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An Introduction to Reverse Mortgages

For Professionals

Reverse Mortgages - A Financial Planning Tool

Prepared by MetLife Bank, N.A.

R0211157176[exp0212][All States][DC] For business and professional use only. Not for consumer distribution.

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MetLife Bank, N.A., is registered with the Certified Financial Planner Board of Standards, Inc. as a sponsor of continuing professional education. 'An Introduction to Reverse Mortgages for Professionals ' is currently a registered program with the Board and meets continuing education standards.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

The Certified Financial Planner Board of Standards is not affiliated with MetLife or any of its companies.

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Today’s Agenda

• Reverse Mortgage Industry Overview

• Reverse Mortgage Product Overview

• Reverse Mortgage Product Development

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Industry Overview

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Historical Perspective

FirstFHA-insured

HECM

1989

1991

1993

1997NRMLAIs Founded

2000

Jumbo Reverse Mortgages

HECMs in allstates except(AK, SD & TX)

1994

2001

Counseling Offered by AARP

2009

Record Volumes

Source: National Center for Home Equity Conversion Mortgage (NCHEC)

The industry is relatively young, with the first HECM loan closed in 1989. An industry association, the National Reverse Mortgage Lenders Association (NRMLA), was formed in 1997, and the introduction of independent counseling by AARP, a vested party from early on, occurred in 2002.

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Potential Market for Reverse Mortgages

24 Million households with residents 60 years of age or older

……with less than 2% of eligible households having a reverse mortgage.

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Source: Tapping Home Equity in Retirement: The MetLife Study on the Changing Role of Home Equity and Reverse Mortgages, June 2009

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Product Overview and Analysis

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HECM Products: A Marketplace Overview

• Adjustable Rate HECMS– Rate is adjusted monthly or annually– Offered with a variety of margins– Uses LIBOR or CMT as the index– Often used by borrowers requiring a line of credit

• Fixed Rate HECMS– One rate for the life of the loan– Usually taken as a full draw– Most attractive for borrowers who are rate sensitive or those

paying off a large first mortgage

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HECM Product Basics

• All borrowers must be 62 (minimum age) and a citizen or a legal resident

• All borrowers must be on the deed with limited exceptions such as life estates and trusts

• Primary residences only; owner occupied

• Proceeds are tax-free*

*This presentation does not constitute tax advice; borrowers should consult a tax advisor regarding their situation.

Appraised property value may affect loan amount. All loans are subject to property approval. Certain conditions and fees

may apply.

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HECM Product Basics (cont’d)

• Loan Amount is Subject to FHA 203b limit (national limit of $625,500 for 2010)

• All borrowers must receive independent counseling; lender must provide a list of FHA HUD-Approved counseling agencies to borrower

• No income or credit score qualifications; income and assets on HECM for Purchase transactions may be reviewed

• HECM must be in a first-lien position

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HECM Proceeds: Payment Plan Options

Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

Term - equal monthly payments for a fixed period of months selected.

Line of Credit - unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.

Modified Tenure - combination of line of credit plus scheduled monthly payments for as long as you remain in the home.

Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

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HECM Property Eligibility

• Eligible Properties– Single family – 2-4 units, as long as one unit is the borrower’s primary residence

(not eligible for HECM for Purchase at MetLife Bank)– Condominiums and PUDs– Manufactured Homes meeting FHA Guidelines

• Non-Eligible Properties– Investment properties– Vacation homes– Properties with illegal accessories; units or mixed use properties

where more than 25% is used for non-residential purposes

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Consumer Protection

Mandatory borrower counseling

• HUD-approved counseling agencies for all HECM borrowers with HUD- mandated curriculum and protocols

• Lenders cannot order services until counseling has been completed

• HUD maintains a national roster of approved counselors

• HUD counseling rules focused on anti-steering (e.g., lenders must provide approved counselor lists to consumers)

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HECM Counseling Topics

• Options other than a HECM

• Financial implications of a HECM

• Advantages and disadvantages of a HECM

• Alternatives and options regarding each payment plan

• Explain the typical costs required to obtain a loan

• Disclosure information

• Mandatory budgeting for borrowers whose monthly income is less than 200% of the poverty limit. ($1,805 FOR ONE PERSON; $2,428.33 FOR TWO PERSONS)

