Using Reverse Mortgages to Fund Longevity Operations & Technology Using Reverse Mortgages to Fund Longevity Michael Banner National Education Director Security One Lending American C.E. Institute

Single Family Homes up to 4 units Clients With Existing Mortgages Who Is Eligible? Clients over age 62 Principal residences Single Family Homes up to 4 units Clients With Existing Mortgages

Flexible Payout Options Lump sum, all at once Line of Credit Payment for Life (Tenure) Term payments Combination of the above

What Are The Borrower’s Responsibilities? Keep taxes current Homeowner’s Insurance Maintain the property

Myths vs. Reality 1 - Who Retains Title to the Home? The clients (s) always retain the title to the home 2 - Remaining Equity Goes? To the heirs, estate or where ever directed 3 - Loan Repayment? The reverse mortgage is a non recourse residential loan

2010 Saw the Retooling of the Reverse Mortgage: Closing Costs 2010 Saw the Retooling of the Reverse Mortgage: April 2010 – closing costs were decreased greatly thus removing the #1 obstacle advisors had with the product Oct 2010 – The Introduction of a totally New Reverse Mortgage – The HECM Saver- Designed for the upper income borrower

But they do not define those safeguards. We are those safe guards! Cross Selling * Contrary to what most believe Cross Selling IS NOT against the law! (Never has been) Section 2122 of HERA clearly states that safeguards and firewalls must be in place to protect the seniors But they do not define those safeguards. We are those safe guards!

Example - $625,500 Market Value Mr. and Mrs. Borrower, Ages 68 and 70 Principal Limit: $625,500 Loan Amount: $ 293,985 Upfront Cash Draw: $25,000 CASH $125,000 to payoff mortgage Monthly Income: 10 year Term: $992.81 / month for ten years Plus we eliminated monthly mtg. payment of $1,155.00. Net Result- Monthly disposable income increased - $2,147.81! 8

The New Purchase Reverse Mortgage Joe & Mary are Purchasing a Home (75 years old) The Old Way Sell previous home for $400,000 Uses Proceeds to purchase New Home $400,000 The Reverse Mortgage Way Down Payment $154,089 Secures reverse mortgage $245,911 Extra money for retirement savings! RESULT - $245,911 in extra liquidity! 9

$302,724 goes into Joe’s Savings Account Downsizing Example Joe is 74 years old Joe Sells Home. -Sells home for $400,000. -Downsizing to new home. -Wants NO mortgage payments Joe Buys New Home -Purchase price is $250,000 -Qualifies for a Reverse Mortgage. -Joe’s down payment is $97,276* *Bases on rates from 4-20-10 RESULT $302,724 goes into Joe’s Savings Account Joe enhances life style! Lives in new home without a mortgage payment!

Proper Position Concerning Financial Products Funds are not to be used for the intention of funding investments! Funds should only be utilized to improve clients present financial situation which may or may not include: Provide Supplemental Retirement Income Enhanced Retirement Lifestyle Purchase Long Term Care Insurance Purchase Life Insurance Protect Estate

Reverse Mortgage to LTCi Not just another “pocket” from which to pay LTCi premiums Strategy must fit overall financial, retirement and LTC plans Must look at total cost of the mortgage in the plan Consider a smaller/shorter base of LTCi with a reverse mortgage as a future back up

Using a Reverse Mortgage for LTC Barbara Stucki, Ph.D. Vice President, NCOA Home Equity Initiatives ILTCI Meeting Las Vegas, March 2012 13

Educating Seniors About Reverse Mortgages Role of the National Council on Aging HUD-approved Reverse Mortgage Counseling Intermediary – 57 RM counselors at 21 social service agencies nationwide. Policy research – NRMLA, MetLife Mature Market Institute, HUD, CFPB. The counseling session covers: An overview of reverse mortgages and their features. The amount of money that may be available and loan costs. Other housing, services, and financial options. Using RMs for LTCI or financial investments – RED FLAG. NCOA developed the Financial Interview Tool (FIT) Review client’s financial goals, debt, and budget. Ask about health status, limits with activities, home barriers. NCOA is the repository for mandated FIT review data – 100,000+ cases. 14

Shifting Reasons for Tapping Home Equity Reason for Considering a RM FIT Review 2010 AARP Survey 2006 Enhance quality of life 27% 70% Plan ahead for emergencies 23% 73% Pay off debt 67% NA Pay off mortgage 34% Pay off non-mortgage debt Increase income 33% 46% 15

Characteristics of RM Counseling Clients, 2010 Median age = 70. Proportion married = 43%. Median annual income= $26, 724. Median home value = $200,000. Own home free and clear = 60%. Median net home equity = $147,000. Source: NCOA analysis of data from 21,079 FIT reports, from September to November 2010 16

Health Status of RM Counseling Clients, by Age Percent 17

Income by Age Among RM Counseling Clients Age of Youngest Potential Borrower Annual Household Income 18

Net Home Equity by Income – Counseling Clients Annual Household Income Net Home Equity (Home Value Minus Debt) 19

LTCI Can Protect Home Equity Amount of Remaining Equity For illustrative purposes only $600 monthly from a RM to supplement LTCI $2,000 per month RM out-of-pocket for LTC 20

Financial Issues for Long-Term Borrowers Need to pay LTCI premiums using RM for many years or lapse. Borrowers must continue to pay property taxes, hazard insurance and maintain the home to avoid foreclosure. Borrowers can continue to keep their RM only as long as they continue to live in their current house. When the borrower moves, the loan must be repaid. Single borrower must repay the loan if they stay in a nursing home for 12+ months. May get stuck in an unsafe or isolated home - can increase LTC risks. May not be able to afford or maintain the home with age. Paying compound interest on the loan for many years may: Leave little equity to fund a move to another home. Leave little equity to support a spouse. 21

Vice President, Home Equity Initiatives National Council on Aging Barbara R. Stucki, Ph.D. Vice President, Home Equity Initiatives National Council on Aging barb.stucki@ncoa.org 541-322-5610 22