Updated August 28, 2006

Transcription

1 Updated August 28, 2006 Check for new updates after December 1, 2006

2 HECM Advisor Training Wholesale Brand Management You ll Need the Handout Steps in This Training Introduction Reverse Mortgage Basics Your Role in the Process Marketing the Reverse Mortgage 1

3 Approval If you re attending, you should be approved by Financial Freedom as a HECM Financial Advisor And you should not be an FHA lender Reverse Mortgage Basics Why is it a Reverse Mortgage? We pay your borrowers money based on home equity There is no repayment until they sell, pass away, or move out permanently Equity depleting loan; loan balance keeps growing until repaid Loan balance cannot exceed home value nonrecourse Remaining equity goes to borrower(s), heir(s), or estate 2

4 Who Qualifies for a Reverse? Borrowers must be 62 or older Must have some home equity Must pay off existing liens against property It s Easy to Qualify No credit checks No income verifications No restrictions on how cash is used Plus Proceeds are tax-free Social Security not affected Medicare not affected Medicaid/MediCal and SSI usually are not affected (consult with Social Worker office) 3

5 How is Loan Amount Calculated? Age of youngest borrower Value of home Location of home Interest Rate Proceed Payout Options Lump Sum Line of Credit Monthly Payment Tenure Term Or any combination of above Practice Questions How old do I have to be to qualify? When does the loan become due and payable? What does non-recourse mean? What if I already have a lien on my property? 4

6 What Products Are Available? FHA Home Equity Conversion Mortgage (HECM) Only product available to HECM Advisors Most popular product 95% of Reverse Mortgage Business Fannie Mae s HomeKeeper N/A for HECM Advisors Financial Freedom s Cash Account N/A for HECM Advisors Eligible Property Types Single Family Residence New construction not eligible for HECM Condo FHA approved or spot approved 1-4 unit properties Borrower must occupy 1 unit Planned Unit Development (PUD) Manufactured Homes HECM Product Profile FHA Lending Limit 203B Lending Limit $362,790 maximum FHA Insured 1 year T-Bill plus margin Monthly Adjustable 150 basis points Annual Adjustable 310 basis points Line of Credit: Annual Growth 5

7 HECM Counseling Borrower attends counseling with HUD-approved counselor All borrowers must attend Financial Freedom will assist borrowers with scheduling HECM Loan Costs Equity depleting loan Closing costs are financed into loan Mortgage Insurance Premium (2%) Origination fee (2%) Miscellaneous fees (1-1.5%) Continual applied costs Mortgage Insurance Premium (MIP) Servicing fees Interest Practice Questions Will my duplex qualify? I can t afford the closing costs. What s the HECM rate based on? Why do I have to attend counseling? 6

8 Common Uses for a HECM Pay off existing debt no more monthly mortgage payments Additional income Investing Help loved ones Also.. More Uses for a HECM Emergency cash reserve Long-Term Care Insurance Pay off credit card debt Provide extra funds to do the special things Home Repairs and Maintenance Repairs Appraisal ordered on every loan Appraiser checks for repairs Cosmetic repairs typically not required Health and safety repairs required Repairs that affect integrity of home required 7

9 Repairs Process Borrowers can typically escrow for repairs Borrower orders bid We set aside money for repairs Extreme repairs (safety issues, large repairs, etc) done before closing Concerns? Discuss with Financial Freedom Rep Maintenance Requirements Homeowners insurance Property taxes Upkeep of property Practice What if we do not have good credit? Can I still qualify? What can the loan proceeds be used for? What if I need repairs done to the property? 8

10 Your Role in the Process Step 1: Initial Conversation Estimate loan amount using free calculator at Review Is a Reverse Mortgage Right for You? with borrower Use Reference Material for HECM Advisors to review other important points You Have Your First Prospect 9

11 Is a RM Right for You? Reference Material for HECM Advisors Step 2: Contact Us Complete the Reverse Mortgage Prospect Fact Sheet Call or fax us with information: Call ICBA Reverse Mortgage Hotline at (866) , OR Fax Reverse Mortgage Fact Sheet to (949)

12 Reverse Mortgage Prospect Fact Sheet Step 3: Working Together We will fax calculations showing loan amount, etc. We will call to schedule a one-hour educational call with you and client to discuss the Reverse Mortgage Calculations Calculations will include: Comparisons Amortizations Schedule TALC Good Faith Estimate Step 4: Client Attends Counseling Third-party counseling by a certified HECM counselor We will provide information on how to receive counseling on educational call 11

13 Step 5: Application Local Financial Freedom Reverse Mortgage Specialist (RMS) takes application You complete and send to us: Applicant Assistance Agreement (signed by bank and client) HECM Advisor Certification (signed by bank) Reference Material for HECM Advisors explains HECM Advisor Certification Applicant Assistance Agreement HECM Advisor Certification 12

