Your Reverse Mortgage Roadmap

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  • 1. BORROW WITH CONFIDENCE: YOUR ROAD MAP TO A REVERSE MORTGAGENational Reverse Mortgage Lenders Association
  • 2. Any new journey is much easier whenyou have a good map.The members of the National ReverseMortgage Lenders Association (NRMLA)are dedicated to guiding you throughthe features of reverse mortgages andthe process of obtaining one. We willequip you with everything you need toknow to decide if a reverse mortgagemight be the right financial instrumentfor you.To kick off this journey, here is a map thatshows you the route you will be takingand what you can expect along the way.
  • 3. Your Road Map to a Reverse Mortgage YOUR ITINERARY1. AWARENESS 4 You hear about a reverse mortgage2. First Stop: UPFRONT EDUCATION 5-6 You learn about a reverse mortgage3. Next Stop: COUNSELING 13 - 16 Your third party educator4. APPLICATION / FEES / DISCLOSURE 17 - 25 You begin the process5. LOAN PROCESSING AND UNDERWRITING 25 - 26 You receive approval6. CLOSING 27 - 28 You finish the process7. DISBURSEMENT OF FUNDS 29 - 30 You receive your proceeds8. LIFE OF LOAN ISSUES 30 - 31 You meet your responsibilities9. Last Stop: SETTLING THE LOAN ACCOUNT 32 - 34 You repay your loan10. THE NRMLA ADVANTAGE 34 You need information11. NRMLA’S PLEDGE TO 35 REVERSE MORTGAGE BORROWERS
  • 4. -----------------------------------1. AWARENESS-----------------------------------You are 62 years or older. You own your ownhome. Or your parents are 62 or older and owntheir own home. You hear about reverse mort-gages from a news article or an advertisementor a website. Or maybe from a friend or relative.Or you might contact a reverse mortgage lenderon the phone or on the internet. You hear thatyou can borrow against the equity in your homewhile you still live in it. You hear that this is a loanyou do not have to pay back until you leave thehome permanently. Your interest is sparked. This might be just the right financial solutionfor a current or a future need. You can use areverse mortgage to pay off your existingmortgage and lower your monthly expenses.You can use it to pay for health care. Or it mightjust provide you with the peace of mind thatcomes from knowing you have cash available. As a responsible consumer, you want toeducate yourself, you want to learn as much asyou can about a reverse mortgage. So where doyou turn? 4
  • 5. -----------------------------------2. First Stop: UPFRONT EDUCATION-----------------------------------How do you begin to learn about a reversemortgage? You contact a reverse mortgageprofessional at a lender who specializes in theseloans. We recommend you contact one who isa member of the National Reverse MortgageLenders Association (NRMLA). All NRMLA members must adhere to aCode of Ethics & Professional Responsibility anda Pledge to Reverse Mortgage Borrowers inwhich they promise to serve you with integrityand professionalism. Your best interests are ourmembers’ only consideration.A NRMLA member will:➔ Present you with a full range of reverse mortgage products that are available from his/her company;➔ Explain the terms, benefits and costs of each product;➔ Clearly explain his/her responsibilities to you;➔ Clearly explain your responsibilities under the terms of a reverse mortgage, including paying 5
  • 6. property taxes on time, maintaining insurance and maintaining your home in good condition;➔ Carefully review your income, assets and expenses to help you assess whether you can meet these obligations and determine whether the reverse mortgage is the best financial product for your situation;➔ Meet with you as frequently as you need and, at your request, also meet with other members of your family or your financial advisors;➔ Explain that, according to Federal statute, you must complete a reverse mortgage counseling session and provide you with a list of HUD-approved counselors you may contact. (As a means of maintaining a hands-off relationship so that you get unbiased third-party advice, a lender is not permitted to recommend any specific counselor);➔ Prepare you for making your counseling session the most effective by providing you with questions you might want to ask and information you should confirm. 6
