LHFS Wholesale. Understanding the HECM LIBOR Product Training. Great Rates. Great Programs. Great Service.

Transcription

1 LHFS Wholesale Understanding the HECM LIBOR Product Training Great Rates. Great Programs. Great Service.

2 Objective You will know what the HECM LIBOR product is, benefits, and disadvantages. You will also gain knowledge of the mechanics of the rates, calculations, balance and credit line growth & disbursements. You will recognize the importance of the application signature.

3 John and Jane s Story Recently a couple shared their story. They had been married for years and have 3 children and 7 grandchildren. John was diagnosed with a serious condition and his Doctor had given him 2 years to live. Since his diagnosis, they had been depleting their retirement account to provide the medicine he needed. They were being buried with their bills.

4 Think about it John is 85 and Jane is 75 Home value = $294,100 Retirement Account = $40,000 Lien of = $120,000 to pay off ($850 PMT) Income = $1,200 Monthly expenses = $2,000 Additional medical expenses = $800

5 What is Jane thinking about?

6 Think About it Continued What is truly important in this scenario? What kind of options can we offer John and Jane that will provide the best alternative? Remember them and we will explore their options at the end of this presentation.

7 What is the HECM LIBOR? HECM = Home Equity Conversion Mortgage LIBOR = London Interbank Offered Rate The HECM is an FHA insured mortgage secured by a Deed of Trust. The HECM LIBOR offers the same benefits as the Fixed with three main differences. 1. It is an adjustable rate 2. It offers more cash disbursement options 3. It allows unused equity to grow

8 History always repeats itself 2008 HUD Announces HECM Fixed Standard 2009 Introduction of HECM for Purchase and Lending Limit Increase to $625, Monthly MI is increased from.5% to 1.25% and interest rate floor is lowered from 5.5% to 5.00% (officially 5.06) 2013 Elimination of HECM Fixed Standard on April 1, Effective October Standard and Saver choices were eliminated and one universal *product was launched. Principal limits were lowered August 4, Principal limits increased and Non-Borrowing Spouse given rights to remain in the home after borrower s death *New Program: Both fixed and adjustable rates available. IMIP went to 2.5 for draws over 60% of Principal limit and.5 for those under 60%

9 HECM LIBOR Product Pros Disbursement options Disbursement changes without refinancing Repayment option (Can pay like a forward mtg) No prepayment penalty No monthly mortgage payments required Unused Available Equity Can Increase Over Time (Credit Line) Non recourse loan FHA insured Hedge against property and economic fluctuation Tax free money Very little or no upfront out of pocket cost Rate CAP (Initial rate at close plus 5%)

10 HECM LIBOR Product Cons Adjustable rate Possible compound negative amortization Responsible for taxes and insurance payments and maintenance of the property IMIP.50% - 2.5% % Based on initial loan amount taken (Same as Fixed rate) Annual 1.25% Mortgage Insurance charge. Applied on a monthly basis.

11 Rate Sheet

12 Initial Rate Initial Rate: Is the 1 Month LIBOR Index plus the Margin offered by the lender. Together they make up the Initial Interest Rate. The true initial rate will be effective on day of closing. It will adjust monthly and will start the compound negative amortization on the balance of the loan.

13 Expected Rate For a fixed rate loan, the expected rate is the fixed interest rate. For an adjustable rate loan, the expected rate is the sum of the lender s margin plus the 10 year swap. The expected rate is also one of the three factors used to calculate how much a borrower qualifies for. Also know as Principal Limit!

14 Principal Limit Principal Limit The amount that the borrower can receive from a reverse mortgage. The Principal Limit at origination is based on the age of the youngest borrower, the expected average mortgage interest rate, and the Max Claim Amount (value of property or HUD lending limit, whichever is less.)

15 Expected Rate Continued The higher the expected rate is the less equity can be accessed. (Actual rate is 5.06 printed rate is rounded down)

16 Expected Rate Continued

17 Rate Cap Rate Cap: This rate is the assumption that you are closing the loan the day you created your quote. Based on this date s Initial Interest Rate plus 5% make up the rate cap. The true rate cap will be determined the day the loan closes. 5

18 Monthly Services Fees The good news! Not applicable to our products today The bad news! It s good to understand them in the event they ever come back. Monthly Servicing Fee would apply to: Line of Credit Maintenance of credit line and delivering of disbursements to the borrower. Servicing Fee Set Aside The lender may choose to assess a servicing fee and set it aside from the Principal Limit at closing

19 Why would you choose a HECM Libor? Security Equity Heirs Risk Situation Choice Want vs. Need Financial Advisors

20 Loan Amount Loan Amount: The funded amount at time of closing. For LIBOR products it is the sum of the cash draw, liens paid off and net closings cost. Any equity left in a credit line or monthly disbursements are NOT included in the loan balance at the time of closing. Maximum of 60% or mandatory obligations plus 10% of the Principal Limit in the first year. Fixed rate product amount at closing is final, (10% plus mandatory) no further draws for life of loan (Closed end loan) (CRITICAL AT TIME OF DOC ORDERING)

21 LIBOR Disbursement Options Flexibility is the main benefit this product offers. Borrower has full control of the net equity available to the them. Lump Sum: The client has the ability to draw up to 60% or 10% of PL above mandatory obligations at closing Credit Line: All net available cash is defaulted into a Line of Credit unless otherwise specified. Loans may take up to 60 days to access so plan for that. Tenure Disbursement: Guaranteed monthly disbursements calculated from the available equity at closing for the life of the loan. Term: Guaranteed monthly disbursements for a set amount of months.