14 Step 6: Loan is Processed Our Financial Freedom RMS sends a completed application and processed loan file to us for underwriting and closing preparations We contact you and client with closing details Bank Duties Marketing Education Retention Agreement Coordinate Counseling Application / Disclosures Processing Underwriting Closing Funding Shipping / Insuring Compensation FHA Approval HECM Advisor Role X X X 25% of Origination Fee N/A Financial Freedom Duties X X X X X X X Can Assist with Approval Practice Can you estimate the loan benefit before calling Financial Freedom? Who provides information on counseling to the client? How much does the banker or broker get paid? 13

15 Marketing the Reverse Mortgage Marketing Tools Reverse Mortgage Handbooks: Developed by Financial Freedom Designed for borrowers Explains reverse mortgages Available for a fee Additional materials also available for a fee see your handouts Generic ads that you can customize Other Materials for Purchase Reverse Mortgage Fast Facts The Reverse Mortgage as an Estate Planning Tool What Every Son And Daughter Should Know To Help Their Parents Live Well In Retirement 14

16 Questions After Today Call or your Brand Manager Phone numbers in your handout Any Questions? 15

17 HECM Advisors Who can you call with questions? Eastern lenders States: Kristi Parrish, Brand Manager Phone: Joanne Magley, Account Executive Phone: Midwestern lenders States: Melissa Entin, Brand Manager Phone: Joanne Magley, Account Executive Phone: Western lenders States: Ron Lee, Brand Manager Phone: Linda Godfrey, Account Executive Phone: States: Marcelo Fang, Brand Manager Phone: Linda Godfrey, Account Executive Phone:

18 HECM Advisors You have your first reverse mortgage prospect. What do you do now? 1. Remember, you have to approved and trained by Financial Freedom ( your Brand Manager if not contact info is attached) 2. Go to and use the calculator to estimate a loan amount 3. Discuss the reverse mortgage with the borrower, including the info attached: a. Is a Reverse Mortgage Right for You? b. Reference Material for HECM Advisors 4. Fill out the Reverse Mortgage Prospect Fact Sheet (attached) and send it to us 5. We ll fax you detailed calculations, and call you to schedule a one-hour informational session for you and the borrower 6. Next, the borrower attends counseling and application 7. You and the borrower complete the attached Application Assistance Agreement, and you complete the attached HECM Advisor Certification 8. We process and underwrite the loan, then call to schedule a closing 3

19 IS A REVERSE MORTGAGE RIGHT FOR YOU? Factors to Consider In Making the Right Decision Introduction Thank you for considering a reverse mortgage loan. As you may know, a reverse mortgage loan is a very special type of loan that permits borrowers to convert some of the equity in their home to cash. Instead of paying the lender, the lender pays you, the borrower. Reverse mortgages can give senior homeowners the funds they need to lead a more secure and enjoyable retirement, repair their house, or potentially pay for long-term care and other necessary expenses, while allowing them to continue to live in their own homes for as long as they want. However, reverse mortgages may not be suitable in every circumstance. We ve prepared this document to explain in plain language this very special loan and both the circumstances where the product may or may not be well suited to meet your financial needs or expectations. Of course, like any discussion that is by necessity general in nature, you may have unique requirements that are not fully addressed in this disclosure. We therefore recommend that you share this document and discuss these matters with your trusted advisors, including your children, other members of your family, as well as your financial, legal and tax consultants. At various times throughout the application and closing process for your reverse mortgage loan, you will be provided with detailed and special disclosures tailored to your particular circumstances and loan application. Please read them very carefully and make sure you fully understand them. Please go over them with your trusted advisors. Please understand that these particular disclosures are meant just for you, and that, if they are different in any respect from the information in this brochure, it is the particular disclosures that count rather than the words of this brochure. Reverse Mortgage Basics Under a reverse mortgage you do not make monthly mortgage repayments and you do not need income to qualify. As is the case with a traditional forward mortgage, you retain title to your home while your property is pledged to the lender as security for the loan. You remain responsible to pay taxes, insurance and any other obligations that might create a lien on the property, as well as to maintain the property. Some or all of the cost of setting-up the loan can generally be paid with loan proceeds advanced at closing. The amount of loan proceeds available to you depends upon a variety of factors including the appraised value of your home, your age, the cost of the loan, and regional or overall program limits set by the Federal Housing Administration or loan investors. Generally, the lower the age of the borrower (and therefore the longer the borrower s life expectancy), the smaller the loan amount for which you may qualify. As you might expect, the higher the home value, generally the higher the loan amount for which you may qualify. Finally, the higher the interest rate and the costs and fees associated with originating the loan, the lower the loan amount. Over time, the loan balance of a reverse mortgage will rise. It grows because the borrower may continue to receive loan advances and is being charged interest on the outstanding loan balance while no repayment is being made until a future time. No repayment is required under a reverse mortgage as long as you, the borrower, live in the home as your principal residence. When the last surviving borrower dies, sells the home, or permanently moves away, the full loan balance becomes due and payable. Even when due, there is a limit on the amount of the borrower s repayment obligation, known as a non-recourse limit. Quite simply, a non-recourse limit means that the total amount owed by the borrower can never exceed the value of the home (after deducting the costs of sale) at the time the loan becomes due and payable. There are currently two basic types of multi-purpose reverse mortgages, the federally-insured Home Equity Conversion Mortgage (commonly referred to as the HECM ) which currently accounts for approximately 90% of the reverse mortgages originated in the United States, and proprietary reverse mortgages developed and sponsored by private lenders, most notably the Home Keeper sponsored by Fannie Mae and the Cash Account sponsored by Financial Freedom Senior Funding Corporation. These are multi-purpose reverse mortgages because you may use the loan proceeds for any purpose you wish. In addition, some state and local government agencies offer single-purpose reverse mortgages that are available for a single limited purpose, such as home repair or the payment of property taxes. If your needs are limited to these purposes, you may wish to investigate whether a state 2005 Financial Freedom Senior Funding Corporation. Reprinting with permission only. FFSFC Form 597-3W Version 001-8/2005 Page 1 of 6 4

