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Reverse Mortgages

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					A brief outline
Forward vs Reverse Mortgages
       Forward                     Reverse
 Purpose:               Purpose:
  Purchase, Refinance      Generate Income
 Start:                  Start:
  Little or No Equity     Substantial Equity
 During:                 During:
  Pay Lender              Paid by Lender
  Balance Decreases       Balance Increases
  Equity Increases        Equity Decreases
 End:                      End:
  Owes No Debt            Owes Substantial Debt
  Substantial Equity      Little or No Equity
Forward vs Reverse Mortgages
          Mortgage Debt over Time
    120
    100
    80
    60
    40
    20
     0

               Forward   Reverse
HECM
FHA Insured Reverse Mortgage
 Program
  Allows Seniors access to equity in
    their home

  No monthly repayment


  Lender disburses directly to borrower
HECM
 Funds used for any purpose

 Repayment due when last borrower:
  Dies
  Sells home
  No longer uses home as primary residence
HECM Terminology
 Maximum Claim Amount – Maximum amount HUD
  will pay lender as a claim. Lesser (least) of appraised
  value or HECM program limit, and if HECM purchase,
  purchase price
 Principal Limit – Amount borrower(s) can receive.
  Based on Maximum Claim Amount, interest rate, age
  of youngest borrower
 Net Principal Limit – Amount remaining after loan
  costs are paid
HECM Terminology
 Expected Rate – Rate estimated to be the average long
  term interest rate for the life of the HECM. Used ONLY
  to calculate the principal limit on adjustable rate loans.


 Initial Rate – Interest rate effective at closing. Constant
  for fixed rate loans, adjusted monthly or annually per
  chosen adjustable rate plan.
HECM Terminology
 Index – Basis for setting interest rates. Either of two
  may be used:
   Constant Maturity Treasury Rate (Treasury Rate), set
    by Federal Reserve of New York
   London Inter-Bank Offered Rate (LIBOR), set by rates
    that major banks in London charge for lending among
    themselves.
 Margin – Percentage added to interest rate to help
  defray lenders costs. Must remain the same for
  expected and initial rates.
HECM Borrower Eligibility
 Youngest borrower at least 62

 Must own home or purchase home and
  use it as principal residence

 No income requirement

 Limited asset requirements
HECM Borrower Eligibility
 Credit review limited to determine that
 no delinquent federal debts remain after HECM
 closing

 Borrower(s) cannot be listed on:
    HUD Limited Denial of Participation or
    General Service Administration
     government - wide debarred list
Processing Steps - Counseling
 Counseling
   HUD approved counseling agency assists
    borrower(s) in making informed decision on
    continuing HECM process
   Counseling Certificate issued upon completion
   Signed by counseling agency and all who will be
    on mortgage (must be exact match)
   Provide to lender to begin application
    processing
Processing Steps - Counseling
 Once lender receives signed counseling certificate,
 lender may:
   Order case number
   Order appraisal
   Order credit report
   Request title review
   Request other documents as necessary. . .
    (Power of attorney, trust, life estate. . .)
Processing Steps-Appraisal
 FHA appraisal required, same forms used as for
  forward loans
 Same appraisal requirements

 Exceptions:
    Underwriter may lift lead base paint requirement


   Repairs less than 15% of Maximum Claim Amount may
    be completed after closing
Processing Steps-Calculation
 Borrower(s) choose one of five ways to receive funds-
    Tenure monthly payment for life

   Term monthly payment for specific time

   Line of Credit used as needed, from all at closing, to
    portions at various times over the years

   Combination line of credit and tenure

   Combination line of credit and term
ONE EXAMPLE
   Youngest Borrowers Age at closing    72
   Expected Interest Rate                  5%
   Property Value                    300,000
   Maximum Claim Amount              300,000
   Principal Limit                    203,100
   Up Front MIP                         6,000
   Other Closing Costs                 12,000
   Management set aside                 5,575.81
   Initial Draw                        40,000
   Net Principal Limit                139,524.19
Lender Participation
 Approved Direct Endorsement Lenders seeking
 HECM DE authority must:
    Enter test case phase and
    Submit five acceptable cases

 Third party originators may originate and process
 HECMs and submit them to their sponsors for
 underwriting
FHA Resource Center
Email
 info@fhaoutreach.com


Phone
 Toll free: 800-CALL-FHA (800-225-5342)
 TDD: 877-2HUD or 877-833-2483
Other Resources
 HECM Seniors Page:
 http://www.hud.gov/offices/hsg/sfh/HECM/HECMho
 me.cfm

 HECM Lenders Page:
 http://www.hud.gov/offices/hsg/sfh/HECM/HECMho
 melenders.cfm
Other Resources
 National HECM Counseling Network:
 http://www.hud.gov/offices/hsg/sfh/hcc/
 hccprof18.cfm



 Reverse Mortgage Counselors:
 https://entp.hud.gov/dapp/html/hecm_
 agency _look.cfm
Other Resources
 Lender Approval
 http://www.hud.gov/offices/hsg/sfh/lender/lendappr.
 cfm
  Phone: 202-708-3976

 Philadelphia HOC , Atlanta HOC, Denver HOC, and
 Santa Ana HOC
 Phone: 1-800-255-5342 (1-800-CALL-FHA)

				
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posted:3/24/2011
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