  • 7. TYPES OF REVERSE MORTGAGESThe products, all or some of which a lender mayhave available, include:------------------------------------------------------------------------------Home Equity Conversion Mortgage (HECM)------------------------------------------------------------------------------HECM is the commonly used acronym for aHome Equity Conversion Mortgage, which is areverse mortgage insured by and regulated bythe Federal Housing Administration, which is partof the U.S. Department of Housing and UrbanDevelopment (HUD). A HECM is not a government loan. It is aloan issued by a private lender that is insured bythe Federal Housing Administration (FHA). Theborrower pays an insurance fee upfront at loanorigination, and each year the borrower is chargedan annual insurance fee of 1.25% of the outstandingloan balance. Your loan balance thus increases bythe amount of this fee. The insurance purchasedby this fee protects the borrower (1) if and whenthe lender is not able to make a payment; and (2) ifthe value of the home upon selling is not enoughto cover the loan balance. In the latter case, theFHA will pay off the remaining balance. Currently,HECMs make up 99% of the reverse mortgagesoffered in America. HECMs come with rules andregulations that include a requirement that theborrower receive third-party counseling. 7
  • 8. ------------------------------------------------------------------------------HECM Options------------------------------------------------------------------------------HECM StandardThe term “HECM Standard” refers to a traditionalHome Equity Conversion Mortgage,which hasbeen available since 1989. There are currentlymore than 500,000 senior homeowners whohave standard HECMs on their homes. Theamount of money you receive is based on atable created by HUD and is based uponyour age, the current appraised value of yourhome and interest rates. Fees can include anorigination fee, an upfront mortgage insurancepremium (MIP), an appraisal fee, traditionalclosing costs and a monthly servicing fee.(More on fees later.) This product is desirablefor senior homeowners who need the mostmoney available to them.HECM SaverHECM Saver is a lower-cost version of the HECMStandard. The savings comes from a lowerupfront mortgage insurance premium (MIP).The MIP collected by the Federal HousingAdministration on a HECM Saver is equal to0.01% of the value of the home, rather than 2%on a HECM Standard. On a $250,000 home, forexample, you pay $25 in MIP under the Saveroption, instead of $5,000 for a HECM Standard. 8
  • 9. The trade-off is that you receive 10-18% lessmoney. This product is desirable for people whodon’t need as much money compared to aHECM Standard, or don’t want to pay the higherfees. Because the fees are lower, and no monthlypayment is required, it may also prove to be analternative to obtaining a home equity line ofcredit that requires monthly payments.HECM for PurchaseWhile retirees typically use a HECM to coverliving expenses, supplement income, eliminatedebts, or pay for healthcare, a growing segmentof the senior population is using HECMs topurchase new homes that better suit their needs.The advantage of using a HECM for Purchase isthat the new home is purchased outright, usingfunds from the sale of the old home, whichare then combined with the reverse mortgageproceeds. This homebuying process leavesyou with no monthly mortgage payments. Whilestudy after study reveals that an overwhelmingpercentage of seniors want to continue living intheir current home for as long as possible, forsome people that isn’t the best, or safest,option. HECM for Purchase offers a solutionfor downsizing into a place that’s more easilynavigable, possibly more energy efficient, withlower maintenance costs, or which is closer tofriends and family. 9
  • 10. ------------------------------------------------------------------------------Proprietary Reverse Mortgages------------------------------------------------------------------------------Right now, very few proprietary reversemortgages exist. However, it’s important tomention them, because market conditions may REDLIGHT To obtain a reverse mortgage on a home, that home must be your primary residence, which means you must reside there 183 days per year or more. When you obtain a reverse mortgage and each year thereafter, you must confirm your residency by signing an Annual Occu- pancy Certificate that will be provided to you by your Servicer. If you must leave the home for an ex- tended period, due to work or health or for some other reason, you should notify your servicer and coordinate winterization and other preservation issues. If you are out of the home for twelve consecutive months, your loan could be in default. If for any reason you rent the property to someone else, it precludes the property from being your primary residence and the loan is in default. If the loan is in default, your servicer will request HUD approval that the loan become due and payable. 10
