HOME EQUITY CONVERSION MORTGAGE (HECM) aka REVERSE MORTGAGE WHAT EVERY ATTORNEY NEEDS TO KNOW Presented By Doni Dolfinger Universal Lending Corporation Reverse Mortgage Specialist (303) 791-4786 ddolfinger@ulc.com http://ddolfinger.ulc.com p // g
REVERSE MORTGAGE OVERVIEW What is it? Mortgage for homeowner 62+ that is not due until the borrower moves, sells, or dies It converts a portion of home equity into loan proceeds It is a non-recourse non eco se loan loan, bo borrower o e not responsible esponsible fo for an any deficienc deficiency if the outstanding loan exceeds the market value of the home There is no need to give up title to the property or make mortgage payments
REVERSE MORTGAGE OVERVIEW Ideal Candidate: Qualifying homeowner who wants or needs additional money without a mortgage payment; possible uses: In home care Pay off mortgage or other bills (i.e. charge cards) Supplement income Maintain home, pay taxes and insurance Help grandchildren with college Purchase second home (i.e. snowbirds)
Attorney s y Role In the Reverse Mortgage g g Process Helping clients understand the HECM product: Negative amortization loan Various plans and options Mortgage payments not required but may be made to reduce loan balance No prepayment penalty Non recourse loan Borrower must use home for primary residence, keep taxes and insurance current, maintain the home and notify lender when they move, sell or die What clients receiving public assistance benefits should know Helping clients understand the HECM disclosures: HECM is FHA Insured Two Notes & Two Deeds of Trust Deeds of Trust show 1 ½ times appraised value (not what is owed) and borrower s 150thh birthday as the due date
WHATS NEW? REVERSE MORTGAGES - WHATS One size does not fit all. There are many options: HECM Saver Monthly Adjustable variable rate, funds may be disbursed several ways or used as a line of credit, lower costs and less money available, l l bl helps h l preserve more equity for f the h estate Standard HECM Monthly Adjustable variable rate, funds may be di b d in i severall ways or used d as a line li off credit dit disbursed HECM Saver Fixed fixed rate, lump sum with lower costs and less money available available, helps preserve more money for the estate Standard HECM Fixed fixed rate, lump sum disbursement of funds
HECM COMPARISONS
WHAT S REVERSE MORTGAGE WHAT S NEW? Reverse Mortgage For Purchase: Jo s Example She is 68 years old she netted $191,000 out of previous home. Interest rate 5.56% on Fixed Rate Reverse Mortgage New Townhome Cash from sale of previous home Needed to close $272,373* $191,000 $ 81,373 Qualifies for $166,000 on her reverse mortgage so she has $81,373 for closing; $84,627 to her and no monthly payments. (Cash at closing can be from sale of previous home, investments, gift, cannot be borrowed) *For purchase mortgages only, the maximum claim amount will be the least of the appraised value; sales price; FHA mortgage limit. These figures included her MIP, Closing Costs and Origination fees.
WHAT TO KNOW WHEN YOUR CLIENT MOVES SELLS MOVES, SELLS, OR DIES The reverse mortgage is due when the borrower moves, sells, or dies. The lender, once notified, will monitor the time frame and give extensions for up to a year. The key is communication with the lender. What about a temporary move from the home for rehabilitation? The borrower may be out of the home for up to a year for physical or mental rehabilitation. What if the borrower is upside down on the loan? Any loss will be covered by FHA mortgage insurance What circumstances could cause foreclosure? Borrower fails to pay his property taxes, homeowners insurance and homeowners dues, if he fails to live in the home as his primary residence and d maintain i t i the th home. h
REVERSE MORTGAGE AND MEDICAID How does Medicaid treat reverse mortgages for eligibility and estate recovery? 8.100.5.L. Reverse Mortgages In accordance with C.R.S. 11 11-38-110 38 110, reverse mortgages payments made to a borrower shall not be treated as income for eligibility purposes. Funds remaining the following month after the payment is made will be countable as a resource. eso ce Any payments from a reverse mortgage that are transferred to another individual without fair consideration shall be analyzed y in accordance with the rules on transfers without fair consideration in the Long Term Care section and may result in a penalty period of ineligibility. * Medicaid regulations are currently being reviewed and revised by HCPF. HCPF
REVERSE MORTGAGES TRUSTS AND POWERS OF ATTORNEY Revocable Trusts If the home is titled in a Revocable Trust, the Trust must meet FHA guidelines. The lender must review the Trust and approve the Trust prior to closing on the loan. If the Trust meets FHA guidelines, the titling can remain as is. If it does not meet FHA guidelines, the Trust must be amended or the property transferred out of the Trust in order for the loan review process and closing to proceed. p oceed The p property ope t cannot the thereafter eafte be ttransferred ansfe ed back into a non-qualifying non q alif ing Trust; T st however, the property could be transferred into a qualifying Trust. If the home is titled in an Irrevocable Trust, it will never meet FHA guidelines. Power of Attorney If the client is using a POA for the entire reverse mortgage process, the lender will require various a ous things t gs depending depe d g o on co competency, pete cy, suc such as as: POA must be durable and give the right to encumber the property POA must be executed by the borrower prior to loan application and identify the property with address and legal description if possible. Agent must attend HECM Counseling and sign all application documents SEE POA Underwriting Blast enclosed for more details
REVERSE MORTGAGES BENEFICIARY DEEDS AND JOINT OWNERSHIP Beneficiary Deeds If a borrower has previously executed a Beneficiary Deed, the reverse mortgage is not affected since the reverse mortgage borrower is still on title to the property while they are living. FHA requires all borrowers remain on title during the term of the loan. Joint Ownership Joint tenancy and tenancy-in-common forms of ownership are permitted with a reverse mortgage, onlyy so long g as all owners are 62+ years y of age. g For example, p, if your y client owns the home in jjoint tenancy/tenancy-in-common with her son, who is 50 years old, she will not qualify for a reverse mortgage unless the property is re-titled into her sole name or the child is 62+ years old. After the reverse mortgage loan is closed, the borrower may re-title the property back into joint tenancy or tenancy-in-common with her child. Life estates are permitted with a reverse mortgage. The remaindermen do not have to be 62+ years of age, but must sign several closing documents. The remaindermen need to be aware that the reverse mortgage remains as a lien on the property and is due when the borrower moves, sells, or dies. Complications arise when the borrower, due to declining health, must move to a facility for care. At this point, the loan becomes due and may require the remaindermen to pay off the reverse mortgage in order to retain the benefits of the life estate.