Webinar Instructions

1. Webinar Instructions • You will need to call the conference call number to hear the webinar audio. This is a long distance call and the number has changed! The conference call number is (712) 775-7100 and participant access code is 572340#. • Once you have called in please press *6 to mute your phone. Thank you. • We will begin momentarily and thank you for you patience

2. Home Equity Conversion Mortgage Counselor Exam Preparation Webinar Trainings Two Part Series, Part 1 of 2April 25, 2008

3. HECM Exam • These webinar trainings are meant to prepare housing counselors for the AARP Reverse Equity Mortgage Exam. • However, these webinar trainings should not be seen as all inclusive, and you may need to study additionally on your own to prepare for the exam. • If you do not plan on taking the exam, these webinar trainings will provide you will an introduction to reverse equity mortgages, how they work, and how they compare to other options for homeowners.

4. Supplemental Training Materials • Whether you plan to take the test or not, there are several documents we recommend you download and review, (all documents are available at (www.hecmexam.org/guide_study_materials.cfm): • AARP’s Consumer Guide to Reverse Mortgages “Home Made Money” (46 pages) • HECM Training Manual (146 pages) • HUD Handbook 4235.1 REV-1 • HECM Mortgagee Letters, Regulations, and Statue • Technical Topics • HECM Software

5. Agenda • Welcome and Introductions • Introduction to Reverse Mortgages • QUESTIONS AND ANSWERS • Common Features of Reverse Mortgages • QUESTIONS AND ANSWERS • Home Equity Conversion Mortgages • QUESTIONS AND ANSWERS • Other Reverse Mortgage Choices • QUESTIONS AND ANSWERS • Alternatives to Reverse Mortgages • Adjourn

6. Introduction to Reverse Mortgages

7. Three Ways to Get Cash From a Home • You can sell your home; • You could borrow against your home equity; or • You can not leave your home and not make regular loan repayments.

8. What is a Reverse Mortgage? • A non-recourse loan against home equity providing cash advances to a borrower and requiring no repayment until a future time.

9. Who is Eligible For HECM and Most Reverse Mortgages? • The borrower must be 62 years of age or older; • Live in an eligible property; and • Property must be primary residence.

10. How Do You Get Cash From a Reverse Mortgage? • The cash received from a reverse mortgage can be paid out several ways: • All at once, as a lump sum of cash; • As a regular monthly cash advance; • As a credit line; or • As a combination of these payment methods.

11. When is the Reverse Mortgage Paid? • Typically the borrower will not have to repay the loan until: • Borrower sells their home; • Permanently moves out of their home; or • Borrower dies.

12. Forward Versus Reverse Mortgage Forward Mortgage Reverse Mortgage

13. What if the Loan Balance is Greater Than the Home’s Value? • Does the borrower or their heirs have pay the difference? • Does the lender take a loss?

14. QUESTIONS AND ANSWERS

15. Common Features of Reverse Mortgages

16. Common Features • Homeownership; • Financing Fees; • Loan Amounts; • Debt Payoff; • Debt Limit; • Repayment; and • Canceling the Deal.

17. Loan Amounts • Within each loan program, the cash amounts the borrower can get will depend on borrower’s age and the home’s value. • In general: • The older the borrower is, the more cash they will be able to get; and • The more the home is worth, the more cash a borrower can get.

18. Debt Payoff • If a borrower owes money on their home, they generally must do one of two things: • Pay off the debt before they get a reverse mortgage; or • Pay off debt with money the borrower receives from the reverse mortgage.

19. Repayment • Loan repayment is due when the borrower: Sells their home; Permanently moves out of their home; or Borrower dies. • Lenders can also require repayment if borrower: • Fails to pay their property taxes; • Fails to maintain and repair their home; or • Fails to keep home insured. • Acceleration Clauses

20. Canceling the Deal • After closing, borrowers have 3 “business” days to cancel the deal. • Right of recession must be submitted in writing. • Borrower cannot rescind deal verbally by phone or in person.

21. Total Annual Loan Cost (TALC) • Single annual average rate • Useful when comparing one type of reverse mortgage to another • TALC disclosures reveal the true cost of reverse mortgage • An explanation of how TALC rates are calculated can be found on the internet at www.reverse.org/talctuto.htm/.

22. TALC Shortcomings • Lenders are to assume that all borrowers will request one half of their credit line at closing and none thereafter. • Lenders are to assume that the initial interest rate charged on the reverse mortgage will never change. • Also TALC does not address: • the total amount of cash borrower gets from the loan; and • the amount of equity you or your heirs get to keep at the end of the loan.

23. QUESTIONS AND ANSWERS

24. Types of Reverse Mortgages • Home Equity Conversion Mortgages • Deferred Payment Loans • Property Tax Deferral • Proprietary Reverse Mortgages

25. Home Equity Conversion Mortgages

26. Home Equity Conversion Mortgage (HECM) • Established in 1987 • Insured by the federal government • Generally provides the largest loan advances of any reverse mortgage • Limits loan costs • FHA guarantees lenders will meet their obligations • Requires consumer counseling

27. HECM Eligibility • To be eligible for a HECM loan: • Must be aged 62 or over, live in your home as a principal residence, and not be delinquent on any federal debt; • Home must be eligible property type; • Home must be at least one year old and meet HUD’s minimum property standards; and • Consumer must discuss the program with a counselor from a HUD-approved counseling agency.

