Reverse Mortgages

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 Reverse Mortgages
                      A consumer’s guide to
                     using the equity in your
                     home to your advantage
                 What is a reverse mortgage?
                 A reverse mortgage is a loan against your residence, which provides cash to assist with
                 living expenses in the form of a lump sum, a line of credit or fixed monthly payments.

                 Borrowers must:
                   F Be at least 62 years old

                   F Utilize the home as their primary residence

                   F Have a relatively small amount of debt against the property (in general, no more

                     than half of the value of the property should be owed).

                 Any loans against the property must be paid prior to obtaining a reverse mortgage
                 or paid with the proceeds from the reverse mortgage. The amount you can borrow
                 through a reverse mortgage varies with individual situations, but will never be the entire
                        value of the home. The amount is based on the age of the youngest borrower, the
                                                                                       F	

                             expected interest rate and the home’s value. Borrowers must also receive
                                consumer education from a North Carolina certified reverse mortgage
          You arenot              counselor on alternatives to the loan and the loan’s financial risk.
       required to make
     monthly repayments,              The loan does not have to be paid back as long as a borrower
     so qualifying for the            remains in the primary residence, but the owner remains responsible
                                      for property taxes, homeowner’s insurance and home maintenance.
     loan could be easier
                                     As long as any of the borrowers live in the home and fulfill these
            for you.                responsibilities, they cannot be forced to vacate the home, even
                                 if the loan balance becomes higher than the home’s value. When the
                             last living borrower dies, sells the home or permanently moves to a new
                       residence, the loan must be repaid in full, including all interest and other charges.

                 As you can tell, a reverse mortgage is very different from a traditional mortgage. To
                 qualify for a traditional mortgage, the lender checks your income to see how much
                 you can afford to pay back. But with a reverse mortgage you are not required to make
                 monthly repayments, so qualifying for the loan could be easier for you as a consumer.

                 Because there are no monthly repayments, a reverse mortgage is termed a “rising
                 debt” loan. That’s because each month, interest is added to the loan amount and the
                 balance owed increases.




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                      Why would you need a reverse mortgage?
                      Homeownership has typically been used to generate equity, creating wealth for
                      millions of consumers. If you ever needed to get cash from your home, you would
                      have to sell the house or borrow against it using a home equity loan. But many older
                      homeowners have a large amount of equity and do not qualify for typical home equity
                      loans, as they do not have the income sources to make monthly payments. A reverse
                      mortgage provides a third option for homeowners. This choice could help provide
                      supplemental income, may be a less expensive option than traditional long term
                      care insurance, and may help you remain in your home, giving you the means to live
                      independently for a longer period of time.

                      Some examples of reverse mortgages benefiting the borrowers are as follows.

                            Receiving a lump sum, plus a set disbursement for life:
                                 Judy Smith has been widowed for about a year. She and her husband
                                    had taken out a home equity loan to make some home improvements,
            A reverse                 and they were able to make payments without difficulty during his
        mortgage could                 lifetime. However, the expenses from his final illness depleted all
      give you the means                of their remaining savings. Now that he is gone, his pension
     to live independently              is gone, too. She is left with a monthly income of only $1,200.
                                        The $800 per month payment on the home equity loan, which was
       for a longer period
                                       perfectly manageable when they had $3,000 per month together,
             of time.                is now impossible for her alone. She is unable to refinance the loan
                                   due to low income. A reverse mortgage allowed her to pay off the home
                                equity loan, which gave her an extra $800 a month to live on. She was also
                          able to get a $500 loan advance each month to supplement her income. Best
                   of all, she is no longer having nightmares about getting behind on payments and
                   losing her home.

                      Receiving a set payment for life:
                      David Jones, age 80, has always lived alone, values his privacy and loves working
                      in his garden. His home is completely paid off. However, he is now unable to drive
                      due to vision problems, making it difficult for him to get groceries, go to the doctor,
                      etc. Because he has no local family members to help, he needs to hire someone to
                      drive him to appointments, as well as help with some of the heavier housekeeping,
                      shopping and cooking tasks. He is very frugal and has gotten along well on his limited
                      income up to now, but paying his helper $500 per month out of his $1,200 monthly


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income is leaving him with little money even for necessities. A reverse mortgage can
provide him $750 per month, which will cover the costs of his helper as well as giving
him a little extra money so that he can live a bit more comfortably.

