Transcript AARP Foundation Reverse Mortgage Counseling Project

What’s New with
Reverse Mortgages?
LTC Briefing on Housing & LTC
St. Paul, MN
August 6, 2004
Reverse Mortgages:
The Right Choice for Some
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80.6% of older households (headed by
people 62+) own the unit they live in
72% of those homes have no mortgage
$2 trillion locked up in equity among 62+
58% of older owner households meet HUD
definition of low income (< 80% of median)
84% of older homeowners want to stay
in their homes and never move
Reverse Mortgage Definition
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Loan Against Home Equity
Provides Cash Advances to Borrower
Requires No Repayment Until The Last
Surviving Borrower Sells, Moves out
Permanently or Dies
Generally Larger Advances to Older
People in Highest Valued Homes
Definition: Other Forms of
Home Equity Conversion
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Property Tax Deferral/Relief
Deferred Payment Loans for Home
Repairs/Improvements
Sale Leaseback Transactions
Remainder Interest Plans
3 Types of Reverse Mortgages
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Single Purpose: Home Repairs/Prop Taxes
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Federally Insured by HUD
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Income Based; Limited Uses; Lower Cost
Sponsored by Non-Profits/Local Governments
HECM: Home Equity Conversion Mortgage
Any purpose, any state (TX limitations)
Largest amounts of $ at lowest cost for most
Proprietary from Fannie Mae and Financial
Freedom: + Value = + Cash + Cost
HECM Eligibility
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All borrowers 62 years of age or more
Own/occupy 1-4 unit residential property
Most condos and PUDs, no coops
Property must be in good condition*
Must pay off any existing mortgages*
Can use proceeds for 2 * items above
Independent counseling provided by
public/nonprofits before application
How Much Can a Homeowner
Get? Based on 3 Factors
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Age of Youngest Borrower or
Joint Life Expectancy of All Borrowers
Interest Rates (and other Loan Fees)
Rates Fixed or Tied to Index
Property Value or Program Limits
(as applicable)
Calculator for HUD and Fannie Mae products:
www.aarp.org/revmort
HECM Cash Advances:
5 Payment Options (Utilization 5/00)
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Term: Monthly Advances for Fixed
Number of Months or Years (6%)
Tenure: Monthly Advances for As
Long as Remain in Home (6%)
Line of Credit: $ on Demand (68%)
Modified Term: 1 & 3 (12%)
Modified Tenure: 1 & 4 (8%)
HECM Example: Monthly Advances for As
Long As One Borrower Remains in Home
(Tenure) or Line of Credit Available
Age of
Youngest
Borrower
$150,000 Home
Tenure or LOC
$300,000 Home
Tenure or LOC
65
$ 444
$ 74,260
$ 677 $ 113,199
75
$ 599
$ 89,580
$ 906
85
$ 917
$ 106,211
$ 1378 $ 159,493
$ 135,493
Assumptions as of 8/04: 5.96% Expected Rate, 3.62% Initial Rate
+ 2% Mtg Ins Premium + 2% Origination Fee + $35 monthly servicing fee;
where program equity limit = maximum for all high cost areas ($221,160)
Business is Booming
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HECMs = 90-95% of market share
Interest Rates Lower Than Ever in History
Increasing Public Awareness & Outreach
Property Values Continue to Appreciate
Retirement Plan & Investment Setbacks
50% Increase Last Year to 18,000 closings
28,000 HECMs bought by Fannie Mae in 2003
HECM’s Complementary Option:
Fannie Mae’s HomeKeeper
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Equity Share Feature No Longer Available
Very Limited Market Share
Single Family Homes and Condos Only
Higher National Equity Limit ($333K versus
HUD range from $154K to $290K by county)
No Term, Modified Term Options
Unlike HECM, no creditline growth
Couples Underwritten Jointly = Less $
“Jumbo” Reverse Mortgage
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Cash Account and Cash Account High Benefit
from Financial Freedom
Marketed to high valued homes ($600,000+)
Available in most but not all states
High Benefit Option = Annuity Purchase
Guarantees Income for Life
Separate Counseling by FinFree Staff
Calculator at www.financialfreedom.com
Comparing Products??
“You Better Shop Around!”
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AARP Does Not Endorse Any
Lenders or Products
Equity Limits Vary by Product
Household Size Affects Payout
Creditline Growth: How Much & Often
Costs & What’s Left Over in Equity
Get Independent Information and
Make Product Decisions Before
Contacting a Lender
Consumer Protections
Now in Place
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Counseling Required by Law
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Protection of Non-Recourse Limit
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Independent Non-Profit/Public Agencies
Better Understand Transaction and
Alternatives
Never Owe More Than House is Worth
Truth-in-Lending Disclosure Rules
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Total Annual Loan Cost (TALC) Rate
Importance of Counseling
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Free to consumers through AARP
Foundation Counseling Network
Personalized software analysis to
identify all costs and fees
Counselors provide info on less costly
alternative programs & services
See www.hecmresources.org
Caution: Reverse Mortgages
Aren’t for Everyone
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Local Program or Service May Be
Faster and Cost Less
VERY Expensive Way to Borrow Money
Short Term, Especially If Not Much
Principal Drawn Down In That Period
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Consumers Must Do Their Homework
Before Making Any Decision
Caution: RM Generates
“New” Cash for Vulnerable
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Creditline Flexibility = Reward and Risk
Some Consumers Don’t Manage Large
Sums of Money Well
Potential Abuse by Professionals or
Family Members
Estate Planners Service Fee Abuses in
1997 led to more consumer protections
Current Project: Improving
Quality, Availability & Access
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Collaborating with 43 Counselors who met
High Score on 2002 National Computer Based
Competency Examination, additional 54 in ‘03
Subgrants of $1.1 mil. made to 36 agencies
AARP: Identify, Screen and Refer Clients for
Counseling (FYO4 goal: 9K)
Counselors: Follow Detailed Protocol &
Receive Ongoing Technical Assistance
Client Notification, Tracking, Alternatives
Database and Invoicing on Shared Website
AARP Consumer Resources
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Home Made Money: A Consumer Guide
to Reverse Mortgages - 46 pages
(Spanish version now in development)
For free single copy call AARP at
800-424-3410 (ask for stock #D15601)
www.aarp.org/revmort - web version
of guide, downloadable pdf, plus reverse
mortgage payment calculator
Additional Technical
Information and Resources
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National Center for Home Equity
Conversion in St. Paul, MN
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www.reverse.org
Ken Scholen, Author of Home Made Money
and webmaster, teleworks at AARP
Telephone: 651-222-6775
EMail: [email protected]
For More Information…
Ms. Bronwyn Belling/ AARP Foundation,
Reverse Mortgage Education Project
601 E Street, N.W., Room B5-540
Washington, D.C. 20049
202-434-6044 (Voice); 434-6068 (Fax)
434-6082 (Counseling Referrals)
EMail: [email protected]
For More Information…
Mary Schindler
Catholic Charities of St. Cloud, MN
911 N 18th Street
St. Cloud, MN 56303
320/650-1668 or 800/830-8254 X2668
(FAX) 320/650-1672
EMail: [email protected]