20 or local government agency in your area offers such a program. While these programs generally have maximum income eligibility requirements, their total cost is usually less than the multi-purpose reverse mortgage programs currently available and some programs may even forgive the principal balance of the loan after a certain period of time. For multi-purpose reverse mortgage programs, borrowers generally may choose from among different options for receipt of their loan proceeds, and to the extent undisbursed loan proceeds remain, the payment option can be changed at any time. The following options generally are currently available in most states: Tenure - The borrower receives equal monthly payments from the lender as long as the home is occupied as the borrower s principal residence. Term The borrower receives equal monthly payments for a period of months as selected by the borrower (not available with the Home Keeper). Line of Credit The borrower may draw loan proceeds in amounts and at times he/she chooses until the credit line is exhausted. Modified Term The borrower may combine a line of credit with monthly payments for a number of months selected by the borrower (not available with the Home Keeper). Modified Tenure The borrower may combine a line of credit with monthly payments as long as the home is occupied as the borrower s principal residence. Reverse Mortgage Costs Many of the same costs that one pays to obtain a home purchase loan, or to refinance their existing mortgage, apply to reverse mortgages too. You can expect to be charged an origination fee, up-front mortgage insurance premium (for the HECM), an appraisal fee, and certain other standard closing costs. Generally, reverse mortgages have significant upfront closing costs. For borrowers who move out, sell their home or pass away within a few years of taking out the loan, a reverse mortgage can be an expensive option. However, the longer a reverse mortgage is in place, the lower its overall annual average cost. In most cases, loan fees and costs are capped and may be financed as part of the reverse mortgage. Below is a more in-depth explanation of each type of fee. Origination Fee The origination fee helps cover a lender's costs and expenses including office overhead for making the reverse mortgage. Under the HECM program, the origination fee is equal to the lesser of 2 percent of the value of the home or 2 percent of an amount established by the Department of Housing and Urban Development ( HUD ) (called the maximum claim amount ), but at least $2,000. Home Keeper and Cash Account borrowers are charged an origination fee that may not exceed 2 percent of the value of the home. With either loan, the entire amount of the origination fee may be financed as part of the mortgage and so you need not pay it in cash if you would prefer not to do so. Mortgage Insurance Premium Under the HECM program, borrowers are charged a mortgage insurance premium (MIP), equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium thereafter equal to 0.5 percent of the loan balance (the annual premium will accrue on your loan balance at a monthly rate). The MIP is paid to HUD. Among other things, HUD guarantees that if the company managing your account commonly called the loan servicer goes out of business, the government will step in and make sure you have continued access to your loan funds. Appraisal Fee An independent appraiser not affiliated with the lender is responsible for assigning a current market value to your home. Appraisal fees generally range between $300-$500, and more depending upon your area and loan product or home value. In addition to placing a value on the home, an appraiser also checks for obvious major structural defects, such as a bad foundation, leaky roof, or termite damage. Federal regulations and investor standards require that your home be structurally sound, and comply 2005 Financial Freedom Senior Funding Corporation. Reprinting with permission only. FFSFC Form 597-3W Version 001-8/2005 Page 2 of 6 5