Supplementing income, then paying off the loan:
Ann Brown got a reverse mortgage 10 years ago. She used the proceeds to supplement
her monthly income, which allowed her to continue living in her home after her
husband’s death. Now she has decided she is ready to move into a senior apartment
complex where several of her friends live. Over the years, she has received a total of
$50,000 in loan advances. With closing costs, servicing fees and interest, her loan
balance is now $120,000. She puts her home on the market and gets $160,000 for
it after paying the realtor and other sales costs. $120,000 of this goes to pay off her
reverse mortgage, leaving her with $40,000 to help pay her rent and other expenses
in her new apartment complex.




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                Frequently Asked Questions
                For many borrowers, it helps to know the right questions to ask when deciding on
                a loan. For a reverse mortgage, this is critical. Before you even begin searching for
                lenders, take time to consider these questions and answers:

                How much money can I get with a reverse mortgage?
                The amount of funds you are eligible to receive depends on your age (or the age of the
                youngest spouse in the case of couples), the appraised home value, interest rates, and
                in the case of the government program, the lending limit in your area. The limits are
                defined in Section 203b of the National Housing Act and vary by county. The limits
                are also subject to change at least annually. In general, the older you are and the more
                valuable your home (and the less you owe on your home), the more money you can
                borrow with a reverse mortgage.

                            How can I use the proceeds from a reverse mortgage?
                              The proceeds from a reverse mortgage can be used for anything,
       You may qualify         whether it’s to supplement retirement income, to cover daily living
         for a reverse          expenses, repair or modify your home (i.e. widening doorways or
      mortgage even if           installing an accessible ramp or bath), pay for health care, pay off
     you still owe money         existing debts or cover property taxes.

        on an existing
                                   How does the interest work on a reverse mortgage?
          mortgage.               With a reverse mortgage, you are charged interest only on the
                                proceeds you receive. Although fixed rate products are entering the
                            marketplace, most reverse mortgages charge a variable interest rate that
                      is tied to an index, such as the 1-year Treasury Bill or the London Interbank
                Offered Rate (LIBOR), plus a margin that typically adds an additional 1 to 3
                percentage points onto the rate you’re charged. Interest is not paid out of your available
                loan proceeds, but instead compounds over the life of the loan and is not paid until
                the repayment of the loan.

                Are there any special requirements to get a reverse mortgage?
                As long as you own a home, are at least 62 years of age and have enough equity
                in your home, you can apply for a reverse mortgage. There are no special income,
                credit or medical requirements. Your home must also meet eligibility requirements,
                which can vary depending on the reverse mortgage for which you are applying.




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What if I have an existing mortgage?
You may qualify for a reverse mortgage even if you still owe money on an existing
mortgage. The reverse mortgage funds will first be used to pay off any existing lien or
debt on your home. You equally can use money from your savings or assistance from
a family member or friend to help you pay off the existing mortgage. If the amount
of your existing mortgage is too large to pay off using the reverse mortgage proceeds
and your other funds, you will not be able to take advantage of a reverse mortgage.

What is the Service Fee Set-Aside?
Under the FHA Home Equity Conversion Mortgage (HECM) program, you are
charged a monthly servicing fee that ranges from $30-$35 to manage your account
once the loan closes. The Service Fee Set-Aside is part of your loan funds reserved
to cover future service fees.

What amount can be borrowed and what are the disbursement options?
The loan limit is based upon the age of the youngest borrower, the expected interest
rate, the value of the home and the amount owed on the home. Reverse mortgage
amounts typically range from 30 percent-80 percent of the home’s value, depending
on the age of the borrower.

There are several payment options available on a reverse mortgage, such as:
 1. Equal monthly loan advances to the borrower for an unlimited time,
    as long as the borrower is in the home. This is known as a “tenure” option.
 2. A line-of-credit option, allowing the borrower to draw cash when needed
    and in amounts chosen by the borrower. This can also be used to pay off
    an existing mortgage.
 3. A combination of equal monthly payments with a line of credit.
 4. An option which makes equal monthly payments for a fixed period of time
    chosen by the borrower. This option is known as a “term” option.

All of these options, and the freedom to switch from one to the other, are available
from the federally insured Home Equity Conversion Mortgage (HECM), the most
common reverse mortgage. Some lenders also offer private reverse mortgages, such
as the Fannie Mae Home Keeper Mortgage, which may or may not include all of the
above-mentioned payment options.




