What’s New with Reverse Mortgages?

LTC Briefing on Housing & LTCSt. Paul, MN

August 6, 2004

Reverse Mortgages: The Right Choice for Some

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 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

Property Tax Deferral/Relief Deferred Payment Loans for Home

Repairs/Improvements Sale Leaseback Transactions Remainder Interest Plans

3 Types of Reverse Mortgages Single Purpose: Home Repairs/Prop Taxes

Income Based; Limited Uses; Lower Cost Sponsored by Non-Profits/Local Governments

Federally Insured by HUD 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

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

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)

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 $150,000 Home $300,000 Home

Youngest Tenure or LOC Tenure or LOC Borrower

65 $ 444 $ 74,260 $ 677 $ 113,199

75 $ 599 $ 89,580 $ 906 $ 135,493

85 $ 917 $ 106,211 $ 1378 $ 159,493

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 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

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 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!”

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

Counseling Required by Law Independent Non-Profit/Public

Agencies Better Understand Transaction and

Alternatives Protection of Non-Recourse Limit

Never Owe More Than House is Worth Truth-in-Lending Disclosure Rules

Total Annual Loan Cost (TALC) Rate

Importance of Counseling

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

Local Program or Service May Be Faster and Cost Less VERY Expensive Way to Borrow

MoneyShort Term, Especially If Not Much Principal Drawn Down In That Period

Consumers Must Do Their HomeworkBefore Making Any Decision

Caution: RM Generates “New” Cash for Vulnerable

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 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

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

National Center for Home Equity Conversion in St. Paul, MN www.reverse.org Ken Scholen, Author of Home Made

Money and webmaster, teleworks at AARP

Telephone: 651-222-6775 EMail: SCHOLEN@aol.com

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: bbelling@aarp.org

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: mschindl@gw.stcdio.org