  • 11. change in the foreseeable future when propertyvalues stabilize. Proprietary reverse mortgages are non-FHAinsured reverse mortgages offered by banksand mortgage companies. They are not subjectto all of the same regulations as HECMs. In somestates, no counseling is required, although it isalways recommended and required by somelenders. Proprietary reverse mortgages are sometimescalled “jumbo” reverse mortgages, because theyare taken on higher-valued homes, generally$750,000 or more.------------------------------------------------------------------------------Additional Information------------------------------------------------------------------------------In addition to company-specific educationalmaterials provided by a lender, a prospectiveapplicant can gather information from independ-ent sources, such as newspapers, magazinearticles and informational websites. Educationalmaterial is available from HUD (hud.gov), AARP(AARP.org) and NRMLA (reversemortgage.org).Prior to being counseled, you will receive aninformation packet from either the counselingagency, or the lender, depending on who youcontact first. This information packet will includethe following materials: 11
  • 12. ➔ An informational document called “Preparing for Your Counseling Session”➔ A printout of loan comparisons, so the counselor may review what you are poten- tially eligible to receive from the reverse mortgage➔ A printout of the Total Annual Loan Cost (TALC) Disclosure required by the Federal Reserve Board on all reverse mortgage transactions. This form illustrates the cost of the loan if it is outstanding for different durations of time.➔ The National Council on Aging (NCOA) booklet, Use Your Home to Stay at Home – A Guide for Homeowners Who Need Help Now. REDLIGHT Loan originators may not require you to purchase other financial products (i.e., annuities, long term care insurance) as a condition for getting a reverse mortgage. If they do, you should report this to HUD or NRMLA. However, once you complete your reverse mortgage loan process, you are free to use your proceeds to purchase anything you choose. 12
  • 13. -----------------------------------3. Next Stop: COUNSELING-----------------------------------Counseling is required for all HECMs. Reversemortgages are the only financial product(perhaps the only product, period) that requirethis. Why is this? Caution. Because reversemortgages are designed for an older audiencewho are often on fixed incomes and involveswhat is usually everyone’s most valuable asset—their home—government and the reverse mort-gage industry want to make sure you have allthe information you need to make the rightdecision. A counseling session can take placeeither face-to-face or by telephone. Counselorshave been trained to deliver the required infor-mation either way. The session should generallylast 90 minutes but can take longer as needed. Loan originators are not permitted to directyou to a specific counselor or counseling agency.Instead, they are required by HUD to provide alist of counselors, including local agencies andnational intermediaries who are selected byHUD to provide counseling by telephone acrossthe country. 13
  • 14. Best case scenarios indicate that scheduling acounseling session will take three to ten businessdays from the time you place the call to thecounseling agency. Reverse mortgage “counseling” is nottherapeutic or psychological counseling. It ismost comparable to tutoring, extra help in under-standing something that can seem complicateddue to all the details. The counselor will go overmuch of the same information provided to youby a lender. REDLIGHT No fees may be incurred by you or on your behalf, with the exception of a modest charge for a credit report, prior to completion of mandatory counseling. 14
  • 15. A counselor will:➔ Explain a reverse mortgage to you;➔ Explain the various reverse mortgage product options;➔ Explain the costs;➔ Utilize a Financial Interview Tool (FIT) to help you determine if you can afford a reverse mortgage and meet your financial obligations, such as paying your taxes and insurance;➔ Draw your attention to alternative options that might be available to you, such as property tax deferral programs;➔ See if you might be eligible for grant money or other financial assistance by utilizing BenefitsCheckup, a tool for identifying services, such as housing assistance, tax deferral programs, home repair grants or loans, food stamps, fuel assistance, social services or healthcare;➔ Explain the consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate or your heirs;➔ Review the loan comparisons provided to you by the lender as well as the Total Annual Loan Cost disclosure; 15