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       Frequently Asked Questions cont.
       To give you a general idea of the amount you would receive on a monthly basis when
       obtaining a reverse mortgage, below is a reference table. The figures in this table are
       based upon Local Government Federal Credit Union’s Reverse Mortgage program
       and assume a 6.75 percent fixed interest rate.

       Table A: Approximate Monthly Payment to Borrower
       Based Upon Age and Home Value*

                                                            HOME VALUE

                          $100,000               $150,000                $200,000               $250,000
             62              $330                   $500                    $670                    $840

             66              $380                   $570                    $760                    $950
     AGE




             70              $440                   $670                    $890                  $1,120

             74              $540                   $820                   $1,090                 $1,370

             78              $640                   $970                   $1,300                 $1,630


           * Approximate monthly figures based upon age, life expectancy of the youngest borrower, home value
            and a 6.75 percent fixed rate. This also assumes there is no other debt against the property.


       Will I lose my government assistance if I get a reverse mortgage?
       Reverse mortgage proceeds are not viewed as income and a reverse mortgage line
       of credit is not viewed as an asset. Therefore, a reverse mortgage does not affect regular
       Social Security or Medicare benefits. However, if you are on Medicaid or receive
       Supplemental Security Income (SSI), any reverse mortgage proceeds you obtain must
       be managed carefully. Funds you retain would count as an asset and could impact
       Medicaid eligibility. For example, if you receive $3,500 in a lump sum for home
       repairs and spend it all in the same calendar month, everything is fine. Any of the
       lump sum funds that remain in your deposit account the following month would
       count as an asset. If the total funds (including other deposits and savings bonds)
       exceed $2,000 for an individual or $3,000 for a couple, you could become ineligible
       for Medicaid. To be safe, you should contact a Medicaid expert.

       What if my loan balance exceeds the value of my home?
       Neither you nor your estate will ever be required to pay back more than your
       home’s value.


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When do I pay back my loan?
No monthly payments are due on a reverse mortgage while it is outstanding. The loan
is repaid when you cease to occupy your home as a principal residence, whether you
(the last remaining spouse, in cases of couples) pass away, sell the home or permanently
move out. The amount owed can never exceed the value of your home. When you sell
your home and the sales proceeds exceed the amount owed on a reverse mortgage,
the remaining equity still belongs to you or your estate. A borrower may also pay
off a reverse mortgage loan at any time without a prepayment penalty.

Under what circumstances should I not consider a reverse mortgage?
With associated upfront costs on a reverse mortgage, if you intend to leave your home
within two to three years, there may be other less expensive options to consider.
If your home needs repairs, you should research home equity loans,
no-interest loans, grants offered by your county, or local non-profits
that may be able to repair your home. If paying property taxes has
                                                                                   A reverse
become a problem, contact your local government tax office to see
                                                                              mortgage does not
if you qualify for North Carolina’s Property Tax Relief Program
for the elderly and disabled and/or local tax deferment. Also, if             affect regular Social
your desire is to leave your home as an asset to your children, then         Security or Medicare
you should consider other options, because in many cases the home                   benefits.
is sold to pay back a reverse mortgage.

Is now the right time to proceed?
The amount of money you can receive through a reverse mortgage is
determined in large part by your age. Therefore, you will receive more money at age
68 than at age 62, and more at age 75 than at age 68. If your finances allow you
to defer origination of a reverse mortgage for a few years, it may be wise to do so.
You’ll receive more funds and probably have better options too. If you’re not facing
a financial emergency, it may be prudent to postpone applying for a reverse mortgage
and preserve your home equity as long as practical.

Should you involve family members in the decision process?
While it is your home and your decision to make, it may be worthwhile to consider
using family members as a resource. The involvement of family members in the process
can be very valuable to you in your attempt to make an informed decision on a loan
product that is right for you.

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       Frequently Asked Questions cont.
       How do I select a counselor?
       To be eligible for a reverse mortgage in North Carolina, you must discuss the loan with
       a counselor employed by a non-profit or public agency approved by the US Department
       of Housing and Urban Development (HUD) and certified by the NC Housing Finance
       Agency. In North Carolina, the North Carolina Housing Financing Agency trains and
       certifies counselors across the state. To find a HUD-approved counseling agency near
       you, call 800.569.4287, or log on to www.nchfa.com/counseling/reversemortgage.aspx
       to find the listing at the NC Housing Finance Agency.