21 with all home safety codes, in order for the reverse mortgage to be made. If the appraiser uncovers property defects, you must hire a contractor to complete the repairs. Once the repairs are completed satisfactorily, the same appraiser is paid for a second visit to make sure the repairs have been completed. The cost of the repairs may be financed in the loan and completed after the reverse mortgage is made. Appraisers generally charge $50-$150 dollars for each follow-up examination. Certain repairs may be required to be performed prior to the closing of your loan and the cost of repairs financed under the loan will be limited to 15% of the maximum claim amount. Closing Costs Other closing costs that are commonly charged to a reverse mortgage borrower include: Credit report fee. Verifies any federal tax liens, or other judgments, handed down against the borrower. Cost: Generally under $20 Flood certification fee. Determines whether the property is located on a federally designated flood plain. If your property is in a flood zone you will be required to obtain flood insurance. Cost: Generally under $20 Escrow, Settlement or Closing fee. Generally includes a title search and various other required closing services. Cost: $150-$450 Document preparation fee. Fee charged to prepare the final closing documents, including the mortgage note and other recordable papers. Cost: $75-$150 Recording fee. Fee charged to record the mortgage lien with the County Recorder's Office. Cost: $50-$100 Courier fee. Covers the cost of any overnight mailing of documents between the lender and the title company or loan investor. Cost: Generally under $50 Title insurance. Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of or liens against your property. Varies by size of the loan, though in general, the larger the loan amount, the higher the cost of the title insurance. Pest Inspection. Determines whether the home is infested with any wood-destroying organisms, such as termites. Cost: Generally under $100 Survey. Determines the official boundaries of the property. It s typically ordered to make sure that any adjoining property has not inadvertently encroached on the reverse mortgage borrower's property. Cost: Generally $250 - $1,000, and more depending upon your area. Servicing Set-Aside The servicing set-aside is an amount of money deducted from the available loan limit at closing to cover the projected costs of servicing your account. Federal regulations allow the loan servicer (which may or may not be the same company as the lender who makes the loan) to charge a monthly fee that ranges between $30-$35. The amount of money set-aside is largely determined by the borrower's age and life expectancy. Generally, the set-aside can amount to several thousand dollars. Please understand that the servicing set aside is just a calculation and not a charge. The only amount added to your loan balance for servicing your loan will be the monthly servicing fee, which usually ranges from $30-$35. TALC Disclosure The federal government requires your lender to provide a disclosure in connection with your reverse mortgage known as the Total Annual Loan Cost Rate or commonly referred to as the TALC. The TALC rate is a single rate that includes all loan costs. It is the annual average rate that would generate the total amount owed at any point of the loan if charged on the loan advances made prior to that time. TALC rates are projections based on assumed loan terms (the number of years from the beginning of the loan to its maturity based on assumed life expectancies) and assumed average annual home appreciation rates. The TALC disclosure will show you that the Total Annual Loan Cost Rate is greatest in the short term because the loan costs financed at closing are a greater percentage of the total loan balance in the early years of the loan. In addition, you will find that the TALC is smallest when the loan term is longest and the assumed annual appreciation rate of your home is the smallest. TALC rates begin the highest and decrease most quickly for loans with monthly advances only. If you take all available funds as a single lump sum payment, the TALC rates start out much lower and do not decrease as fast. In general, the TALC Disclosure emphasizes the following cost patterns for most reverse mortgages: the cost of reverse mortgages are expensive if repaid within a few years. the overall annual average cost of a reverse mortgage goes down over time. the cost of a reverse mortgage can be quite moderate or even inexpensive if you live in your home beyond your life expectancy and your home appreciates at a moderate rate Financial Freedom Senior Funding Corporation. Reprinting with permission only. FFSFC Form 597-3W Version 001-8/2005 Page 3 of 6 6

22 Other Financial Implications of Reverse Mortgages Although reverse mortgages offer an obvious financial benefit in allowing borrowers to tap or use home equity while continuing to reside in their property, other potential financial implications associated with reverse mortgages need to be investigated before you determine that a reverse mortgage is right for you. Benefit Programs While generally Social Security and Medicare benefits are not affected by a reverse mortgage, if you currently are qualified for benefits that are means-tested, such as Supplemental Security Income (SSI), Medicaid and various state-administered programs, a reverse mortgage could affect your continued eligibility for those benefits. In general, although loan advances are not typically treated as income, under many federal and state government means-tested programs, loan advances retained by the borrower in a readily available form (such as your bank account) beyond the end of the month in which they are received could be viewed as a liquid resource and might reduce your benefits or potentially disqualify you from further benefits. In some states, regularly scheduled monthly payments from a reverse mortgage may be counted as income for purposes of Medicaid whether or not they are spent within the month they are received. Tax Impact Similarly, how you use your reverse mortgage proceeds could impact your overall tax liability. While the IRS generally does not consider loan advances to be income for tax purposes (and the interest on a reverse mortgage is not deductible for tax purposes until it is actually paid), if you use reverse mortgage proceeds to purchase an annuity, part of the income generated from the annuity may be taxable and could also be treated as income by SSI, Medicaid and other means-tested programs, resulting in reduction in benefits or loss of eligibility. Subsidized Mortgage Programs If you currently have a limited purpose reverse mortgage or a forward mortgage that is supported by government or non-profit agency financial assistance, you should understand that a reverse mortgage generally requires that this obligation be paid and the underlying security interest released. You should therefore consider whether it is in your overall best interest to obtain a reverse mortgage and payoff this obligation. Generally a special mortgage loan program either postpones collection of taxes or provides a loan at a low interest rate. In some cases, the principal balance of the loan may be forgiven after a certain period of time. While HUD generally requires earlier mortgages to be paid off prior to or with the closing of a reverse mortgage, HUD may, depending upon the circumstances, agree to other arrangements if a special assistance mortgage is involved. In any event, you should understand any loss of benefits or penalties that arise from paying off such a government or agency supported mortgage and consider whether the overall benefit of a reverse mortgage outweighs these unfavorable circumstances. Estate Planning The appropriateness of a reverse mortgage for you may also be impacted by your specific estate planning goals. Since the outstanding balance of your reverse mortgage loan must be paid before your home can be inherited, your estate must either refinance or sell the home, reducing the net sale proceeds available to your heirs. Also, if your home must be sold at the loan s maturity, anyone then living in the house may have to move out. 1 (This does not apply to your spouse if he/she is a borrower under the loan.) The amount of equity remaining after a reverse mortgage is paid off can be an important consideration for other reasons as well. It may impact not only your decision to take a reverse mortgage, but also may influence your decision as to which payment option to use and how much of the available loan proceeds you wish to access. While most borrowers want and expect to live in their homes for the rest of their lives, not all are able to do so. Recent statistics indicate that approximately 5% of persons aged 65 years or over are residents of long-stay care institutions at any one time. However, approximately 40% of the elderly spend some time in a nursing home at some point in their lives. As a result, you might consider preserving some portion of your home equity and not tapping into all of it through a reverse mortgage loan, in order to have a source for the payment of such care. As previously discussed, when all borrowers have moved out of the home, the loan becomes due and the full loan 1 In the event of a maturity event under the loan (the death of all borrowers or their move-out), the lender will generally extend to you or your estate six (6) months to sell your home and pay-off your reverse mortgage balance so long as the property is marketed for sale with reasonable effort and other requirements of the reverse mortgage security instrument are complied with such as paying taxes, insurance and any other obligations that might create a lien on the property, as well as maintaining the property in good condition Financial Freedom Senior Funding Corporation. Reprinting with permission only. FFSFC Form 597-3W Version 001-8/2005 Page 4 of 6 7

