Gaining the knowledge Reverse Mortgage Basics Provided by BNC Bank Mortgage

The History  A.A.R.P lobbied congress in the early 80’s for a program that would give seniors a way to convert equity from the home to improve the quality of life the Department of Housing and Urban Development began to administer the Home Equity Conversion Mortgage the Department of Housing and Urban Development began to administer the Home Equity Conversion Mortgage. Insured by the Federal Housing Authority Insured by the Federal Housing Authority

Types of Reverse Mortgages H.E.C.M FIXED RATE– loan fixed for life; currently offering the borrower the most cash. However, all available funds must be taken at closing H.E.C.M FIXED RATE– loan fixed for life; currently offering the borrower the most cash. However, all available funds must be taken at closing H.E.C.M monthly adjustable – Different payment options like line of Credit or monthly payments. Based on the 1-month LIBOR plus margin. H.E.C.M monthly adjustable – Different payment options like line of Credit or monthly payments. Based on the 1-month LIBOR plus margin. HECM Saver in both fixed or adjustable: Lower LTV in exchange for lower up-front costs. HECM Saver in both fixed or adjustable: Lower LTV in exchange for lower up-front costs.

How it Works No repayment as long as the home is used as the primary residence by the homeowner. No repayment as long as the home is used as the primary residence by the homeowner. No income requirements No income requirements No credit score requirements No credit score requirements Qualifications are based on Home Value, Age, and current interest rates ONLY. Qualifications are based on Home Value, Age, and current interest rates ONLY. Borrowers MUST continue to pay property tax and insurance Borrowers MUST continue to pay property tax and insurance

How it works continued… This is a deferred interest loan. While the customer is not required to make a monthly payment, interest will accumulate each month. Customer can make payments. This is a deferred interest loan. While the customer is not required to make a monthly payment, interest will accumulate each month. Customer can make payments. Beneficiaries have 12 months to sell or refinance the property. Beneficiaries have 12 months to sell or refinance the property. Non-recourse loan, so borrowers and beneficiaries never owe more than the home is worth Non-recourse loan, so borrowers and beneficiaries never owe more than the home is worth

Who Qualifies? All parties on the Deed of Trust that are at least 62 years or older. All parties on the Deed of Trust that are at least 62 years or older. Must have a Social Security number and be able to prove date of birth. Must have a Social Security number and be able to prove date of birth. Borrowers must live in the home as their primary residence. Borrowers must live in the home as their primary residence. Must attend Counseling Must attend Counseling

Types of Properties Single family, Single family, Owner-occupied two, three and four unit complexes Owner-occupied two, three and four unit complexes Townhouses and condominiums Townhouses and condominiums Mobile and manufactured homes, on permanent foundations, including condominiums Mobile and manufactured homes, on permanent foundations, including condominiums PUDs PUDs

Calculations Based on the age of the youngest borrower. Based on the age of the youngest borrower. Current interest rates Current interest rates Value of the property, or the FHA reverse mortgage limit of $625,500, whichever is lower Value of the property, or the FHA reverse mortgage limit of $625,500, whichever is lower

Distribution Options Lump Sum Lump Sum All monies taken at closing. All monies taken at closing. Mandatory on the fixed rate HECM Mandatory on the fixed rate HECM Line of Credit Line of Credit Unused portion does not accrue interest Unused portion does not accrue interest Unused portion grows Unused portion grows Term Payment Term Payment Set payment for a certain number of months Set payment for a certain number of months Tenure Payment Tenure Payment Set payment for the life of the loan Set payment for the life of the loan Any combination of the above Any combination of the above

Tax Consequences The Reverse Mortgage by itself has no direct tax consequence because it is a loan The Reverse Mortgage by itself has no direct tax consequence because it is a loan If the funds are reinvested, any interest earned could have tax consequences If the funds are reinvested, any interest earned could have tax consequences The client will need to consult a CPA to determine tax liability of each investment The client will need to consult a CPA to determine tax liability of each investment

