LHFS Wholesale

HECM BASICS

Home Equity Conversion Mtg

Training Power Point

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What Is a Reverse Mortgage?

• A loan that allows you to access some of the equity in your home to obtain cash

• Available to homeowners 62 years and older

• Government insured by the FHA

• Loan amount is based on:– current interest rates– age of youngest borrower– appraised home value*

• Loan must be repaid when you:– no longer live in your home– fail to maintain your home according

to FHA requirements– fail to pay property taxes and homeowners insurance*up to certain limits

Eligibility

• No credit score and generally no income requirements!

Must be aged 62 or older

Have sufficient equity in your home

Must pay off existing mortgage with loan proceeds and/or other cash

Eligible home types:

-Single family home

-FHA Approved condos

-2-4 unit owner-occupied residences

-Some manufactured homes

Credit Issues

• Bankruptcies, Foreclosures and Short Sales are acceptable provided they were not on an FHA or Government backed loan. If so, standard 3 year waiting period applies.

• You can save a property that is already in the foreclosure process as long as there is no sale date set.

• Any Federal judgments, liens or obligations must be satisfied prior to or at closing.

HECM Terms

• Max Claim:– Max claim is the value of home as determined by an FHA

appraiser, the purchase price or $625,500 (the max HECM lending limit) whichever is the least of the values.

• Principal Limit Factor: (synonymous to LTV)– The principal limit factor is the total amount of money that

is available to the borrowers. It is determined by the following 3 factors:a) Age of the youngest borrower or their spouse(Must be 62)

b) Value of the property – Max claim

c) Current interest rate

HECM Terms Continued…

• MIP: – Initial Mortgage Insurance Premium IMIP

• Over 60% draw in the first 12 monthsa) 2.5% of Max Claim

• 60% or less draw in the first 12 monthsa) 0.50% of Max Claim

– Annual MIPa) 1.25% annually b) Calculated and applied monthly based on loan balance

• Tenure:– Tenure is a regular monthly disbursement made for the life of the

loan regardless of actual equity.

• Term:– Term is a regular monthly disbursement made for a specific amount

of time. This is determined by the borrower and the available equity at closing.

HECM Terms Continued…

• Lump sum:– Lump sum is the amount of money the borrower receives at

closing. If the borrower selects the Fixed Rate product, then the amount of Principal Limit desired will be disbursed at closing. No further disbursements for the life of the loan.

• LOC:– The line of credit is an amount of money determined by the

borrower to be available as the need or want arises. This feature will enable the “growth feature” for any unused LOC and that represents a greater capacity to borrow in the future, regardless of the actual value of the home. The LOC will grow at the same rate that is being charged to the loan balance on a monthly basis. It mirrors the interest rate plus monthly MIP.

HECM Terms Continued…

• Modified:– (Term, tenure) Any of the above disbursement options can

be combined together to customize the borrower’s funds. It can be changed as frequently as the borrower likes for a nominal fee.

• Maturity Event:– The loan becomes due and payable when a maturity event

occurs. Borrowers or heirs are allowed 6 months to extinguish the HECM with two (2) 3 month extensions typically granted if needed.

Types of HECMS

• Adjustable (Open ended Loan)– Allows all payment options– Available initial draw = 60% of PL or mandatory obligations

plus 10% of PL only.– On a purchase full draw is allowed (considered mandatory)– IMIP determined by amount taken in 1st year

• Fixed (Closed End Loan)– Only available as lump sum– Amount of lump sum taken at closing is final. No future

draws allowed. (Purchase allows full draw)– Available draw = 60% of PL or mandatory obligations plus

10% of PL only– IMIP determined by amount taken at closing

Rate And Margins

• Margin – Determines the Initial Rate when added to the 1 month Libor or Annual Libor

• Rate Cap – There is a Lifetime Cap of 5 points on the Annual and a choice of 5 or 10 on the Monthly.

• Expected Interest Rate – That is the sum of the margin selected PLUS the 10 year Swap. FHA has a floor of 5.06. This determines the Principal Limit (LTV). If the Floor is exceeded it results in a reduction of the PL. 5.06 and LESS all receive the identical PL.

• Fixed rate loans, the rate is the expected rate.

Mandatory Counseling Must be Paid by Borrower!

• Counseling is mandatory for all borrowers**• Additional requirements:

– All POA’s, Conservators Remainder men or Guardian’s must counsel. In the event of a “non-borrowing spouse”, they must receive counseling even though they will not be on the loan.

**(HECM to HECM if done within last 5 years no new counseling is required for refinance of existing HECM)

Originators May Not Recommend or Steer to Any Counseling Agency, But They Are Required To Provide A List Of National and Local Counselors To The Borrower(s).

Important Facts

• Max Value or Allowable Purchase Price – Any purchase price or value is allowed, but the maximum loan

amount will be calculated on $625,500 or less. The maximum claim is $625,500 or the actual value or purchase price, whichever is less, so the maximum loan amount for any age is $469,125. Loan amount is determined by age, current interest rate and the maximum claim/purchase price. (LTV range 52.4 – 75%)

• HECM’S are non-recourse loans Insured by FHA– You will never be responsible to pay more than the value of the

home!!!!!

