By the end of today s meeting you will be able to do the following

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2 By the end of today s meeting you will be able to do the following Explain the basics of the Home Equity Conversion Mortgage (HECM). Define what a HECM for Purchase is. Identify key terms, features and benefits of a HECM for Purchase. Discuss the basic guidelines related to a HECM for Purchase. 2

3 Reverse Mortgages In the most basic terms a reverse mortgage is a home loan. For seniors 62 years or older. Convert part of the equity from their home into proceeds for various life expenses.

4 Traditional vs. Reverse

5 Qualifying Factors 1 Age of the youngest borrower or NBS. 2 Expected Interest Rate (10yr LIBOR+Margin) 3 Max Claim Amount (Lower of FHA lending limit $625,500 or appraised value)

6 What is a HECM for Purchase? 62 years old (NBS okay) + = Home ownership HECM Eligibility 6

7 Top Realtor Benefits Increased commission in being able to get two transactions out of one (listing and buying). You, as the realtor become the knowledgeable Senior Advisor in their community and realtor community. Growing market 8,000 people are turning 62 in the U.S. every day!! Working a farm area that was otherwise not addressed. Older adults who have owned their home for 30+ years, no or low mortgage with the same mailing address as subject property. Top producers know more about their industry than others position yourself to have more creative options for your clients. If downsizing, can help your borrowers get more disposable income by liquidating their current asset for another. A solution to help buyers who would have otherwise thought they had no options. Could possibly help someone into a larger or more expensive house than they would have otherwise qualified for more commission for YOU. 7

8 The Eligible Borrower All borrower(s) must be at least 62 years old at the time of closing. (NBS OK) Borrowers must occupy the subject property within sixty (60) days of closing. All borrower(s) and nonborrowing spouses must attend HECM for Purchase counseling from a HUD-approved counseling agency. If the borrowers own their current principal residence and wish to retain it; additional requirements will apply. 8

9 Eligible Property Types Existing single family homes. Condominium unit that meets HUD requirements. Manufactured homes that meet HUD requirements. Newly constructed homes. 9

10 HECM for Purchase Details FHA Amendatory Clause Additional Disclosures at application Post-dated Amendatory Clause will require an LOE 10

11 Ineligible Properties Cooperative units. Bed and breakfast establishments. Newly constructed principal residences where a certificate of occupancy has not been issued. Manufactured homes built prior to 1/1/1990 not bearing the affixed HUD seal. Boarding houses. Manufactured homes lacking a permanent foundation. Commercial Properties 2-4 unit properties. 11

12 Borrowers retaining their current home Demonstrate the willingness & capacity to continue paying the property charges (mortgage payment, HOA dues, property taxes, and insurance) on their existing home responsibly. Demonstrate the willingness & capacity to pay property charges & other bills on the home they are purchasing. 12

13 Credit Eligibility If mortgages on the credit report are secured against another property the underwriter must insure the loan is not an FHAinsured mortgage. FHA does not allow borrowers to have more than one FHAinsured mortgage however, extenuating circumstances may result in accommodations. 13

14 Property Flipping HECM lenders must take steps to ensure properties recently purchased (recently purchased date should be noted in the Sales or Transfer History section of appraisal) and resold at a substantially greater price are subject to certain restrictions. 14

15 Repairs and Set Asides No running water Inadequate electrical systems (including lighting) Leaking roof Inoperable doors and windows (inhibited ingress and egress) No primary heating source State or local code violations 15

16 Prohibited Seller Contributions Items a seller can pay are o Prorated share of taxes or HOA dues o Transfer/Intangible taxes o Repair costs and cost for reinspection of repairs o Fees required to be paid by seller for seller s benefit o RESPA tolerance violation: cure violation by applying lender cure for fee Prohibited seller contributions are o Loan discount points o Interest rate buy downs o Closing cost down payment assistance o Builder incentives o Gifts or personal property given by a seller o Lender credits March 14 Prohibited Seller Contributions Whatever amount makes you happy! Retirement Home Joe Seller 16

17 Residential Purchase Agreement #1 The purchase agreement must be fully executed by all parties. #2 The purchase agreement must identify the property address, sales price, amount of the initial deposit or earnest money, allocation of costs, buyer(s), seller(s) and agents. #3 The FHA Amendatory Clause must be fully executed. Real Estate Certification. #4 A copy of any inspections required by the purchase agreement must be reviewed by the underwriter. #5 Only current owners of record may sell properties that will be financed using FHAinsured mortgages. #6 Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing. #7 Seller concessions and seller paid closing costs must be removed from the contact. 17

18 Maturity Events With a reverse mortgage the borrower retains ownership of the home. The lender does not take control of title. The lender's interest is limited to the outstanding balance of the loan, and the loan only becomes due when a maturity event takes place. For example... The home is sold. The home is vacated. The home is abandoned. The last surviving borrower or non-borrowing spouse passes (NBS) away. There is a change in title of the property either in full or in part. If there is a failure to uphold any of the borrowers/nbs responsibilities.

19 Just like a traditional home mortgage, when the last surviving borrower or nonborrowing spouse passes away their heirs inherit the home and the balance must be liquidated. The Estate must notify the loan servicer and inform them of their intentions with the property. Heirs Have Options Keeping the home: Estate has 90 days from the date of the borrower s death to liquidate the balance. Liquidating the balance: Estate has 6 months from the date of death to liquidate the balance through sale of the property. *If the estate is making a bonafide effort to sell the property: AAG may approve two 90 day extensions giving the heirs up to 12 months to sell the property. Heirs can never owe more than the house is worth due to the FHA mortgage insurance. The balance of the loan continues to grow until it is repaid in full. If there is equity in the property it is in the best interest of the heirs to resolve the balance quickly. *A Reverse mortgage is the only product which allows heirs up to a year to resolve the balance. Heirs also do not inherit or pass on the debt since the property is the only asset used to liquidate the debt. An heir may have a case where they owe more than the house is worth but want to keep the home. Amazingly, they can do 95% of the value. EXAMPLE Balance = $150,000 Value = $100,000 The heir finances only $95,000 to keep the home. 19

20 Borrowers Right to Cancel Transaction The borrower may cancel the purchase transaction at any time prior to the date of closing. Must notify all parties in writing. Should review the sales contract to determine if the earnest money is refundable. 20

21 Origination Fees HECM Fee Bucket List MIP Fees Third-Party Fees Minimum - $2,500 Maximum - $6,000 Calculation: 2% of MCA up to $200,000 Plus 1% of every addl $200, % charged annually Assessed monthly to the PLB (PLB x 1.25%/12) Upfront MIP One-time fee Charged at closing.5% or 2.5% of the MCA depending on percentage of utilization. Title Appraisal Credit Report Flood Certification Doc Prop (where applicable) Notary Fee Repair Administration Fee (if applicable) Attorney s Fees Recording Fees Survey (TX & FL) Pest Inspection (if applicable) Courier Fee 21

22 Review Key Points We explained a HECM for Purchase. We explored how the HECM for Purchase can broaden our business and boost your income. Identified key terms, features and benefits. 22

23 Thank you for Attending 23