23 balance must be repaid. If there is remaining equity in the home after the loan has been repaid, these proceeds could potentially be used to help pay for you or your spouse s relocation and continuing expenses. Your reverse mortgage loan representative can provide you with many illustrations to show you projections as to how a reverse mortgage might impact your remaining home equity over time. Investment Funding Reverse mortgages may not always be suitable vehicles for funding investments, whether for stocks, bonds, real estate, or other investment opportunities. Not only will the amount you invest typically be at risk, but loan origination, interest and servicing costs that must be paid in connection with your loan are likely to outweigh any investment returns you might otherwise earn. If you are considering using your reverse mortgage for investment purposes, it is important that you receive independent advice from a trusted advisor who does not earn a fee or commission from the investment. Use of a Reverse Mortgage to Purchase Long-Term Care Insurance Reverse mortgages can provide a source to help pay for long-term care insurance. However, you should be aware that this strategy can potentially be very costly because you could be paying both insurance premiums and interest on the loan for many years. In addition, you could face the risk that your long-term care coverage may lapse if you run out of funds to pay the long-term care insurance premium before long-term care is needed. If you are considering using your loan proceeds to purchase long-term care insurance, it is important that you receive advice from a trusted advisor who does not earn a fee or commission as a result of your purchase of long-term care insurance. Use of a Reverse Mortgage to Purchase an Annuity An annuity can give you monthly cash advances for life, no matter where you live. By contrast, a reverse mortgage can provide monthly advances generally only as long as you live in your home. Therefore, if you are considering an annuity, you should think about how long you expect to remain in your home. Generally, using a reverse mortgage to purchase an annuity is more expensive than simply receiving monthly reverse mortgage advances. This is because your immediate loan balance will typically be larger if you buy the annuity with reverse mortgage proceeds, which results in larger interest charges. However, if you live beyond your life expectancy, a reverse mortgage/annuity combination can become less costly than a reverse mortgage alone. If you are interested in a reverse mortgage for the purpose of purchasing an annuity, we highly recommend that you review a very informative document published by the AARP Foundation, a non-profit organization, and provided to you with your reverse mortgage application. If you have not yet received this document, please request it from your reverse mortgage loan representative. Your reverse mortgage lender does not offer or sell annuities and does not encourage or suggest that you purchase an annuity with reverse mortgage loan proceeds. If you are considering using your loan proceeds to purchase an annuity, it is important that you receive independent advice from a trusted advisor who does not earn a fee or commission as a result of your purchase of an annuity. Reverse Mortgage Alternatives Seniors should be aware that there may be a variety of resources available to them that might help them meet their needs without obtaining a reverse mortgage. Most importantly, Low- and Low-to- Moderate Income homeowners may be eligible to receive benefits from local, state and federal public programs. To determine the benefits you may be eligible to receive, please visit a website sponsored by the National Council on Aging, a non-profit organization. At the website, you can enter information about yourself and find out what programs you qualify for and information on applying for these programs. In addition, public and private nonprofit agencies and organizations serving seniors have established planning and service areas known as Area Agencies on Aging, or AAAs, to coordinate the delivery of a variety of services to the meet the needs of seniors. To find the AAA nearest you, call or visit In addition, you might also consider selling your home and moving. The process of exploring alternative living arrangements rather than obtaining a reverse mortgage will help you determine how much you value remaining in your present home Financial Freedom Senior Funding Corporation. Reprinting with permission only. FFSFC Form 597-3W Version 001-8/2005 Page 5 of 6 8

