HECM for Purchase Third Party Origination

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1 HECM for Purchase Third Party Origination September 2012 This information is only intended for mortgage professionals

2 AGENDA Review HECM for Purchase (H4P) Basics Identify the H4P Market Discuss H4P Logistics Reverse Vision Application Process Unique H4P Characteristics Building a Referral Network 2

3 H4P BASICS Same products, limits, LTVs, and rates as a traditional HECM Investment required from borrower (s) Owner occupied, primary residences Multi-family properties not allowed by S1L Great product for borrowers who: Are downsizing, moving to one level, or need handicapped accessibility Want to be closer to kids or grandchildren Moving to a 50+ community Want to purchase a new home without having a monthly payment 3

4 H4P: A BRIEF HISTORY The first reverse purchase loans were done using Fannie Mae s HomeKeeper product, which is no longer offered. H4P was implemented with Mortgagee Letter 08-33, effective January 1, It allows older Americans to purchase their primary residence using proceeds from a HECM. 4

5 H4P TERMINOLOGY Maximum Claim Amount (MCA): Single family limit apply to all property types. Max Claim is set by FHA and is currently at $625,500 Nationwide. For example, if the home is appraised at $400,000, but the sale price is $375,000, the MCA would be $375,000. Expected Rate: The rate used in determining the Principal Limit. Initial Rate: Also known as Note Rate or Applied rate, the rate charged on the loan balance. Principal Limit: Determined by borrower s age, max claim, and expected rate. Seller s Concessions: No seller concessions are allowed on HECM Purchase transactions. Closing costs typically paid by the seller (based on the market) will be reviewed on a case-by-case basis. Earnest Money: The money that the borrower paid the seller or seller s attorney. 5

6 H4P: CALCULATING PROCEEDS The Principal Limit is calculated using 3 factors: Youngest Borrower s Age - The older the borrower is, the higher the amount of proceeds Property Value Up to FHA s Max. Claim Amount Expected Interest Rate The lower the expected rate, the greater the proceeds. The Principal Limit is the total amount of funds available for the borrower(s) based on age and value of property. The Adjusted Principal Limit is now the same as the Principal Limit. The Remaining Principal Limit is the Principal Limit minus fees and closing costs. The Available Principal Limit is the amount of cash available from the Remaining Principal Limit after subtracting the total liens to be paid, repairs to be made (if there s a set aside) and taxes to be collected (if owed). This is the final balance that the borrowers can draw from the reverse mortgage, depending on the program they choose. The dollar amount less fees and closing costs are subtracted is referred to the Net Principal Limit. Reverse mortgages do not have LTVs, the borrower s age and the value of the property are the biggest factors when determiningthe PrincipalLimit. 6

7 PROCEEDS A 72 year old borrower, buying a house appraised at $400,000 would receive $256,367* from H4P proceeds. The borrower would need an investment of $143,633. They would not be required to make monthly principal or interest payments for as long as they lived in the home! *Proceeds will vary depending on property state, product selection and other factors. 7

8 THE MARKET According to a study by Reverse Market Insight, approximately 6% senior homeowners relocate annually. If 25% of those borrowers purchase their homes using an H4P, that is 69,000 loans. Consider not only the borrowers using a mortgage, but also the borrowers who want to reserve cash. 23,000,000 Approximate # of senior households in the US X 6% Relocation rate 1,380,000 Approximate # of seniors relocating each year X 20% % of seniors using some type of mortgage to purchase their new primary residence 276,000 8

9 H4P Logistics Reverse Vision, Documentation, and Unique H4P Guidelines

10 REVERSE VISION Reverse Vision provides users with a snapshot of the amount of proceeds that a borrower may be eligible to receive. Enter Sales Price, Property Value, Zip Code, and Borrower s Age to calculate potential proceeds. 10

11 TAKING AN APPLICATION A Certificate of Occupancy must be issued PRIOR to application. This is a HUD restriction and exceptions cannot be granted. HECM Counseling guidelines still apply. The borrower s current address should be listed on the Counseling Certificate, if the new address is know at the time of Counseling that address should be used. Verify all figures on the GFE prior to disclosure. Typically, there are transfer taxes on all purchase transactions that are not automatically added to the GFE in RV. Consult your title company for the exact dollar amount and add the fee. Files where the transfer tax is not disclosed will not be accepted. The address on the1009 should indicate the subject property. Additional documents are required for H4P (see slide 12) Contract of sale must include an Amendatory Clause and FHA RE Certification. Required documentation such as Bank Statements, Contracts of Sale, etc. must be either original or certified true and include all pages. Non-borrowing spouses must have credit run. 11

