • Borrower is mentally competent in

understanding HECM product• Until counseling is completed, signed and

dated, the LO is not legally permitted to incur any costs on borrower(s) behalf

• Can be completed before or after initial application

• Information entered into loan origination software

• Authorization to process HECM loan

• Fees, interest rate, amount• Includes required upfront general

and state specific disclosures• Financial assessment information

gathered from the borrower(s)• Upfront disclosures to be signed

by non-borrowing spouse


• Order the HECM FHA Case Number Assignment

• Order appraisal and other third party services

• Borrower(s) income, assets, credit history, property charge payment history and other items needed

• After loan fully processed and third party services received, moves to Underwriting


• Borrower(s) and subject property fall within HECM guidelines

• Financial Assessment• Borrower(s) willingness/capacity

to continue paying obligations • Residual income of borrower(s)

after all expenses accounted for, review credit history and property charge payment history

• Issue an initial loan decision• Conditions may apply• After final approval, moves to Closing


• Notify file is cleared for closing• Final closing figures obtained from

title/settlement company• Closing date set• Three(3) day right of rescission (for

all refi transactions)• Right to cancel loan with no penalty• Lender disburses HECM funds to

title/settlement company• Borrower receives proceeds (if

applicable) from title/settlement company



The loan funds

When the home is sold

When the last owner permanently vacates

When the last borrower passes away*

*Note: Eligible Non-Borrowing Spouses may still occupy the home by deferring the “due and payable” status of the loan.

When is the Loan Due?

HECM HMBS

• Ginnie Mae’s Home Equity Conversion Mortgage (HECM) securities program

• Ginnie Mae as guarantor

• HMBS securities

HECM Mortgage Backed securities (HMBS)

A Participation is that portion of a HECM loan securitized into an HMBS security.

One HECM loan may have multiple Participations in various HMBS securities throughout the life of the loan.

Although HMBS securities will likely contain many Participations from many different HECM loans, there may only exist a one-to-one relationship between any one Participation and the HMBS security for which it serves as pool collateral.


• Issuers are responsible for purchasing any Participation when the outstanding principal balance of the related HECM loan is equal to or greater than 98% of the Maximum Claim Amount

• If a HECM loan is found to be defective at any time after the related Participations have been pooled, the Issuer must cure the defect or purchase all related Participations. Substitutions of Participations related to HECM loans in HMBS pools are not permitted

• Issuers are required to pay a monthly guaranty fee to GinnieMae for each HMBS security for which the Issuer is Issuer of record.


• Each pool must have an original principal amount of at least $1,000,000

• Each HMBS pool must include at least 3 Participations, each of which is related to a distinct HECM loan

• HMBS security holders are not entitled to scheduled payments of principal or interest

• The issuer may, at that issuer’s option, purchase any pooled participation from GNMA once the associated HECM becomes due and payable.


Support for Reverse Mortgages

Equity Extraction Tools

Home Equity Loan

Home Equity Line of Credit

Cash-Out Refinancing

Selling the home and buying a less expensive one

Selling the home and renting

HECM or HELOC?

Benefits of a HELOC:• Lower interest rates in most cases• Lower upfront costs• May be more suitable for short term-needs

Benefits of a HECM:• Loan does not become due as long as all the loan obligations are met• Line of credit cannot be frozen due to changing market values• No monthly p&imortgage payments

Generational Lending

Referral Partners

• Real Estate Agents – H4P

• Home Builders of 55+ – H4P

• Financial Planners

• Certified Divorce Financial Analysts

• Care Managers

• In-Home Care Executives

• National Aging in Place Council

NRMLA as a Resource

Nrmlaonline.org

Reversemortgage.org

Reverse Mortgage Self-Evaluation: A Checklist of Key Considerations

What You Need to Know About Your HECM After Closing

What Do I Do When My Loan is Due?

Presentation Summary

DemographicsHousehold

Wealth Profiles

What is a Reverse

Mortgage



Peter Bell

President & CEO

National Reverse Mortgage Lenders Association

National Reverse Mortgage Lenders Association1400 16th St., NW

Suite 420Washington, DC 20036

202-939-1760 (p)

Understanding Reverse Mortgages - Mortgage …...Understanding Reverse Mortgages Their Role in Our...

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