Reverse Mortgages Help Clients & Increase Referrals

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1 Reverse Mortgages Help Clients & Increase Referrals Alain Valles, President Certified Senior Advisor, CRMP, MBA Direct Finance Corp My goal today is to: 1. Highlight the financial challenges facing seniors 2. Summarize the basics of a reverse mortgage 3. Discuss how understanding reverse mortgages will make you a better CSA and grow your practice Alain Valles President of Direct Finance Corp. Certified Senior Advisor Over 20 years of mortgage experience First person in New England designated by the National Reverse Mortgage Lenders Association (NRMLA) as a Certified Reverse Mortgage Professional (CRMP) #1 MA mortgage broker providing reverse mortgages for past 3yrs Contributor to various trade publications Past-President of the Mass. Mortgage Association Masters in Real Estate from M.I.T. MBA from The Wharton School, Univ. of Pennsylvania Passionate about maintaining & improving the quality of life! 1

2 The Senior Housing Market 20 Million people 65 years old or older 77% Own a Home (15.4 million) 84% Have No Mortgage (12.9 million) 85% Desire to Stay in Their Home (13.1 million) Source: National Council on Aging The Reverse Mortgage Market A reverse mortgage, also known as a Home Equity Conversion Mortgage HECM, is a federally insured home loan administered by HUD that allows seniors to access the equity in their homes. About 70,000 loans will be given this year About 1% of total mortgage volume About 1~2% of eligible seniors have a reverse mortgage WHAT ARE THE TOP CHALLENGES FACING SENIORS? 2

3 What are the current challenges? #1 Goal Remain Independent / Afford Home Increase monthly cash flow Pay off existing mortgage, debts, credit cards Deferred home maintenance Be able to pay real estate taxes Health or Insurance Needs Having the best quality of life possible THIS IS WHERE YOU COME IN! Your Product or Service How will seniors afford life? Where will the money come from? Retirement Cash Flow Common Sources & Limitations 1. Social Security Insufficient to cover monthly expenses 2. Pensions/Investments Few have them & poor rates of return 3. Family Significant financial & emotional cost 4. Work Life happens can t continue 3

4 But wait There s hope Reverse Mortgages May Be A Solution. Reverse Mortgage Basics The Key Benefits How to qualify How much cash is available How is the cash received When is it paid back What is the cost What are the key benefits? #1 Benefit No Monthly Payments Required No income or asset requirements No minimum credit score May close in a trust or life estate No restrictions on use of proceeds No health requirements Loan is non-recourse: You can never owe more than the value of the property. No personal guaranty. 4

5 How does your client qualify? What I say when I receive a referral The Three Qualifying Questions How does your client qualify? The Three Qualifying Questions: 1. How old are you? Must be at least What is the estimated home value? 3. What is the current mortgage balance? THAT S BASICALLY IT to PREQUALIFY! Maximum Loan Amount Examples +/- Age Home Value $250,000 $148,000 $162,000 $177,000 $400,000 $240,000 $263,000 $285,000 $500,000 $302,000 $330,000 $359,000 $625,500 $381,000 $416,000 $451,000 Rough rule of thumb 60% ~ 70%+ loan-to-value 5

6 Maximum Loan Amount Examples +/- Age Home Value $250,000 $148,000 $162,000 $177,000 $400,000 $240,000 $263,000 $285,000 $500,000 $302,000 $330,000 $359,000 $625,500 $381,000 $416,000 $451,000 NOTE THIS DOES NOT MEAN THEY SHOULD BORROW IT ALL!!! How is the cash received? Three Basic Options Lump sum Monthly Payments like an annuity Line of Credit most complicated part to explain to a senior BUT perhaps the best benefit of a reverse!!! Reverse Line of Credit (LOC) AMOUNT AVAILALBE Year Bank LOC Reverse LOC O $200,000 $200,000 1 $200,000 $209,000 2 $200,000 $218,405 3 $200,000 $228,233 Why does it grow? 6

7 Why Does Line of Credit Grow? 1) Person is older 2) Assumes home appreciates in value 3) Grows at cost of money which is around 4.5% today. Important Features 1) If interest rates increase so does the LOC 2) Grows independent of actual home value 3) Guaranteed by HUD Reverse Line of Credit (LOC) INCREDIBLE SECURITY BLANKET!!! AMOUNT AVAILALBE Year Bank LOC Reverse LOC O $200,000 $200,000 1 $200,000 $209,000 2 $200,000 $218,405 3 $200,000 $228,233 : : : 10 $200,000 $313,398 When does the loan become due? Property is sold Borrower passes away (have up to 1 year to pay off loan) Borrower no longer occupies the home for over 12 months (have up to 1 year to pay off home after the home is no longer the primary residence) Key Benefit: Time to figure it out Must pay real estate taxes & insurance 7

8 Is a Reverse Mortgage Expensive? Is a Reverse Mortgage Expensive? Compared to what? MOVING Is a Reverse Mortgage Expensive? Compared to what? MOVING Example: Cost of selling a $400,000 home 5% $20,000 Home Repairs $10,000 Moving Expense $ 5,000 Total $35,000 +/- Moving & downsizing also have high emotional costs 8

9 Is a Reverse Mortgage Expensive? Compared to what? Moving $35,000+/- Reverse Mortgage Expense for a $400,000 home HUD 2% $ 8,000 Points (sliding scale) $ 6,000 Closing Costs $ 3,500 Total $17,500 +/- (Note Cost is built into the loan) Moving is MORE expensive than a Reverse CRITICAL CLIENT QUESTIONS What is Plan B? Who are your trusted advisors? (this is where you should be involved) What is our next step? Your Next Steps REFERRALS Have your radar on DO NOT try to explain the details of a reverse mortgage to your clients!!! Build a trusting relationship with a professional, competent, and caring Reverse Mortgage Loan Officer (go on the appointment & listen) 9

10 The MOST important part How Will a Reverse Mortgage Help Your Clients While Growing Your Business? #1 Afford to Stay in Home Reverse Mortgages Wheel of Opportunities Social Security deferral Pay off mortgage Pay off credit cards Additional cash flow Home improvement Handicap accessibility Estate & financial planning Investments Life insurance Long term care insurance Reserve funds Prevent foreclosure/bankruptcy Prepay Funeral Expenses Medicine / medical Assist children/grandchildren Educational expenses Realtors/1st time buyers Reverse for Purchase/Downsize Second homes Travel / Time Share New car / RV's Pets Charities / Gifting Religious affiliations Beat thecompetition Let your database know It's a good life. Thank You! For More Information Alain Valles, CSA, CRMP NMLS Lic. #7946 Direct Finance Corp. 40 Accord Park Dr., Ste 208 Norwell, MA x224 Cell av@dfcmortgage.com And Oh By The Way I m never too busy for any of your referrals! 10