       With a reverse mortgage, do I still have to budget my funds each month?
       Yes! As you continue to be the owner of your home, you will continue to bear the
       responsibility of paying items such as homeowners insurance and property tax bills,
       along with routine maintenance and repairs. It’s more important than ever to budget
       your monthly funds and set aside dollars to cover these large expenses and other items
       such as home repairs. If you obtain an LGFCU Reverse Mortgage, Local Government
       Federal Credit Union will assist you in setting up specific accounts for these purposes.

       Luckily, there are some key contacts in North Carolina who can provide you with
       answers to other questions you may have on a reverse mortgage or if you’re looking
       for alternatives. The following agencies/organizations should be able to assist:


        Organization                 Phone number                 Website
        NC Housing Finance           800.393.0988
                                                                  www.nchfa.com
        Agency                       919.877.5700
        NC Commissioner of
                                     888-384-3811                 www.nccob.org
        Banks
        NC AARP                      866.389.5650                 www.aarp.org/states/nc/
        Local Government             800.344.4846
                                                                  www.lgfcu.org
        Federal Credit Union         919.755.0534
        Eldercare Locator            800.677.1116                 www.eldercare.gov




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       Do Your Research
       Research is always the key in making sure you are getting a fair deal as a consumer.
       This is especially true when considering a reverse mortgage. Take your time. Reverse
       mortgages are rather complicated, and deciding if one is right for you and your family
       is an important decision.

       Your first step should be to investigate other options available besides a reverse mortgage.
       Monthly repayments on a home equity loan or home equity line of credit can be less costly
       alternatives to a reverse mortgage. Many state and local governments also offer very
       low-cost loans for making home repairs. Some states also offer tax relief/deferred loans
       and grants. Also, make sure you have looked at the option of selling your home and
       possibly moving to a less expensive home, or to a no-maintenance rental property with
       adequate accessibility. After looking at alternatives and deciding a reverse mortgage
       is your top choice, make sure you review North Carolina’s law on reverse mortgages.



       Mark Pearce, Deputy Commissioner of Banks for the State of North Carolina, comments:
       If you are considering a reverse mortgage, you should shop around and talk to a
       counselor to make sure you are getting the product that is right for you. Reverse
       mortgages are complex products and choosing the wrong one can cost you thousands
       of dollars and even possibly your home. ⁓



       North Carolina Law
       North Carolina has enacted a strong law designed to protect consumers, so familiar-
       izing yourself with this law is important. The North Carolina Reverse Mortgage Act
       requires mortgage lenders and loan officers to be approved by the NC Commissioner
       of Banks prior to making reverse mortgage loans. Currently, the following are
       approved to conduct business as a reverse mortgage lender: The North Carolina
       Housing Finance Agency, any lender authorized to engage in business as a bank,
       savings institution or credit union under the laws of this state or of the United
       States, or any other person, firm or corporation authorized to make reverse mortgage
       loans by the Commissioner of Banks. A complete list of currently approved reverse
       mortgage lenders is listed on the Commissioner of Banks’ website at www.nccob.org
       (see reverse mortgage).




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The Reverse Mortgage Act requires lenders to be responsible and accountable
for making the loan, and requires potential borrowers to be counseled on the product
prior to approval. The Reverse Mortgage Act also requires that counselors be
independent of the lender. Given the complexity of reverse mortgage products —
and the potential vulnerability of the borrowers — the NC Housing Finance
Agency requires counseling for reverse mortgages be performed face-to-face rather
than by telephone. Counselors are required to accept counseling requests only from
homeowners or their legal representatives — not from lenders.

The Reverse Mortgage Act further requires lenders to send an annual statement (free
of charge) detailing all of the financial transactions for the past year. Lenders are
prohibited from making false promises or misrepresenting material facts, and may
not fail to disburse funds as specified in the loan contract. The law also states
the lender cannot require you to pay back more than what you’re able
to sell the property for in the marketplace.
                                                                              Your first step
Remember, North Carolina enacted the Reverse Mortgage                          should be to
Act to help ensure mortgage lenders do not attempt to                       investigate other
deceive or mislead you. If you ever feel you are being                      options available
misled, you should report your concerns to the NC Commissioner
                                                                            besides a reverse
of Banks by calling 919.733.3016 or 888.384.3811, writing
the Commissioner of Banks at 4309 Mail Service Center,
                                                                                mortgage.
Raleigh, NC 27699-4309, or reaching them via their website at
www.nccob.org/NCCOB/ConsumerAssistance/ComplaintInfo.