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HECM NET Principal Limit

• Principal Limit minus

- Upfront Mortgage Insurance Premium (if applicable)

- Lender’s Origination Fee (if applicable)

- “Other” closing costs (appraisal, title insurance, etc)

- Servicing Fee set-aside (if applicable)

- Mortgage and other lien payoffs

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HECM Costs: Mortgage Insurance Premium

• Mortgage Insurance Premium (MIP) insures cross-over risk, should the loan balance exceed the value of the property*

• MIP protects both borrower and lender- Non-recourse to the borrower- Lender is assured of repayment if cross-over occurs- HECM Standard: Premiums are charged to the borrower (and

almost always financed) as an upfront premium, currently set by HUD at 2% of Maximum Claim Amount plus 1.25% annualized charged monthly against the loan balance

- HECM Saver: Upfront MIP is drastically reduced to .01%, plus 1.25% annualized charged monthly against the loan balance

*If the sale proceeds are insufficient to pay the amount owed when the loan becomes due, HUD will pay the lender the amount

of the shortfall, provided that the sale is an arm’s length transaction in accordance with HUD guidelines.

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Reverse Mortgage Facts

• The Bank will NOT take title to the property in exchange for lending money to the borrower

• There is NO income qualification

• The homeowners remain responsible for property taxes, homeowner’s insurance, and maintenance of the home, but there are NO required monthly payments (interest and MIP accrues on the portion of the loan amount disbursed)

• Government benefits, such as Social Security and Medicare, generally will NOT be affected (needs-based benefits, such as Medicaid and Supplemental Security Income (SSI), may be impacted. Borrowers should consult their personal representative.

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Latest Product Development

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HECM Saver

• In 2010, a consortium of lenders assembled to re-engineer the HECM loan program in an effort to address varying consumer needs

• On October 4, The Federal Housing Administration (FHA) launched a new product that was engineered by the consortium—HECM Saver

• Required up-front costs are greatly reduced as compared to HECM Standard—this may save the average reverse mortgage borrower thousands of dollars, depending on the home’s value

• Maximum amount of money (The Principal Limit) that can be borrowed is less than with a HECM Standard, but the lower up-front costs may make it an attractive option for many clients

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HECM for Purchase

• A HECM for Purchase enables senior homebuyers age 62 or older to purchase a new home without taking on monthly mortgage payments*

• Reverse mortgage customers receive title to their new home and cannot owe more than the value of their home, provided they comply with loan terms..

• The sale of a departure home is a completely separate transaction from the purchase and reverse mortgage for new home.

• The reverse mortgage is utilized on the new primary residence

• Reverse mortgage proceeds will be calculated based on the youngest homebuyer’s age and the lower of either the new home’s sale price, appraised value or the national HECM lending limit

• All of the normal costs associated with selling and buying property apply as well as the normal reverse mortgage fees

*Although there are no monthly mortgage payments, interest and on-going MIP accrues on the portion of the loan amount disbursed. Onlyapplicable for the purchase of a single family unit dwelling to be occupied as a principal residence. Program, rates, fees, terms and conditions arenot available in all states and subject to change.

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Product Evolution – Addressing Structural Flaws

Sept. 30, 2009 Oct. 1, 2009 April 1, 2010 Oct. 4, 2010

Home Value(72 yr old Borrower)

$400,000 $400,000 $400,000 $400,000

Principal Limit $282,400 $254,000 $254,000 $ 221,600

MIP $8,000 $8,000 $8,000 $0

3rd Party Closing Costs $3,000 $3,000 $3,000 $2,500

Origination Fee $6,000 $6,000 $0 $0

Total Upfront Fees $17,000 $17,000 $11,000 $2,500

Servicing Fee Set Aside

$4,872 $4,872 $0 $0

Net to Borrower $260,528 $232,128 $243,000 $219,100*This slide is for illustrative purposes only and does not represent an actual loan.