  • 16. ➔ A counselor will not recommend that you obtain a specific product from any particular lender. His or her role is to provide information and clarity but not to advise;➔ Counseling generally costs in the vicinity of $125-250 per session. Some counseling agencies are awarded various grants that sometimes enable them to offer the service free of charge.➔ When you complete the session, both the counselor and you will sign a counseling certificate verifying you have fulfilled this requirement.“A REVERSE MORTGAGE GAVE US A SECOND LEASE ON LIFE ” 16
  • 17. -----------------------------------4. APPLICATION / FEES / DISCLOSURE-----------------------------------If you decide to proceed with the loan, you nowselect a lender and fill out a loan application.The person you deal with will be called a loanoriginator or reverse mortgage consultant. Filling out an application does not obligate youto take the loan. You will have opportunities tochange your mind. You will be asked to select aloan payment plan. Payment plans can be fixedmonthly payments, a lump sum payment,a line of credit, or a combination of these. The lender discloses the estimated total costof the loan, as required by the federal Truth inLending Act. The Truth in Lending disclosurespecifically designed for a reverse mortgageis called a TALC, or Total Annual Loan Costdisclosure. It illustrates all of the costs of the loanbased upon the loan being outstanding forthree different durations of time. The costs that the lender will describe toyou are capped and may be financed as partof the reverse mortgage. They can include thefollowing:Origination FeeThe origination fee covers a lender’s operatingexpenses associated with originating a reversemortgage. 17
  • 18. Under the HECM program, which accounts formost reverse mortgages made in the U.S. today,the maximum origination fee allowed is 2% ofthe initial $200,000 of the home’s value and 1% ofthe remaining value, with a cap of $6,000. Somelenders waive or reduce the origination fees oncertain products. (Note: Many of the calculations and fees ona HECM are based on the Maximum ClaimAmount, which is the value of the home at thetime of loan origination, but which currently hasa maximum limit of $625,500.)Mortgage Insurance PremiumThe Mortgage Insurance Premium (MIP) is a feepaid by the borrower to the Federal HousingAdministration (FHA), an agency of the federalgovernment, to provide certain protections forboth the lender and the borrower in a HECMreverse mortgage. For the HECM Standard, borrowers arecharged an upfront mortgage insurance premium(MIP) equal to 2 percent of the Maximum ClaimAmount, plus an annual premium thereafterequal to 1.25% percent of the outstandingbalance on the HECM loan. The HECM Saver, however, was set up toreduce upfront fees. On the Saver, the upfrontMIP is only .01% of the Maximum Claim Amount. 18
  • 19. The annual premium remains at 1.25% of the loanbalance. The Federal Housing Administrationcollects the insurance premiums, which areplaced into a mortgage insurance fund. Theinsurance fund guarantees borrowers that theirfunds will always be available to them, no matterwhat might happen with their lender. The lenderis insured against loss if the value of the home atthe end of the loan is less than the balance due. If the company servicing the loan is inter-rupted, FHA assumes responsibility for the loan,providing the borrower with uninterrupted accessto proceeds from his or her reverse mortgage. In cases where the sale of the home is notenough to pay back the reverse mortgage, theinsurance protects the borrower or estate fromowing more than the sale price by coveringlosses incurred by the lender.Appraisal FeeAn appraiser is responsible for assigning acurrent market value to your home. Appraisalfees vary by region, type and value of home,but average $450. This is the one fee generally paid in cash,often before the loan is made, and not with theloan proceeds. In addition to placing a valueon the home, an appraiser must also make surethere are no major structural defects, such as a 19
  • 20. bad foundation, leaky roof, or termite damage.Federal regulations mandate that your home bestructurally sound, and comply with all homesafety and local building codes, in order for thereverse mortgage to be made. If the appraiseruncovers property defects, you must hire acontractor to complete the repairs. Once the repairs are completed, the sameappraiser is paid for a second visit to make surethe repairs have been completed. Appraisersgenerally charge $125 dollars for the follow-upexamination. If the estimated cost of the repairs is less than15 percent of the Maximum Claim Amount, thecost of the repairs may be paid for with fundsfrom the reverse mortgage loan and completedafter the reverse mortgage is made. A “RepairSet-Aside” will be established from the reversemortgage proceeds to pay for the cost of therepairs. The homeowner will be responsible forgetting the repairs completed in a timely manner.Closing CostsOther closing costs that are commonly chargedto a reverse mortgage borrower, which are thesame for any type of mortgage, include:➔ Credit report fee. Verifies any federal tax liens, or other judgments, handed down against the borrower. Cost: generally between $20-$50; 20