With seniors succumbing to numerous scams, it is not surprising to hear of borrowers
being victimized with reverse mortgage scams. In fact, a recent Mortgage Banking
article highlighted a few examples of fraud:

In Indiana, an elderly couple met a loan originator who also owned his own mort-
gage company. The originator persuaded the couple to apply for a reverse mortgage
in order to obtain funds to invest in his mortgage company, promising their funds
would be placed in an interest-bearing account that would be available on request.
After the loan and the investment were made, the couple requested — but did not
receive — their funds. After the originator failed to meet the mortgage obligations,
foreclosure proceedings were initiated against the couple’s home. The originator


                                                                                                13 ⁓
       Do Your Research cont.
       was convicted of fraud and securities violations charges and is awaiting sentencing,
       reports MortgageFraudBlog.com. In many fraud cases, the perpetrator is a fellow
       church member or social acquaintance of the victims — as in the following example.

       In this California case, a couple in their late 60s met the alleged fraudster at their
       church. After some discussion, they agreed to obtain a reverse mortgage from him.
       During the closing, which was described as “casual,” the couple and the alleged fraudster
       discussed “church and social matters” as they signed the documents, which were not
       explained to them. A month after closing, the couple learned they no longer owned
       their home and filed a police complaint after the alleged fraudster refused to return
       the title to their name. Police conducting a search at the defendant’s office said it
       appeared that several businesses and individuals collaborated to perpetrate the scheme.
       Police reports noted there were more victims and more arrests expected, according
       to the Tracy Press, Tracy, California.

       In another scheme, a loan officer, again capitalizing on the borrower’s lack of under-
       standing of the loan process, told the borrower that standard HECM procedures
       required the borrower to sign over the proceeds check to the loan officer for future
       disbursements. The loan officer made a few payments, but kept the balance of the
       funds for himself.

       Remember, a good resource to avoid scams is the NC Attorney General’s Office —
       Consumer Protection Division. This group can be reached at 877-5-NO-SCAM
       or 877.566.7226. If you’re confident a reverse mortgage may be a good option, keep
       reading to look at the variety of loan alternatives in the market.




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Chris Schafale, Director of Information Services with Resources for Seniors, comments:
One of the requirements for potential reverse mortgage borrowers is that they
receive counseling before applying for the loan. You might wonder why you have to
go to “counseling” in order to borrow money. It may make more sense if you think
of it as “consumer education”— the point is to make sure that you have all the infor-
mation you need in order to make an informed choice about whether to go ahead
with the loan. It’s important for you to understand the costs as well as the benefits
of a reverse mortgage, and to know what your rights and responsibilities are as a
borrower. Part of the counselor’s job is also to help you look into other possible
options in addition to the reverse mortgage, so you have as many choices as possible.

The counselor must work for a HUD approved nonprofit or governmental housing
counseling agency, not connected with the mortgage lender, so that they have no
financial stake in whether you decide to get the loan or not. As a result, you can trust
them to give you honest information and to have your best interests in mind. They
are not there to decide whether you should get the loan or not, and they will not be
judging you in any way — instead, they are on your side, as your ally and advocate.

In North Carolina, this counseling must happen face-to-face with the counselor,
not over the telephone as may happen in other states. We believe that borrowers
can get more benefit from counseling that is done in person, where they can have
more control over the pace of the conversation, be able to hear better, and feel more
comfortable in asking questions than they might be in a phone conversation. Also,
the counselor is much more able to tailor a presentation to your personal needs
if the counselor can see your face and observe your reaction to what is being said.
Meeting face-to-face also makes it easier for you to look at detailed financial
information, such as loan estimates, together with the counselor. ⁓




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                     What’s In The Marketplace?
                     Numerous financial institutions are now beginning to offer reverse mortgages, and
                     the most popular reverse mortgage program currently on the market is the Home
                     Equity Conversion Mortgage (HECM), which is insured by the Federal Housing
                     Administration (FHA). The HECM program limits loan costs, and the money you
                     get from a HECM can be used for any purpose you choose.