24 Gather The Facts Choose Carefully As we ve tried to outline in this document, a reverse mortgage is not the best solution for every senior but it can be an excellent choice for many seniors who evaluate their options carefully. We encourage you to take the time to gather all the facts and discuss your plans and specific needs with your family, and financial, legal and tax advisors. If you decide to proceed with a reverse mortgage transaction, you will be required to attend counseling from an independent HUD-approved counseling agency. Any questions or concerns you have regarding a reverse mortgage (or how you plan to use the proceeds from a reverse mortgage) should be addressed during that session. Reverse mortgages clearly have a number of positive features for seniors. Most importantly, by using a reverse mortgage to liquidate a portion of your housing wealth, you do not have to move or relinquish control over your most important asset your home Financial Freedom Senior Funding Corporation. Reprinting with permission only. FFSFC Form 597-3W Version 001-8/2005 Page 6 of 6 9

25 Reference Material for HECM Advisors: Things You ll Explain to the Borrower As you read your HECM Advisor Certification, you may notice that there are several issues that you should discuss with the borrower. This reference material quotes each relevant section of your HECM Advisor Certification, and then gives more detail about that section. Be sure to explain each of these things to the borrower. You will notice that this reference material refers several times to the brochure, Is a Reverse Mortgage Right for You? This brochure is included in this package so that you can discuss it with the borrower. Financial Freedom s Reverse Mortgage Specialist will also include it in the application package. Part one: Entered into a written agreement with Applicant that clearly discloses Advisor s fee and provides that payment of such fee shall not be in addition to the lender s origination fee. This paragraph discusses the Application Assistance Agreement also included in this package. Part two: I am not approved to originate FHA loans. If you are approved to originate FHA loans, you should call your Brand Manager at Financial Freedom prior to acting as a HECM Advisor, because FHA lenders may not act as HECM Advisors. Instead, FHA lenders can become approved to originate loans through Financial Freedom. Part three: Educated the Applicant regarding reverse mortgages generally, and HECM loans in particular including the increase in the loan balance, growth of the HECM line of credit, and the likely decrease in Applicant s equity over time. In addition, informed Applicant regarding the different types of loan features available with a HECM loan (term vs. tenure; lump sum, monthly payment, or line of credit, etc.) and explained matters such as set-asides, closing costs (including, but not limited to, the maximum HUD permits a mortgagee to charge for specific loan costs, which costs are the same for every lender and which costs may vary from lender to lender) and the necessity of the Applicant making on-going payment of taxes and collateral hazard (homeowner s) insurance after the loan s closing. Many of these points are discussed in the brochure, Is a Reverse Mortgage Right for You? However, a few are not: If the borrowers choose a line of credit with the HECM loan, the line of credit will grow by the same amount as the interest rate charged on the loan, plus ½%. Only the untouched line of credit will grow. In other words, if the borrowers have already drawn all of the line of credit, the available line of credit will not increase later. 10

26 Remember to explain to the borrowers that because the loan amount increases over time, the borrowers home equity will decrease. Most borrowers still retain some home equity. Financial Freedom s representative will explain this in more detail using an amortization schedule. The brochure discusses the servicing fee set-aside. There are other set-asides that do not apply to all loans. They include an optional set-aside for taxes and insurance, and a set-aside created if a borrower chooses to escrow for repairs after the closing. Financial Freedom s representatives can provide more specific information about these set-asides. All set-asides decrease the funds available to the borrower at closing. Part four: Provided Applicant information on lenders that offer reverse mortgages in the Applicant s area, including information on reverse mortgage products available from various lenders. Because your borrowers are retaining you as their agent in this transaction, you should provide the borrowers with information about other lenders (besides Financial Freedom) who offer reverse mortgages. Part five: Described the potential financial implications of a HECM loan for the Applicant and advised Applicant generally on the amount of benefit for which he/she/they may qualify under a HECM, and the factors affecting such qualification, including the age of the Applicant and the value of the home, as well as benefits under Medicaid programs. Most of these are also discussed in the brochure. Remember to take the borrowers specific financial situations into account when discussing the HECM. If you d like to get a general idea of the benefit your borrowers can get from a reverse mortgage, please use the free calculator available at Part six: Advised the Applicant regarding how the condition of their home may require repairs as part of the HECM loan; and explained to Applicant the Applicant s obligation to maintain the structural integrity and good repair and condition of the home after the loan s closing. Repairs are not discussed in the brochure, but Financial Freedom s representative will discuss them. Advise your clients that Financial Freedom will order an FHA appraisal, and the appraiser will check for repairs. Cosmetic repairs are usually not required. Repairs that threaten the health or safety of the occupants, and repairs that threaten the integrity or marketability of the property, will be required. Financial Freedom may also require a termite inspection. Your borrowers can often escrow for repairs if it is not feasible to complete them prior to closing. Explain to your borrowers that they are required to maintain their home and repair any damage that would threaten the health or safety of the occupants, or the 11