Fees 100% of fees can be financed into the loan Origination fee – (WAIVED by BNC) Origination fee – (WAIVED by BNC) 2% of the first $200K of the home value 2% of the first $200K of the home value 1% of the value above $200K 1% of the value above $200K $2,500 minimum; $6,000 maximum $2,500 minimum; $6,000 maximum F.H.A. mortgage insurance – 2% of the home value plus 1.25% of the principal loan amount monthly. F.H.A. mortgage insurance – 2% of the home value plus 1.25% of the principal loan amount monthly. Standard third party closing costs Standard third party closing costs Service Set aside Fee – (WAIVED by BNC) Service Set aside Fee – (WAIVED by BNC)

Repair Set Aside Allows the lender to hold a portion of the proceeds from the closing to insure the borrower completes the necessary repairs if needed. Borrower usually has 6 months to complete. Allows the lender to hold a portion of the proceeds from the closing to insure the borrower completes the necessary repairs if needed. Borrower usually has 6 months to complete.

HECM Purchase Like a normal HECM Re-fi, the principle limit will be calculated based off of the age of the youngest borrower, the current interest rates, and the lowest of the appraised value, sales price or lending limit. Like a normal HECM Re-fi, the principle limit will be calculated based off of the age of the youngest borrower, the current interest rates, and the lowest of the appraised value, sales price or lending limit. Proof of funds to close. The following are not acceptable: grants, seller contributions or secondary financing. All Retirement funds must be liquid. Proof of funds to close. The following are not acceptable: grants, seller contributions or secondary financing. All Retirement funds must be liquid. Any repairs that are required by FHA guideline must be performed before closing. Seller is responsible for ALL repair costs. Any repairs that are required by FHA guideline must be performed before closing. Seller is responsible for ALL repair costs. The borrower must occupy property within 60 days of closing. The borrower must occupy property within 60 days of closing.

HECM Purchase cont. Documentation requirements (not limited to): Fully Executed Sales Contract Fully Executed Sales Contract Amendatory Clause (can be an addendum to sales contract and must be dated on or before the contract date) Amendatory Clause (can be an addendum to sales contract and must be dated on or before the contract date) Property Condition Disclosure (completed by seller) Property Condition Disclosure (completed by seller) Application Documents (found in Reverse Vision application) Escape Clause Escape Clause Lead-based paint seller’s disclosure Lead-based paint seller’s disclosure For your protection get a home inspection For your protection get a home inspection Important Notice to Homebuyers – 92900B Important Notice to Homebuyers – 92900B Real Estate Certification Real Estate Certification

The Process Gather borrowers info, create a specific proposal of options/scenarios to fit their needs. Gather borrowers info, create a specific proposal of options/scenarios to fit their needs. Borrower attends HUD approved counseling, and obtains certificate Borrower attends HUD approved counseling, and obtains certificate Take application (1009) Take application (1009) Pull case number, and run verifications: LDP, CAIVRS and EPLS Pull case number, and run verifications: LDP, CAIVRS and EPLS

The Process continued Order Appraisal, Title, Flood, and credit. Remember, the borrowers cannot incur any costs until they attend counseling. Order Appraisal, Title, Flood, and credit. Remember, the borrowers cannot incur any costs until they attend counseling. Upload file for underwriting Upload file for underwriting Loan is set to close Loan is set to close Loan funds after 3 – day rescission period Loan funds after 3 – day rescission period IT’S THAT SIMPLE….. IT’S THAT SIMPLE…..