                     There are also other options for reverse mortgages. Generally, the only reverse mortgages
                      that cost less than HECMs are those offered by state or local governments. These
                     public sector loans, referred to as Deferred Payment Loans or Property Tax Deferrals,
                     are typically used for one specific purpose only (i.e. to repair your home or pay your
                     property taxes). They are available only to homeowners with low to moderate incomes.

                        Proprietary reverse mortgages are another option offered by numerous lenders.
                            These mortgages are typically offered by financial institutions, mortgage
                               companies and other private lenders, and underwritten by the companies
        In some cases              that develop them. While these can be an expensive type of
          you may get             mortgage, in some cases you may get more cash from a proprietary
        more cash from             plan than from a HECM plan. Local Government Federal Credit
       a proprietary plan           Union has developed a proprietary reverse mortgage and aims
                                   to distinguish itself in the marketplace as a consumer-friendly,
          than from a
                                  low-cost provider.
          HECM plan.
                                     Key Costs
                                  Below are the key costs associated with a reverse mortgage. You should
                           fully understand each of these costs and compare them among lenders.
                       F	 Standard Closing Costs — These are loan documentation expenses and include

                          costs like attorney’s fee, recording fees, an appraisal fee and title insurance.
                       F	 Origination Fee — This fee is designed to reimburse the lender for the cost

                          of processing the loan.
                       F	 Mortgage Insurance — A fee paid by the borrower to protect the lender from loss

                          when the loan becomes payable in full. The purpose of mortgage insurance is
                          to pay the lender in case your loan balance becomes larger than your home value.
                          This fee is typically charged as a lump sum fee at closing or as an up charge
                          on the loan’s interest rate each month during the life of the loan.




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        F	 Service Fee — Many lenders charge a monthly fee to cover their costs of managing
           your loan. Such a cost is referred to as a service fee and is typically charged even
           if there is no monthly disbursement.
        F	Interest Charges — Interest charges on a reverse mortgage loan will also differ

           between lenders. While most reverse mortgage lenders add monthly interest
           charges to your loan balance, and therefore charge you interest on the interest
           (otherwise known as compounding), Local Government Federal Credit Union’s
           reverse mortgage will simply charge you interest on the balance of money out-
           standing, using a fixed rate for the life of the loan. The interest charges simply
           accumulate until paid at some future date. This is known as “simple interest.”

      Below is a comparison of interest charges that would be paid on an LGFCU reverse
      mortgage and on a HECM loan. This chart is intended to give you a general idea of
      the interest costs through life expectancy at various ages and home values. Simply find
      your general age in the left-hand column and then your home value on the top row.
      As you can see, “simple interest” offered on the LGFCU loan will reduce the amount
      of interest charges when compared to the compounding interest on a HECM loan.

      Table B: Comparison of Interest Charges on a Reverse Mortgage

                                                        HOME VALUE

        Age              $100,000                        $150,000                       $200,000
                   LGFCU           HECM           LGFCU            HECM           LGFCU            HECM
         62       $62,900        $105,300         $94,000         $157,000       $125,200        $208,700
AGE




         68       $46,000         $63,200         $68,800         $94,100         $91,600        $124,900
         74       $33,800         $38,900         $50,400         $57,800         $67,100         $76,700

      Note: Interest charges assume the interest rates on both loans are 6.75 percent, even though the HECM
      rate is variable and may increase by up to 10 points above the beginning interest rate. Loan amounts
      are dependent on home value and life expectancy.




                                                                                                              17 ⁓
       The LGFCU Difference
       Why has Local Government Federal Credit Union decided to offer reverse mortgages,
       and what distinguishes the Credit Union’s product from others in the marketplace?

       Aware that many of our members face the same dilemmas impacting the retired
       community, the Credit Union investigated standard reverse mortgage products
       being marketed nationally and determined that a Credit Union-designed product
       would enable LGFCU to address many of the concerns consumers and counselors
       have voiced over standard reverse mortgage products or HECM loans — and more
       importantly allow most members to keep more money in their pockets.

       The LGFCU Reverse Mortgage has the following member-friendly features:
        1. A fixed rate of interest
        2. Simple interest accrual on the reverse mortgage loan
        3. An origination fee on the loan substantially lower than the industry standard
        4. No requirement of mortgage insurance

       See below for a comparison of LGFCU’s reverse mortgage product and the industry
       standard HECM product, further emphasizing the difference in the Credit Union’s
       proprietary reverse mortgage (note highlighted areas of difference).