22 Libor Disbursement Options Continued Combination: The client can choose to draw some cash at closing, keep some cash in the credit line and have either a monthly tenure disbursement or a term disbursement for a specific amount simultaneously. They can change their disbursement choices as often as the would like. Minimal fee is typical with most servicers.

23 Credit Line Growth Rate Line of Credit ( LOC ) Growth Rate The LOC available to the borrower at any point in the loan term is equal to their Principal Limit less the loan balance and any set asides. The Principal Limit is determined at closing and increases each month by one-twelfth of the sum of the current interest rate plus the annual MIP rate. The Growth Rate mirror images the interest rate + the annual MIP applied monthly(1.25%). Even if it hits the rate cap, the LOC will grow at the same rate. (NEVER CALL IT INTEREST!!)

24 Credit Line Growth Rate Continued

25 Do you remember Jane?

26 Jane s Dilemma CASE WAS BASED ON PRE 10/01/2013 GUIDES She needs immediate cash for prescriptions She needs her mortgage payment to disappear. She wants to have a lump set aside for services and burial She needs monthly amount to insure she does not deplete all of her remaining retirement.

27 First Option for Jane Monthly Term: Guaranteed monthly disbursements for a set amount of months Combination: The client can choose to draw some cash at closing, keep some cash in the credit line and have either a monthly tenure disbursement or a term disbursement for a specific amount simultaneously.

28 Second Option for Jane Current Expenses $850 Mortgage $800 Medical $1150 Everything Else $2800 Total Monthly Expenses Current Income $1200 Social Security $1200 Total Income $(1600) Net Income After Reverse Mortgage $850 Mortgage $800 Medical $1150 Everything Else $2000 Total Monthly Expenses New Income + Proceeds $1200 Social Security $ Term Payment $ Total Income $ Net Income

29 Jane s Solution With Option #1 Jane has cash ($4500) at closing for expenses, a $10,000 line of credit to use for burial fees when needed. In addition, she will receive $ per month for 24 months to cover the monthly shortfall. That draw nets her an additional $ while John is living, for them to visit their family and make some memories. Once she is on her own, she will no longer have the $800 medical bills, so her social security will cover her expenses entirely.

30 Jane s Solution With Option #2 Jane will receive $4500 to fund the next few months, but she is still short nearly $600 per month to cover expenses. She also has no line of credit to use for burial expenses, so she will need to continue to pull from her diminishing retirement account in order to cover her monthly and lump sum expenses. She and John will have no money to see family or do things while he is still living. After John passes, Jane would be able to cover her bills entirely with her Social Security.

31 What s the next step: How to Secure the HECM Libor The principal limit gets locked in by the expected rate in place when the client signs and dates their application. When the FHA case number is pulled, that is the trigger to begin the 120 day expected rate/principal limit lock. Clock starts at case number, but rate goes to signed application date. If the day docs are drawn (provided it is within 120 days) we have a lower expected rate with a higher principal limit, they will get the better of the two, docs drawn or application signed.

32 Let s travel through time Dates become extremely important in a unpredictable market. As you know rates are adjustable and do not lock until the loan closes. (Different from the principal limit lock!) With the principal limit lock, If you truly understand this process, it can be a wonderful tool for creating urgency with your borrowers. Time affects available equity!!!

33 Let s travel through time continued

34 Conclusion HECM LIBOR loan is different in many ways but it offers many of the same benefits as a HECM Fixed loan. There are many parts involved in the mechanics of the HECM LIBOR including rates, calculations and disbursement options. Timing is key in this market. As rates increase, it is crucial to understanding how time affects availability equity.

35 Re-Cap The Fixed rate option only allows for one lump sum draw at closing. The max allowed is the mandatory obligations plus 10% of the Principal limit OR 60% of the principal limit. The Libor Adjustable allows for maximum flexibility Initial draw is 60% or mandatory plus 10%. That includes any payments or additional LOC available 1 st year. Borrower chooses, no payments, make payments; line of credit, term or tenure or a combination of both. Unused Line of Credit is the most aggressive financial tool in the market today.

36 Explore your marketplace HECM for PURCHASE! Financial Advisors Boomers working towards retirement Self-Employed but tough to qualify Poor credit or limited income Estate Planning Tax Planning SEE YOU IN ESCROW!!!

37 LHFS Wholesale Understanding the HECM LIBOR Product Training Great Rates. Great Programs. Great Service. Please note that all information is provided on this web site for informational purposes only, for the exclusive use of licensed mortgage professionals, and not for the general public. This information does not represent an offer or commitment to enter into a loan agreement by Land Home Financial Services Wholesale Division (LHFSW). Not all programs are available in all areas and rates and costs stated do not apply to all loans made. LHFSW s underwriting guidelines and program restrictions apply. Terms and programs listed are subject to change without notice. LHFSW only conducts business in states approved to. LHFSW is a Division of Land Home Financial Services and is an Equal Housing Opportunity Lender. Click here for complete licensing information - Company NMLS #1796.