Transcript Dispelling the Myth About Reverse Mortgages
Reverse Mortgages 101
Presented by:
Southern California Story
BEFORE AFTER
How Can A RM Help A Client?
Southern California story
Before the Reverse Mortgage • • • No ceiling/holes in roof/home should be condemned Monthly income less than $700/month Church members help client daily with food, etc.
After the Reverse Mortgage • • • New home to live in (See Picture) Monthly income is increased by over $900 per month She has money available now for travel, emergencies, etc.
This Reverse Mortgage Changed Her Life!
Myths about Reverse Mortgages
The bank owns your home You can be forced to sell your home You pay taxes on the monthly income Debts from the Reverse Mortgage passes to your heirs You can outlive the loan and have to start making payments You cannot lend to a living trust There are guidelines about how you can use the money I have poor credit/FICO, I won’t qualify The bank sells your home when you are gone
History of Reverse Mortgages
Before 1987
High Fees & Costs Shared Appreciation Forced Sale of Residence Heirs Responsible for any balance
After 1987
Capped Fees & Costs Standardized Interest Rates Required HUD Counseling Required FHA Mortgage Insurance
What is a Reverse Mortgage?
This is a unique loan called a Home Equity Conversion Mortgage or “H.E.C.M.” designed for seniors that are 62 years of age and older. It allows them to get equity out of their home in the form of monthly income, an equity line of credit or immediate cash,
tax-free
in their home.
, to use for any reason or goal they have, without ever having to make a payment on the loan, as long as they live If they do live in their home until death, the heirs will have the choice to refinance the loan or sell the home, pay the loan off and keep the remaining equity.
The Mortgage Company Pays The Senior Instead of The Senior Paying Them!!
What are some of the features, advantages, and benefits of a Reverse Mortgage?
They keep title to their home.
They can keep their home in a living trust.
All income is
TAX-FREE
.
No restrictions on how they use the funds.
Make no payments while living in their home.
They cannot outlive the loan.
There are NO changes to the property taxes.
Guaranteed by the U.S. Department of Housing (HUD).
Is a Reverse Mortgage Safe?
YES!
FHA fully insures the loan and guarantees that no debt ever passes to the heirs, above & beyond what the home is worth.
HUD participates in regulating the program and the industry to protect seniors, therefore, all reverse mortgage applicants must complete a HUD counseling session.
In 2001, Congress passed legislation making Reverse Mortgages a permanent
government
program.
What are their responsibilities?
They are responsible to keep the Insurance and Taxes paid on their home.
All property liens, if any, must be paid from the proceeds of the Reverse Mortgage.
They must continually occupy their home (cannot be gone for more than 1 year at a time).
They must maintain the home.
How Does A Person Qualify?
All persons on title must be age 62 and older.
Have enough Equity in the home.
Plan to keep their home as their Primary Residence.
A Reverse Mortgage has:
No financial qualifications.
No monthly payments as long as they live in their home.
Lower interest rates set by HUD.
How much money will they be eligible for?
Each county in every state has a lending limit on appraised values which is set by the Federal Government.
From that lending limit, the youngest borrower’s age, the current interest rates, and the equity in their home, we can determine how much a borrower will be eligible to receive. The older they are the more they qualify for.
How do they receive the money?
Leave the money in the HUD program and take monthly payments to supplement their income; Leave the money in the HUD program and take funds when they need them like a Home Equity Line of Credit; Take all available funds as a “Lump Sum” disbursement; Or a combination of the above.
Scenario 1A
62+ Year Old Client Cannot Afford Their House Payments
1.
2.
1.
Client calls you to discuss listing their home.
What are the options?
List $400,000 house now, Approximately $20,000 Commissions 2.
Refer to us for a Reverse Mortgage consultation and they continue to live in their home.