       Table C: Comparison of LGFCU and Industry Standard Reverse Mortgage

                           LGFCU                              Industry Standard
        Interest rate      A stable, fixed rate of interest   Variable rate that can escalate
                                                              by as much as 10 percent
                                                              over the life of the loan,
                                                               increasing the potential
                                                              cost for the consumer
        Interest Accrual Simple interest accrual              Interest charges are added
                           (interest is not charged           back to the loan balance,
                           on interest)                       thus interest is charged
                                                              on interest
        Origination Fee    1 percent of the appraised         2 percent of the appraised
                           value of the home                  value of the home




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                    LGFCU                              Industry Standard
 Counseling         Will require that all counseling   Some borrowers are rushed
                    be done in face-to-face            through the educational
                    sessions                           process and could even
                                                       receive counseling by phone
 Disbursement       Advocates use of a monthly         Three options:
 Options            disbursement to the borrower       1. Lump sum disbursement,
                    for life, but will offer three     2. A credit line to be used
                    options:                              at borrower’s request,
                    Option 1—a single lump sum         3. A monthly disbursement
                    disbursement at origination
                    Option 2 — fixed monthly
                    disbursements for life or for
                    a set term
                    Option 3 — a combination of a
                    lump sum disbursement and
                    fixed monthly disbursements


 Service Fee        None                               Typically $30–$35 per month
 Repayment          1. Death of member                 1. Death of borrower
 Events             2. Member moves out of             2. Borrower moves out
                       home                               of home
                    3. Member does not pay             3. Borrower does not pay
                       taxes and insurance                taxes and insurance
                    4. Member sells home               4. Borrower sells home
 Mortgage           None                               Typically 2 percent of the
 Insurance                                             home’s value, charged “up
                                                       front” at closing; and 0.5
                                                       percent is added to the
                                                       interest rate charged on
                                                       your rising loan balance


On the next page you’ll see an example to demonstrate the dollar savings that can
potentially be provided to members. This example assumes an annual appreciation
rate of 3 percent on the property and a 6.75 percent interest rate.




                                                                                     19 ⁓
       The LGFCU Difference cont.
       John is 62 years old and owns his home, which is currently valued at $200,000. His
       wife unexpectedly passed away several months ago, and he is left without her part-
       time income that supplemented living costs. John wants to stay in the home. His life
       expectancy is 21 years and the home’s appreciated value at his life expectancy is just
       over $372,000. He researches reverse mortgage options and finds the following:

       A local lender is offering him a reverse mortgage loan with total closing costs and fees of
       $33,800, but will provide John with $520 each month for the rest of his life. If John
       lives until his life expectancy, he will receive $131,040 from his reverse mortgage loan.

       John’s other option is an LGFCU reverse mortgage loan with closing costs and fees
       of $3,500. The LGFCU reverse mortgage will provide him with $670 each month for
       the rest of his life. Should he live until his life expectancy, he will receive $168,840
       from an LGFCU reverse mortgage loan.

       The following examples demonstrate the potential benefits and savings provided to
       members with an LGFCU reverse mortgage. The examples compare the monthly
       advance amount that will be received, the total cost of the loan including interest
       through life expectancy, various borrower ages, and home values for an LGFCU
       reverse mortgage and HECM loan. The examples assume a 6.75 percent interest rate.




⁓ 20
      Table D: Monthly Advance and Cost Comparison
                                                           HOME VALUE

       Age         Home Value                  $100,000                 $200,000
                                          LGFCU        HECM        LGFCU        HECM
                                          6.75%        6.75%       6.75%        6.75%
              Monthly Advance Amt.            $330         $240         $670        $520

        62    Total Costs plus interest
              through life expectancy     $65,400      $127,400    $128,700     $242,500
              (21 years)
              Monthly Advance Amt.            $415         $290         $840        $630

        68    Total Costs plus interest
              through life expectancy     $48,500      $80,100      $95,100     $150,400
              (16 years)
AGE




              Monthly Advance Amt.            $540         $360      $1,090         $770

        74    Total Costs plus interest
              through life expectancy     $36,300      $52,300      $70,600      $96,900
              (12 years)
              Monthly Advance Amt.            $710         $460      $1,440         $980

        80    Total Costs plus interest
              through life expectancy      $27,600     $36,600      $53,300       $67,100
              (nine years)


      As you can see, an LGFCU reverse mortgage can potentially save you costs and interest
      charges over the life of the loan and provide you with a higher monthly benefit.