28. Consumer Eligibility • Must be age 62 or older • Must be an owner • Home must be primary residence • A borrower can be rejected for the following reasons: • Delinquent federal debt; • Suspensions and debarments; and • Credit Alert Interactive Voice Response System.

29. Eligible Properties • Single-family residence in a 1- to 4-unit residential properties including: • condominiums; • planned unit development (PUD); and • manufactured homes.

30. Ineligible Properties • Units in cooperative housing developments are not eligible. • Properties may also be deemed ineligible on a case by case basis, based on condition, zoning, and other factors.

31. Miscellaneous Property Issues • Zoning • Excess Land

32. Appraisal, Repair, and Property Insurance Requirements • FHA requires an appraisal report on the subject property, completed by an FHA approved appraiser • Must make required repairs to get a reverse mortgage

33. HUD’s Property Standards • Required Repairs needed to meet minimum HUD’s health and safety standards certain items include: • Roof • Windows • Furnace • Electric Wiring • Items not included as required are: • Paint • Clutter

34. HUD Counseling Requirements • To be eligible for a HECM, a borrower must receive counseling from a HUD-approved counseling agency. • The counseling agency issues a certificate to the homeowner certifying that the homeowner has received counseling. • The homeowner then must submit the certificate to the lender for submission to HUD.

35. HECM Benefits • You can take all of your loan as: • a single lump sum of cash; or as • a “credit line” account of a specific dollar amount that you control; or as • a monthly cash advance for a specific period of time, or for as long as you live in your home.

36. HECM Loan Amounts and Limits • The amount of cash you can get from a HECM loan depends on homeowner’s age, current interest rates, and the home’s value. • However, the home value is subject to limits that vary by county, as defined in Section 203b of the National Housing Act. • Also depends on how much the homeowner wants to be paid

37. Lump Sums and Credit Lines

38. Credit Line Growth • The amount of cash available to the homeowner grows over time • The rate at which the credit line grows each month equals the current interest rate being charged on the loan plus one-half of one percentage point, divided by twelve. • So if the interest rate this month is 5.5%, your credit line would grow by 0.5% (5.5% + 0.5% =6%/12 = 0.5%).

39. Credit Line Growth with a Monthly Advance • A monthly loan advance does not increase or decrease in dollar amount over time. So it will buy less in the future as prices increase with inflation. • You can choose to have monthly HECM advances paid to you: • for a specific number of years that you select (a “term” plan); or • for as long as you live in your home (a “tenure” plan).

40. Credit Line Growth with a Monthly Advance

41. HECM Repayment • As with most reverse mortgages, you must repay a HECM loan in full when the last surviving borrower dies or sells the home. • It also may become due and payable if: • you allow the property to deteriorate, except for reasonable wear and tear, and you fail to correct the problem; or • all borrowers permanently move to a new principal residence; or • due to physical or mental illness, the last surviving borrower fails to live in the home for 12 months in a row; • you fail to pay property taxes or hazard insurance, or violate any other borrower obligation.

42. HECM Costs • Origination fee • 3rd-Party Closing Costs • Mortgage Insurance Premium • Servicing Fee

43. Interest Rates • HECM program regulations require that lenders must offer an annually adjustable rate tied to the current one-year U.S. Treasury Security rate. This means that the rate charged on your loan can change once each year. But any change in this rate: • must be the same change (increase or decrease) that occurred in the one year Treasury rate; • is subject to a limit or “cap” of 2 percentage points per year and 5 total points over the life of the loan.

44. Model Specifications • Created in 2000 • AARP’s model specifications provide a set of rules for estimating how much of your home’s value will have been turned into each of these three things at various future times. • They also estimate a total annual average loan cost for each of these future times. • The specifications permit all of these estimates to be based on the credit line advances and a future interest rate that you select. • You can also choose the rate at which you expect your home’s value will grow.

45. QUESTIONS AND ANSWERS

46. Other Reverse Mortgage Choices

47. Deferred Payment Loans (DPLs) • Many local and state governments offer DPLs for repairing or improving your home. • One-time lump sum advance • Usually no repayment is required for as long as you live in the home • Eligibility criteria may be restrictive

48. Property Tax Deferral (PTD) Loans • Only some states and local governments offer these loans • Provide annual loan advances to pay property taxes • The amount you can borrow over the life of a PTD loan is limited • Usually not repayment is required for as long as you live in the home • Eligibility criteria varies greatly

49. Other Public Loans • State housing finance agencies in Connecticut and Montana offer specialized reverse mortgage loans. • These plans provide limited lump sum advances, plus monthly advances that stop after a fixed period of time.

50. Proprietary Reverse Mortgages • Usually most expensive type of reverse mortgage • Might provide larger cash advances than a HECM • Generally offered by banks, mortgage companies, and other private lenders • Backed by private companies that develop them