27 integrity of the property. Failing to do so could cause the loan to become due and payable. Part seven: Educated the Applicant regarding unique credit problems associated with HECM loans (for example, federal tax liens, and/or prior issues with FHA). Financial Freedom does not typically require that debts be paid unless they are liens against the home, or unless they could easily become liens against the home. (For example, judgments and bankruptcies must be addressed.) Most liens can be paid off at closing, using the reverse mortgage proceeds. However, if your borrowers have defaulted on a debt to the government, especially another FHA loan, the borrowers may not qualify for the HECM loan. This includes loans that the borrowers co-signed for. If you have concerns about this, please contact your Financial Freedom representative. Part eight: Provided Applicant with telephone numbers and web pages for independent resources to obtain more information regarding reverse mortgages generally, including, providing Applicant the address to the AARP website and toll-free phone number concerning reverse mortgages at and ; and the HUD HECM website at Please direct your borrowers to the links and phone numbers listed in part eight. The remainder of HECM Advisor Certification simply verifies that you will maintain your relationship with your borrowers throughout the loan process, answering questions and assisting them in their dealings with the lender of their choice. You also certify that you did not perform origination functions. If you have any questions about which duties you should perform, please call your Financial Freedom Brand Manager. 12

28 A subsidiary of IndyMac Bank, F.S.B FINANCIAL FREEDOM REVERSE MORTGAGE PROSPECT FACT SHEET FAX TO: Business Development Center PHONE : (800) office FAX: (949) DATE: Partner: ADVISOR NAME: ADVISOR PHONE #: ADVISOR FAX #: COMPANY NAME: ADDRESS, CITY, ST., ZIP: E MAIL ADDRESS: REVERSE MORTGAGE PROSPECT INFORMATION REVERSE MORTGAGE PROSPECT NAME: SPOUSE NAME: DATE OF BIRTH: SPOUSE DATE OF BIRTH: ADDRESS: PHONE#: CITY: ZIP CODE: STATE: ESTIMATED HOME VALUE: MORTGAGE OR LIEN, IF ANY? TYPE OF PROPERTY: SFR TOWNHOME CONDO COOP - OTHER Please send me a reverse mortgage illustration for the above client today!

29 HECM Advisor Certification I,, an Advisor under the Financial Freedom Senior Funding Advisor program, in connection with (name of applicant, Applicant ) hereby certify to Applicant and Financial Freedom that I have performed all of the following services in connection with Applicant s expression of interest in a FHA-insured home equity conversion mortgage loan (HECM). (Advisor initials) Entered into a written agreement with Applicant that clearly discloses Advisor s fee and provides that payment of such fee shall not be in addition to the lender s origination fee; (Advisor initials) I am not approved to originate FHA loans; (Advisor initials) Educated the Applicant regarding reverse mortgages generally, and HECM loans in particular including the increase in the loan balance, growth of the HECM line of credit, and the likely decrease in Applicant s equity over time. In addition, informed Applicant regarding the different types of loan features available with a HECM loan (term vs. tenure; lump sum, monthly payment, or line of credit, etc.) and explained matters such as setasides, closing costs (including, but not limited to, the maximum HUD permits a mortgagee to charge for specific loan costs, which costs are the same for every lender and which costs may vary from lender to lender) and the necessity of the Applicant making on-going payment of taxes and collateral hazard (homeowner s) insurance after the loan s closing ; (Advisor initials) Provided Applicant information on lenders that offer reverse mortgages in the Applicant s area, including information on reverse mortgage products available from various lenders; (Advisor initials) Described the potential financial implications of a HECM loan for the Applicant and advised Applicant generally on the amount of benefit for which he/she/they may qualify under a HECM, and the factors affecting such qualification, including the age of the Applicant and the value of the home, as well as benefits under medicaid programs; (Advisor initials) Advised the Applicant regarding how the condition of their home may require repairs as part of the HECM loan; and explained to Applicant the Applicant s obligation to maintain the structural integrity and good repair and condition of the home after the loan s closing; (Advisor initials) Educated the Applicant regarding unique credit problems associated with HECM loans (for example, federal tax liens, and/or prior issues with FHA); (Advisor initials) Provided Applicant with telephone numbers and web pages for independent resources to obtain more information regarding reverse mortgages generally, including, providing Applicant the address to the AARP website and toll-free phone number concerning reverse mortgages at and ; and the HUD HECM website at File: HECM Advisor Certification: Version

30 (Advisor initials) Advised Applicant with respect to questions raised by Applicant in completing a HECM reverse mortgage loan application and other forms to be submitted to one or more of such mortgage lenders; (Advisor initials) Assisted Applicant in dealing with Lender as Lender considers, processes and underwrites Applicant s HECM reverse mortgage loan application; (Advisor initials) Maintained regular contact with Applicant through closing of the loan in order to assist Applicant with respect to any questions the Applicant might have and (Advisor initials) Other:. I did not take a loan application from Applicant nor did I conduct any loan origination activities in connection with Applicant s HECM loan application. I hereby certify that the foregoing is true and correct, By: Name of Advisor Authorized Signature File: HECM Advisor Certification: Version