Specifics They
want
to stay in the house They would repair the home during the Reverse Mortgage Process They introduce you to their kids who have been supporting them financially each month The kids want to sell their home and buy up The client is extremely loyal to people that assist them The kids like to refer to their friends You choose option 2, and they do the Reverse Mortgage
Scenario 1
- Outcome
This month
– The parents do the Reverse Mortgage and have a monthly income and free up $1000/month for the kids (they do not need to assist any more). They advise the kids to list the home with you when they are gone.
Next month
– The kids list their $400,000 home with you and purchase a $600,000 home through you ($50,000 in commissions).
Years later
– You have sold & listed homes for 4 of the kids’ friends. You listed the parent’s home and it was in good shape and showed well because of the repairs done as part of the Reverse Mortgage. It sold for $500,000 ($25,000 in commissions).
Total Commissions Generated - $155,000 (Parents/Kids/Kids’ Friends)
• You served the best interest of your client • You got more commission now.
• You expanded your sphere of influence.
• You banked a future listing/commission.
• Your listing was more saleable.
• You are a professional.
Parents’ Home
For Sale (Sold)
Kids’ Home
Parents Get To Stay In Their Home Kids Get New Larger Home
Parents’ Home
For Sale (Sold) Kids Refer Friends You Get A Listing Later
Scenario 1B
25 Year Old Couple Looking To Buy Their First Home with You!
1. Tell you that their grandparents will help with cash to close.
2. Grandparents can assist with $2000 cash and own their home outright.
3. Option: Grandparents do a reverse mortgage and make $50,000 of their $220,000 credit line available to the grandkids who buy a $400,000 home.
The grandparents have two other grandkids that they decide to help with $50,000 each and you sell them each a $400,000 house.
Outcome
You now have three (3) buyers in a real estate market that needs buyers and you have generated
$60,000 in commissions
.
Scenario 1C
62+ Year Old Couple Wants To Buy A 2 nd Home In The Mountains
1. They own their home outright.
2. Option: They do a Reverse Mortgage and have a $220,000 credit line available.
They purchase a 2 nd home in the mountains for $200,000 cash and keep $20,000 in the credit line for future needs.
They do not have a payment on their primary residence or the 2 nd home!
Outcome
You help them realize their dream of a 2 nd home and generate $10,000 in commissions.
OR
The client uses the $200,000 to buy a positive cash flow rental property for $350,000 generating $17,500 in commissions.
Scenario 2
Before the Reverse Mortgage:
58 year old couple - can’t retire at 62 – not enough in savings/investments – worried about the mortgage.
Home current value $400,000 – current mortgage balance $90,000 ($1400/mo) Have Auto Balance $10,000 ($450/mo), Credit Card Balance $5,000 ($150/mo) We Refi them to $160,000 Refi to a 5-year interest only mortgage The additional $50,000 cash goes into an interest bearing account (Money Market) It is set up to autopay their interest only mortgage payment for 5 years At the end of the 5 th year, when they reach age 62, we refinance their interest only loan with a Reverse Mortgage and get rid of the mortgage altogether.
After the Reverse Mortgage:
Client no longer has a mortgage payment, auto payment or credit card payments Client may now invest $2,000/mo into their own programs to help them catch up on their retirements and now, may have the choice to retire at 62.
Scenario 3
Client takes a Reverse Mortgage and chooses a combination program (monthly payments & lump sum) and creates a lifetime income for themselves and uses a lump sum amount to create a program that protects them against long-term care, provides a death benefit if there is a premature death and creates a tax-deferred investment.
70 year old male client – Owns Home Outright – Current Value $450,000 With a Reverse Mortgage – they qualify for about $200,000 tax-free.
They leave $100,000 in the Reverse Mortgage program to create lifetime monthly income of $885/month They withdraw $100,000 to give to their financial planner to create a plan of action to protect their assets by creating a larger benefit with the money, e.g.:
Invests $100,000 into his new program (70 yr old male, non-smoker)
Creates a death benefit of about $175,000
Creates an annuity for $100,000 that will compound and grow at 3%
Creates a long-term care benefit of $325,000
At the end of five years, it becomes completely liquid again for the client to take with no penalty plus the 3%, or he can roll it again for another 5 years and create a higher death benefit, a larger long-term care benefit or allow to grow & compound at 3% for another 5 years.