12 UNIQUE H4P DOCUMENTS Real Estate Certification Amendatory/Escape Clause Important Notice to Homebuyers Additional docs per state regulation 12

13 H4P: ADDITIONAL CONSIDERATIONS Applications CANNOT be taken prior to the issuance of the Certificate of Occupancy. Borrowers with existing FHA financing must satisfy that lien prior to closing their HECM for Purchase. Borrowers must occupy within 60 days of closing Borrower may retain existing home(s), but will be required to provide a Schedule of Real Estate Owned. Income and assets will be verified to ensure sufficient income to support both properties. 13

14 DOWN PAYMENT FUNDS Suitable Cash from sale of departure home (copy of HUD from sale) Withdrawals from retirement accounts (statements required) Savings (2 month bank statements)(large deposits must be sourced) Gifts (FHA Gift Policy) (must be sourced as borrower funds) Unsuitable Seller or builder concessions Credit Card withdrawals/cash advances Bridge loans 14

15 HUD AUDITS 100% PURCHASE FILES Property Flipping/Fraud Red Flags Forbids transactions with a transfer of title 90 days or fewer from contract of sale Credit/ CAIVRS run on non-borrowing spouse with a signed borrower certification All parties to the transaction must undergo LDP/GSA test. Additional audits as each Homeownership Center deems necessary. 15

16 COMMON FAQ s Q. On new construction, when must the Certificate of Occupancy be issued? A. The final Certificate of Occupancy must be issued prior to taking the initial application. This information is posted on the HUD website under the HECM for Purchase FAQ s. Q. Can the seller pay for some of the closing costs for the Reverse Purchase? A. No, all traditional HECM fees must be paid by the borrower (out of proceeds). Any cost labeled as a concession, rebate, incentive, etc. or shows as a credit on the HUD 1 are not allowed. Transactional fees (transfer tax, real estate commissions, title search, etc.) MAY be able to be paid by the seller on a case-bycase basis if they are typical for the market and able to be supported. Contact your Broker Coordinator with your scenario. 16

17 COMMON FAQ s Q. If the borrower s previous home has gone into foreclosure, can the borrower still apply for a Reverse Purchase? A. If the borrower s previous home is currently in foreclosure, the H4P program is not available. Once the foreclosure is complete the borrower has a three year waiting period for FHA, VA or USDA mortgages. Q. Can borrowers get a gift? A. Yes, but gifts of equity or any type of gift from a seller or someone related to the transaction are not allowed. Cousins and in-laws are acceptable family relations for gifts. The FHA Gift Letter should be used to document the gift. Q. How are repairs handled on purchases? A. Repairs must be done prior to closing. 17

18 Building Your Referral Network

19 REFERRAL SOURCES Build a new network of referral sources. EXISTING REFERRAL SOURCES Senior Centers Bankruptcy Lawyers Caregivers Agencies on Aging NEW REFERRAL SOURCES Financial Planners/Advisors Elder Lawyers CPAs Realtors/Builders Banks/Credit Unions 19

20 TALKING POINTS FOR YOUR REALTOR NETWORK List and sell more houses with an FHA product geared to homebuyers 62 years old and older. A new source of purchase money that does not require monthly principal and interest payments. Up sell property and options to seniors who want to right size and upgrade. Increased income by generating two transactions. 20

21 COMMON OBJECTIONS The bank gets the house. This is the way reverse mortgages worked before FHA restructured them in Today homeowners retain ownership and the home will remain part of the estate. The costs are too high. With product and pricing innovations in recent years, rates and costs have come down. Many products are offered with little or no origination fees. Although upfront MIP is still required on some products, the HECM Saver has significantly reduced upfront fees. The kids are stuck with the bill. Actually, HECM loans are non-recourse loans. The home is the only source of repayment, if the loan balance exceeds the value of the home, the FHA mortgage insurance pool will cover the deficit. No deficiency judgment can be taken against either the borrower or their estate. The seniors have to move when the loan is due. Seniors do fear that they might have to move when the loan reaches a certain amount. FHA has addressed this fear by safeguarding the senior and guaranteeing that both seniors can stay in the home as long as they are able. 21

22 SUGGESTED ACTIVITIES Identify REALTORS with a Senior Real Estate (SRES) designation: Identify Builders/Sites that marketing to 55 + Communities: Research senior borrowers at websites such as the Mature Market Institute. MMI is a great source for information about older Americans: Join the local Builders Association: 22

23 RESOURCES Wholesale Lending Guide HECM Purchase FAQs Mortgagee Letters Account Executive and Broker Coordinator 23

24 THANK YOU,

720-206-4539 Mark Allen Schmidt Colorado Mortgage Broker & Educator HECM for Purchase Consultant

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