31 EXHIBIT A APPLICANT ASSISTANCE AGREEMENT (the Agreement ) TO: FROM: [Applicant] ( You or Applicant ) [Mortgage Advisor] ( We or Us ) We understand that You may be considering applying for a Home Equity Conversion Mortgage reverse mortgage loan ( HECM ). We want to be of assistance to You as You consider the HECM, other reverse mortgage loans that may be available and the mortgage lenders that may be willing to make a HECM or other reverse mortgage loan to You. We propose to provide the following services ( Applicant Assistance Services ) to You: (1) to advise and educate You on the features, availability and benefits of reverse mortgages generally and the HECM in particular; (2) to advise and apprise you regarding the lenders in Your area that offer reverse mortgages generally and the HECM in particular; (3) to advise and educate You regarding the potential financial implications of a HECM loan, the factors affecting qualification and generally on the amount of benefit for which You may qualify; (4) to advise and educate You regarding how the condition of Your home may impact qualification and use of HECM loan proceeds as well as your continuing obligation to maintain the structural integrity and good repair and condition of the home after the loan s closing; (5) to educate You regarding unique credit problems associated with HECM loans; (6) to provide You with telephone numbers and web pages for independent resources to obtain more information regarding reverse mortgages generally and the HECM in particular; (7) if a HECM is considered by You, to assist You in completing a HECM application and other forms to be submitted to one or more of such mortgage lenders; and, (8) to assist You in dealing with such mortgage lenders as they complete Your loan application, and they consider, process and underwrite your HECM. We propose that We be paid an applicant assistance fee ( Applicant Assistance Fee ) for providing the Applicant Assistance Services to You, but only if a HECM reverse mortgage loan is made to You by a mortgage lender. If no HECM reverse mortgage loan is made to You, no Applicant Assistance Fee will be paid to Us. The Applicant Assistance Fee may be financed in its entirety as part of the loan if You wish, and will reduce the overall origination fee for your HECM reverse mortgage loan that is paid to the mortgage lender. The Applicant Assistance Fee will be (under no circumstances may the Applicant Assistance Fee exceed twenty-five percent (25%) of the amount of the HECM origination fee). You acknowledge, understand and agree that mortgage lenders may share with Us information related to your application as they consider, process and underwrite it, so that We may be able to provide the Applicant Assistance Services to You. You also acknowledge, understand and agree that a decision to make or not to make a HECM reverse mortgage loan to You may only be made by such mortgage lenders; that We do not make, or process or underwrite, HECM reverse mortgage loans; and that We do not guarantee that any of the mortgage lenders to which your application may be submitted will make the requested loan to You. L:\Wholesale\NCR Shared\IndyMac Documents\Retail\Advisor Approved pkg (052604)\Exhibit A Applicant Assistance Agreement doc

32 We intend to recommend to You mortgage lenders that we believe may be able to originate an appropriate HECM reverse mortgage loan to You. We do not represent any particular mortgage lender, and there is no financial interest between Us and any mortgage lender that we may recommend to You. If We believe that another form of reverse mortgage loan may be appropriate for You, including but not limited to, a Fannie Mae Home Keeper or Financial Freedom Cash Account loan, We will discuss that with You, and reach a separate agreement with You about the assistance We will provide and the fee You will owe. If You have any questions about our proposed Applicant Assistance Services or our proposed Applicant Assistance Fee, or do not fully understand them or this Agreement, please let Us know. If You want to independently engage us to provide the Applicant Assistance Services, and if You agree that We may be paid the Applicant Assistance Fee by financing it in its entirety if a HECM is originated for You, please sign this Agreement in the space below. We look forward to being of assistance to You. [Mortgage Advisor Signature/Date] By: Name: Title: THE UNDERSIGNED APPLICANT(S) AGREE THAT THE APPLICANT ASSISTANCE FEE DESCRIBED ABOVE MAY BE PAID TO THE MORTGAGE ADVISOR IDENTIFIED ABOVE IF A HECM REVERSE MORTGAGE LOAN IS ORIGINATED ON MY/OUR BEHALF. THE UNDERSIGNED APPLICANT(S) FURTHER AGREE THAT THE APPLICANT ASSISTANCE FEE MAY BE PAID FROM THE PROCEEDS OF SUCH HECM REVERSE MORTGAGE LOAN AND THAT THE ORIGINATION FEE PAID TO THE MORTGAGE LENDER SHALL BE REDUCED BY THE AMOUNT OF THE APPLICANT ASSISTANCE FEE: Applicant Date Print Name Applicant Date Print Name L:\Wholesale\NCR Shared\IndyMac Documents\Retail\Advisor Approved pkg (052604)\Exhibit A Applicant Assistance Agreement doc