How To Understand Reverse Mortgages

Transcription

1 General Topics Reverse Mortgages? Everything you ever wanted to know about Reverse Mortgages and their relationship with long term care 1

2 Reverse Mortgages? Producer: Karim Hatata Speakers: Karim Hatata Jim Milano Jim Novack 2

3 Agenda About Reverse Mortgages The Reverse Mortgage Industry Reverse Mortgage g Regulations SAFE Act NRMLA Best Practices Offering Other Financial Services Products History of Reverse Mortgages and Annuities History of Reverse Mortgages and Long Term Care Reverse Mortgages and Other Financial Services Products Reverse Mortgage g Research and Case Studies Session 06: Reverse Mortgages? 3

4 About Reverse Mortgages A Reverse Mortgage ( RM ) is a mortgage loan that allows homeowners to convert equity in their homes into cash; no monthly mortgage payments; payments are made after a maturity event occurs Death of the borrower Failure to occupy the property for 12 consecutive months Sale of the property Prepayment The FHA Home Equity Conversion Mortgage ( HECM ) is the dominant RM product in the US today HECM is regulated and insured by FHA/HUD Borrowers must be 62 years or older to qualify; live in the home as their primary residence; continue to pay property taxes and homeowner s insurance; and maintain the home in good condition HECM program has improved over time by introducing a single national lending limit, expanding uses to include purchase money, and broadening eligible property p types Sold in the secondary market to investors and pooled into Home Equity Conversion Mortgage Backed Securities ( HMBS ) through GNMA Loans are originated by loan originators (loan officers) Retail and wholesale sales channels Session 06: Reverse Mortgages? 4

5 Reverse Mortgage Industry In the US, the 65 and older population will more than double in ~40 years, rising from 39 million in 2009 to 89 million in US Census Bureau International Data Base (June 23, 2009) The National Counsel on the Aging ( NCOA ) examined the opportunities of using RMs to help finance the needs of older Americans - Barbara R. Stucki, Ph.D.: Use Your Home to Stay at Home Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action (January 2005) In 2000 there were more than 27 million households with at least 1 resident over the age of 62 and of those, 21 million own their home Today, an estimated 15 to 20 million households would qualify for a reverse mortgage, representing more than $3 trillion in available home equity HECM program improvements combined with an active secondary market will continue to drive strong demand for HECM loans; global demand for HMBS securities should continue to grow Session 06: Reverse Mortgages? 5

6 Reverse Mortgage Regulations - SAFE Act The Safe and Fair Enforcement ( SAFE ) Licensing Act was part of the Housing and Economic Recovery Act of 2008 ( HERA ) Established minimum requirements for the licensure of mortgage loan originators ( LO ) LO must be licensed in the state where the subject property is located Required all states t to participate i t in the online Nationwide id Mortgage Licensing System & Registry ( NMLS ) Some states made changes effective 7/31/09, but all states were required to have a licensing system in place by 8/1/10 Requirements for LOs All LOs must register on NMLS, complete 20 hrs of pre-license education, pass a federal and state exam, submit fingerprint cards, a credit report, an application and pay a fee for each state where they want to originate loans Eight hours of continuing education, a license renewal application and a renewal fee for each state must be submitted annually Marketing materials (including business cards and websites) must carry license numbers Session 06: Reverse Mortgages? 6

7 Best Practices Offering Other Financial Services Products HUD Mortgagee Letter (9/16/08) referred to the applicable provisions of HERA, that added to the National Housing Act new Sections 255(n)(1) and (n)(2) Additional protections for seniors participating in the HECM program, by barring certain arrangements that may provide incentives for the sale to such seniors of other financial or insurance products that do not meet their need The National Reverse Mortgage Lenders Association ( NRMLA ) is the reverse mortgage g industry trade group that serves as the voice of the industry to policy makers and whose constituents are lenders and borrowers NRMLA Ethics Advisory Opinion added best practices guidance in complying with HUD ML and provided two different potential safeguards Separate Originator i Safeguard: RMs and financial i and insurance products may be offered concurrently by a company, as long as those engaged are appropriately licensed to do so, comply with all applicable legal requirements, and are separate by compensation; the LO and financial advisor should be different Separate Transaction Safeguard: A distinct and separate transaction may be originated by the same appropriately licensed individual as long as: At least seven (7) business days (or longer per state regulations) have expired before the senior is offered any other financial or insurance product, and Disbursement of the proceeds of a reverse mortgage loan is not made directly to the provider of another financial insurance product or in connection with the closing of the reverse mortgage Session 06: Reverse Mortgages? 7