What To Do Next?
Call me on any scenario.
We will walk through the options with your clients
Each client’s loan amount will be specific to their situation (age, home value, property location)
We will coordinate with you and keep you informed
We will direct client referrals back to you
We will be available for client consultations and seminars
This is a good alternative to the usual First Time Homebuyer Seminar
Research your client database and see who might be eligible for a Reverse Mortgage
Set up a consultation or seminar to let them know about this great option.
YOUR LOGO HERE
YOUR INFO HERE YOUR CONTACT INFO HERE
Phase I:
Fill out the attached Phase I - Reverse Mortgage Referral form and fax it to the
YOUR FAX NUMBER HERE
. Please fill in as much information as possible.
We will contact the client, meet with them, explain and educate them about the Reverse Mortgage Program and walk them through from start to finish. At close of escrow, the referring branch office will receive compensation in the amount of $500.
Phase II:
Only Branch offices & loan officers that have been trained & certified will be able to participate. Branch offices should appoint a reverse mortgage specialist within their branch to complete the training on the basics of Reverse Mortgages and what is required of them in order to receive compensation. At Phase II, you will be required to educate your client, qualify your client, refer your client to HUD counseling and then contact APRMG to walk you through the rest of the application process. Once you have walked through three (3) loans with APRMG, you will then be qualified to move to Phase III. For your involvement in the sales process, following the Phase II Guidelines, the branch office will be compensated 25% of commissionable origination fees.
Phase III:
Only Branch offices and loan officers that have been trained & certified and have closed and funded three (3) loans at Phase II will be eligible to originate loans at Phase III. In this Phase III, you will be required to do educate your client, qualify your client, refer your client to HUD counseling, originate the loan, order all required appraisals and inspections and all other required tasks as outlined in the Phase III Agreement. Once all reports and inspections are received – you are to forward the entire file to _______ for processing. For your involvement in the sales process, following the Phase II Guidelines, the branch office will be compensated 75% of commissionable origination fees which is 2% origination fee minus $400 processing fee. All other branch fees apply.
1. How do we get started?
YOUR CONTACT INFO HERE Frequently Asked Questions
2. Can I stay at Phase I or Phase II if I don’t want to get fully involved?
Yes, we designed the phases so that each individual could have a choice as to how much or how little they want to get involved in the Reverse Mortgage transaction.
3. Why do we have to use APRMG to do Reverse Mortgages?
Per Kurt and Bill, it is a protected class of clients and we will always have oversight on this program.
Per the good lenders (i.e. ones that deliver loans in acceptable time frames), they will not accept individual branch loans and want loans to come through one point at APM that has expertise in the product.
We are recognized by the lenders for our company volume, not individual branch volume, and future opportunities will come to us from our overall APM volume.
We are able to establish a level of expertise to support timely turnarounds and troubleshooting.
4. When will we have a Phase 4?
Not for the foreseeable future. There is a cost for infrastructure and support that must be accounted for, and is being met with the current business model.
Any further opportunities will be driven by APM total volume, so more company wide participation can create opportunities for us in the future.
5. Can we use our own vendors (title, appraisal, inspectors)?
You can, however, we want to establish that the vendor has experience with the product (FHA, Reverse Mortgage) to make sure that the service will meet the loan program needs.
Step #5
Hand-Off 3-way conference call to introduce client to APRMG Fax Phase II Referral Form and the HUD Counseling Authorization form to APRMG at (916) 960-1070
Step #1
Educate Types of Reverse Mortgages Dispel the Myth Presentation Basic costs involved Overview of process
Step #2
Qualify Verify Ages Verify Residence/Address Run client calculation
Step #4
Doc Prep Review document checklist Fill out Phase II Referral Form
Step #3
Counsel Explain role of HUD Counselor Help client set up HUD Counseling Have client sign HUD Counseling authorization form