• Owner’s retain title to their property

• There are no prepayment penalties on a HECM

Additional Facts

• They can opt to make a mortgage payment, but it is not required– If borrowers choose to make payments they can re-use

their line of credit in the future. The line of credit available grows as they age, making their mortgage a hedge against inflation and fluctuations in the real estate market.

• Maturity Events1. Sell the home

2. All borrowers are deceased

3. Borrowers no longer live in the home

4. Borrowers fail to maintain their property taxes, homeowner’s insurance and minimal standards of upkeep on the property

Non Borrowing Spouse

• Effective with case numbers pulled August 4, 2014 and beyond, all non-borrowing spouses will have the right to remain in the home once the borrower is deceased.

• They will be unable to access any additional funds, but the maturity event will be extended until they fail to satisfy the basic requirements.

• The PL will be determined by the youngest spouse even if only one can be on the loan. (There are PL Factors down to age 18! (Age 18 = 31.7%)

• All non-borrowing spouse’s ages will be considered; the spouse cannot relinquish their right to remain in the home after the borrower is deceased in order to get the higher PL Factor.

Trusts, POA, Life Estates

• Trusts, POA, Life Estate, Conservatorships 1. Most revocable (living)trusts are acceptable to fund a

reverse mortgage (No in-out)

2. Rarely are irrevocable trusts allowed, but if title approves, then we can possibly fund.

3. Life estates are acceptable if all parties (remainder men etc. approve and are counseled)

4. Most POA’s are acceptable (restrictions and qualifications apply. If currently incompetent, must provide Dr’s letter stating competency at the time the POA was put into place)

5. WE MUST OBTAIN ATTORNEY OPINION LETTER

Origination and Fees

• Origination and Fees 1. Origination is controlled by FHA and based on appraised

value, max claim (HUD limit of $625,500) or purchase price (whichever is less)a) 2% of the first $200,000 then 1% of anything over that amount. Max

origination allowed is $6000

b) Minimum origination allowed by FHA is $2500 regardless of value

c) As lenders we can charge -0- origination (Brokers may as well)

2. IMIP is calculated on appraised value, purchase price or $625,500(HUD lending limit), whichever is less. Each 1st year disbursement amount has specific IMIPa) 60.01% of PL or greater is 2.5%

b) 60% of PL or less .50% (1st year draw cannot exceed mandatory obligations + 10% of PL)

Other Costs and Fees

• All other third party fees are typical, but the title policy must cover the “max claim” as opposed to the Principal Limit. No processing fees, admin or underwriting fees may be charged on a HECM. Only origination, docs, flood cert, MERS, credit report and appraisal.

• Counseling is typical $80-$125 some Grants apply.

• ON A PURCHASE, NO ONE (SELLER, LENDER, AGENTS) MAY GIVE ANY CLOSING COST CREDITS. Borrower must pay seller’s title, transfer tax, warranty with no credit from the seller. The only help we can provide is to waive the origination fee. We cannot pay for anything else (i.e.. Appraisal, escrow, title etc.)

The Application Process in 7 Easy Steps

Steps 1-3

Taking Stock– Take stock of their financial needs,

goals and circumstances– Determine if a reverse

mortgage is right for them – Provide a quote package

Attend HUD-Approved Counseling– They must participate in a reverse

mortgage counseling session– Independent, third-party

counselors (we provide list)– (no services prior to counseling)

The Paperwork– Complete a reverse mortgage

questionnaire or application with the borrower(s) Must be fully executed to protect with Principal Limit Lock or proceed. (Rate lock will occur at time of CTC and doc drawing.

Steps 4-7Establish Home Value

– FHA case # can be ordered once executed counseling cert and application is received. Broker will order a property appraisal to determine the home’s value

Loan Processing and Underwriting– Satisfy the lending requirements

Loan Closing– Complete and sign loan documents.

With a reverse, the official loan closing is the day the docs are drawn and signed (must be the same day or redraw!)

Receive Funds– Loan funds after 3 days for a

refinance and 1-2 for a purchase

– They sell their home

– They vacate the home for more than 12 months (medical or other reasons)

– The last borrower on the title passes away

– They fail to pay property taxes or homeowners insurance

– They do not maintain the home according to FHA requirements

19

Loan Repayment

is Due When…

Loan Repayment

FINALLY

• HAPPY HUNTING!!!

• THERE ARE 77,OOO NEW POTENTIAL BORROWERS EACH AND EVERY WEEK.

• REAL ESTATE AGENTS ARE LOOKING FOR SOURCES OF BUSINESS. HECM FOR PURCHASE IS THAT SOURCE!

LHFS Wholesale

Understanding the

HECM LIBOR Product Training

Great Rates. Great Programs. Great Service.Please note that all information is provided on this web site for informational purposes only, for the exclusive use of licensed mortgage professionals, and not for the general public. This information does not represent an offer or commitment to enter into a loan agreement by Land Home Financial Services Wholesale Division (LHFSW). Not all programs are available in all areas and rates and costs stated do not apply to all loans made. LHFSWs underwriting guidelines and program restrictions apply. Terms and programs listed are subject to change without notice. LHFSW only conducts business in states approved to. LHFSW is a Division of Land Home Financial Services and is an Equal Housing Opportunity Lender. Click here for complete licensing information - Company NMLS #1796.