8 History of Reverse Mortgages and Annuities Historically, Reverse Mortgages were Viewed as Annuitizing i Home Equity Some Early Reverse Mortgage Products were Combined with Annuities Ex., Transamerica Life Time Account Litigation in the Late 1990 s Bad Facts Make Bad Law Session 06: Reverse Mortgages? 8

9 History of Reverse Mortgages and Long Term Care Congress Amended the National Housing Act in 2000 to Allow for a Reduced Mortgage Insurance Premium on HECMs if the proceeds were used to purchase certain qualified Long Term Care products Under-utilized, and this provision of the law was repealed in 2008 Session 06: Reverse Mortgages? 9

10 Reverse Mortgages and Other Financial Services Products 2008 Amendment to the National Housing Act also Restricts offering FHA-Insured HECM Reverse Mortgages with Other Financial Services Products (the so-called McCaskill Amendment ) Anti-Affiliation Anti-Tying Session 06: Reverse Mortgages? 10

11 Reverse Mortgages and Other Financial Services Products HUD was tasked with issuing guidance on the McCaskill Amendment However, HUD merely issued a Mortgagee Letter reiterating the Anti-Tying prohibition and providing no guidance on permissible activities to comply with Anti-Affiliation Affili Session 06: Reverse Mortgages? 11

12 Reverse Mortgages and Other Financial Services Products NRMLA Issues Best Practices Guidance for Lenders in the Offering of Other Financial Services Products With Reverse Mortgages Two Primary Safeguards: Separation in Time Separation in Function Session 06: Reverse Mortgages? 12

13 Reverse Mortgages and Other Financial Services Products Approximately One Dozen States Many States also have Statutes or Regulations Limiting or Placing Restrictions on Offering of Other Financial Services Products with Reverse Mortgages Most all of these Laws apply to Lenders and not tthose offering Other Financial i lservices Products However, California Amended its Insurance Laws to apply certain restrictions to those offering Other Financial Services Products Session 06: Reverse Mortgages? 13

14 Reverse Mortgages and Other Financial Services Products Other Considerations: FHA Guidance on Related Fields Federal RESPA State S.A.F.E. Act Related Laws Session 06: Reverse Mortgages? 14

15 Reverse Mortgages and Other Financial Services Products Four Take Aways: Difficult for a Long Term Care Agent to be a Loan Officer Suitability Considerations Connection between een RESPA and State S.A.F.E. Act Related Laws Permissible Methods to be Involved with Reverse Mortgages Session 06: Reverse Mortgages? 15

16 Reverse Mortgage Research and Case Studies Slide 1 What is the National Retirement Risk Index? The National Retirement Risk Index (NRRI) measures the percentage of working age households who are at risk of being unable to maintain their pre-retirement standard of living in retirement. Session 06: Reverse Mortgages? 16

17 Reverse Mortgage Research and Case Studies Slide 2 Source: Center for Retirement Research at Boston College Study 2010 Session 06: Reverse Mortgages? 17

18 Reverse Mortgage Research and Case Studies Slide 3 Source: Center for Retirement Research at Boston College Study 2010 Session 06: Reverse Mortgages? 18

19 Reverse Mortgage Research and Case Studies Slide 4 Source: S&P/Case-Shiller Home Price Indices February 28, 2012 Session 06: Reverse Mortgages? 19

20 Reverse Mortgage Research and Case Studies Slide 5 Source: Historical Price Chart 1/1/87-1/1/12 Money.MSN.com Session 06: Reverse Mortgages? 20

21 Reverse Mortgage Research and Case Studies Slide 6 Source: Genworth Financial Home Equity Access, Inc. Case Study 2011 Session 06: Reverse Mortgages? 21

22 Reverse Mortgage Research and Case Studies Slide 7 Source: Genworth Financial Home Equity Access, Inc. Case Study 2011 Session 06: Reverse Mortgages? 22

23 Reverse Mortgage Research and Case Studies Slide 8 Source: Genworth Financial Home Equity Access, Inc. Case Study 2011 Session 06: Reverse Mortgages? 23