Reverse Mortgage Example #1 Current Situation Current Situation Mrs. Smith has a home worth 150,000 and has a current mortgage for 58,000 with a payment of Mrs. Smith also has some credit card debt for 12,000 and would like to do some minor home repairs. Mrs. Smith does not want to do a traditional mortgage because she has been late on many house payments and her credit is in the low 500’s. At the current rate and payments she has been offered she would not be able to afford the refinance with her limited monthly income. Mrs. Smith has a home worth 150,000 and has a current mortgage for 58,000 with a payment of Mrs. Smith also has some credit card debt for 12,000 and would like to do some minor home repairs. Mrs. Smith does not want to do a traditional mortgage because she has been late on many house payments and her credit is in the low 500’s. At the current rate and payments she has been offered she would not be able to afford the refinance with her limited monthly income. New Situation New Situation With a Reverse Mortgage Mrs. Smith was able to qualify for 85,000. She was able to pay off her mortgage, all her credit card debt, do 2,000 in home repairs and still put 13,000 in the bank for emergency purposes. Best of all she never has to make a payment so she does not have to worry about getting foreclosed on. Not only does Mrs. Smith have the 13,000 she no longer has to make a house or credit card payment and is able to save an additional a month!!! With a Reverse Mortgage Mrs. Smith was able to qualify for 85,000. She was able to pay off her mortgage, all her credit card debt, do 2,000 in home repairs and still put 13,000 in the bank for emergency purposes. Best of all she never has to make a payment so she does not have to worry about getting foreclosed on. Not only does Mrs. Smith have the 13,000 she no longer has to make a house or credit card payment and is able to save an additional a month!!!

Reverse Mortgage Example #2 Purchase with a REVERSE Mortgage…… Purchase with a REVERSE Mortgage…… Mrs. Smith is 72 and owns a home worth 250,000 with a current mortgage for 108,000. She is going to sell her home and net 117,000 in proceeds. Mrs. Smith is 72 and owns a home worth 250,000 with a current mortgage for 108,000. She is going to sell her home and net 117,000 in proceeds. She needs to find a realtor to help find a new home in the price range of 117,000. She needs to find a realtor to help find a new home in the price range of 117,000. Options available for Mrs. Smith Options available for Mrs. Smith Find a house in the same area for $117,000 cash deal. Find a house in the same area for $117,000 cash deal. Find a house in the same area for $ 325,000 and use a reverse mortgage to purchase with no monthly payment. Find a house in the same area for $ 325,000 and use a reverse mortgage to purchase with no monthly payment. Find a house in the same area for $150,000 and use a reverse mortgage to purchase with no monthly payment AND keep $63,000 in the bank… Find a house in the same area for $150,000 and use a reverse mortgage to purchase with no monthly payment AND keep $63,000 in the bank…

The Potential Market Today, more than 34 million Americans are over age 65. By 2030 they will be almost 70 million to represent 20 percent of the population (Census Bureau) Today, more than 34 million Americans are over age 65. By 2030 they will be almost 70 million to represent 20 percent of the population (Census Bureau) There is an estimated 3 trillion in home equity in properties owned by seniors; of the potential market only 2% market penetration has occurred There is an estimated 3 trillion in home equity in properties owned by seniors; of the potential market only 2% market penetration has occurred 85% of senior homeowners want to remain in their home for the rest of their life 85% of senior homeowners want to remain in their home for the rest of their life Only 64% of retired Americans say they are financially prepared for retirement (Sun Life Financial survey, 2007) Only 64% of retired Americans say they are financially prepared for retirement (Sun Life Financial survey, 2007) Reverse mortgages are no longer just an option of last resort for poor seniors; they are also a strategic tool for retirement income planning, long-term healthcare, and estate planning Reverse mortgages are no longer just an option of last resort for poor seniors; they are also a strategic tool for retirement income planning, long-term healthcare, and estate planning Reverse Mortgages are BOOMING!!!! It’s a Guaranteed way to increase your income. GET STARTED TODAY Reverse Mortgages are BOOMING!!!! It’s a Guaranteed way to increase your income. GET STARTED TODAY

Reverse Mortgage Specialist David Neff SC Office: NC Office: x Toll Free: x