                                                                                              21 ⁓
               Always Remember…
               Local Government Federal Credit Union wants to make sure you have made a careful
               decision when putting your home’s wealth into a reverse mortgage. While this booklet
               demonstrates the complexity of reverse mortgage loans and the need for consumer
               education on the product, there are some points that should be reiterated— items the
               Credit Union wants to make sure you understand.

                 F   If counseling is done over the phone, it will be convenient and brief, but will
                     likely be inadequate. A phone session may only last 10–15 minutes. Face-to-
                     face counseling sessions typically last an hour or more. This is your main chance
                     for independent questions and answers on this extremely important topic.
                     North Carolina homeowners are required to receive face-to-face counseling,
                     and LGFCU firmly encourages members to take advantage of this resource.
                        The easy way out via a phone conversation may be costly to you.

                               F Unfortunately, some lender practices are designed to benefit the
                                lender more than the borrower. High-pressure tactics are used,
         It is always
                                  and some lenders encourage the use of loan proceeds for complex
   appropriate to review
                                  investments. These investments generate additional commissions
     your options with             for the lender and are almost always to your disadvantage. If you
    at least one or two           find yourself in a discussion with a high-pressure lender attempting
    additional lenders.          to sell additional products, end the discussion at once. Scam artists
                                are everywhere, including in the reverse mortgage market. Never
                              use a reverse mortgage to purchase an annuity product.

                      F    Many lenders offer a highly regulated loan product, like the Home Equity
                     Conversion Mortgage (HECM) through FHA, but many lenders have now
                     developed their own proprietary loan product. Regardless of which lender you
                     use, it is always appropriate to review your options with at least one or two
                     additional lenders.

                 F   Reverse mortgages have many associated fees. The more fees you pay, the less
                     money you will be able to access from your home’s value. Always look closely
                     at the amount of fees you will be charged at loan closing and over the life
                     of the loan.




⁓ 22
F   You may have better options than obtaining a reverse mortgage. If your plans
    for the future reflect that you will be in your home for just a few more years,
    you should definitely consider other options due to the origination costs.
    Be sure to explore all of your options with your counselor and choose the least
    costly option for you.

F   Remember: With a reverse mortgage you are still responsible for paying your
    homeowners insurance and property taxes. You are strongly encouraged to
    contact your local tax office and see if there are programs to reduce your tax
    bill based upon your age and reduced retirement income.

F   Take advantage of all information on reverse mortgages available to you as
    a consumer. Some key contacts for reverse mortgage information are:


Organization                 Phone number                 Website
NC Housing Finance           800.393.0988
                                                          www.nchfa.com
Agency                       919.877.5700
NC Commissioner of           888.384.3811
                                                          www.nccob.org
Banks                        919.733.3016
NC AARP                      866.389.5650                 www.aarp.org/states/nc/




                                                                                      23 ⁓
       Your Information
       After reading LGFCU’s Reverse Mortgage Guide, you certainly noticed there can
       be a tremendous amount of variance between products in the marketplace. This makes
       it imperative that you compare all costs and interest charges of lenders. To assist
       you with this process, we have provided the following chart.

       As a member-owned, non-profit cooperative, LGFCU strives to keep money in the
       pockets of Credit Union members. This objective was a guiding principle in establishing
       LGFCU’s Reverse Mortgage loan.


                                     Fees or Costs                       LGFCU

                          Standard Closing Costs


                                   Origination Fee


           Upfront Private Mortgage Insurance


           Monthly Private Mortgage Insurance


                             Monthly Service Fee


                              Total Fees or Costs:


              Monthly Payment to be Received


               Fixed or Adjustable Interest Rate


                        Anticipated Interest Rate


                    Anticipated Interest Charges




⁓ 24
If you would like to learn more about reverse mortgages, or are interested in obtaining
an LGFCU reverse mortgage loan, contact your local branch, visit the website
at www.lgfcu.org, or phone the Call Center at 888.732.8562.




          Lender #2                                      Lender #3




                                                                                          25 ⁓
       Notes




⁓ 26
27 ⁓
             / To improve the lives of our members /


                                                                The Quorum Center
                                      323 West Jones Street, Suite 600, Raleigh, NC 27603
REV. 11.11                                  919.755.0534 / 800.344.4846 / f: 919.755.0193

				
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