  • 21. ➔ Flood certification fee. Determines whether the property is located on a federally designated flood plane. Cost: generally about $20;➔ Escrow, settlement or closing fee. Generally includes a title search and various other required closing services. Cost: can range between $150-$800 depending on your location;➔ Document preparation fee. Fee charged to prepare the final closing documents, including the mortgage note and other recordable items. Cost: $75-$150;➔ Recording fee. Fee charged to record the mortgage lien with the County Recorder’s Office. Cost: can range between $50-$500 depending on your location;➔ 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 a property. Varies by size of the loan, though in general, the larger the loan amount, the higher the cost of the title insurance; 21
  • 22. ➔ 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 under $250(Note: Cost estimates can change over time.For most current costs, consult a lender. Also,some states may have local fees that are notincluded here.)Servicing Fee & Set-AsideA lender typically earns monthly fees, knownas servicing fees, for its administration of theloan. These can be a fixed monthly amount orcalculated into the interest rate on the loan. If afixed monthly amount is to be charged, anamount of funds will be “set-aside” from the loanproceeds, to be used to pay this monthly fee. The service fee set-aside is deducted fromthe available loan proceeds at closing to coverthe projected costs of servicing your account.Federal regulations allow the loan servicer (which 22
  • 23. may or may not be the same company as theoriginating lender) to charge a monthly fee thatis no higher than $35. The amount of moneyset-aside is largely determined by the borrower’sage and life expectancy. Generally, the set-asidecan amount to several thousand dollars. Many lenders have either eliminated theservicing set-aside or included it in the interestrate. (Note: The servicing set aside is just a calcu-lation and not a charge. The only amount addedto your loan balance is the monthly servicingfee, which is typically $35 per month or less.)InterestWith a reverse mortgage, you are chargedinterest only on the funds (loan proceeds) thatyou receive. For example, if you take your loanproceeds as a line of credit, you are onlycharged interest on the portion of the line ofcredit you have withdrawn. The interest is compounded, which meansyou pay ongoing interest on the principal, plusaccumulated interest. Reverse mortgage products are available withboth fixed interest rates and variable interestrates. The variable rate is tied to an index, suchas the 1-Yr. Treasury bill or the 30-Day LIBOR(London Interbank Offered Rate), plus a margindetermined by yield requirements in the financial 23
  • 24. markets. The margin is set at the time of loanorigination and does not change over the life ofthe loan. During the life of your loan, the loanbalance increases by the amount of compoundedinterest accrued. Because there are no payments made by theborrower during the life of a reverse mortgage,interest is not paid on a current basis. It doesnot have to be paid out of your available loanproceeds either, but instead accrues, at acompounded rate, through the life of the loanuntil repayment occurs at the end.Other DisclosuresYour lender will supply you with a largepackage of additional disclosure documentsthat are designed to help make the process astransparent as possible. One such document is the Total Annual LoanCost (TALC) Disclosure, a form required by theFederal Reserve Board on all reverse mortgagetransactions, that illustrates the cost of the loan ifit is outstanding for different durations of time. The Good Faith Estimate clearly discloses line-by-line the various fees that are being charged.Other disclosures, like an amortization table,illustrate the amount of interest that will accrue,so that you are fully informed about the costsassociated with getting a reverse mortgage. 24
  • 25. The application process formally begins aftercounseling, once you provide the lender withyour loan application and the signed disclosuresas well as required information, including verifi-cation of a Social Security number, a copy of thedeed to your home, information on any existingmortgage(s), and a signed counseling certificate(signed by both the homeowner and counselor).-----------------------------------5. LOAN PROCESSING-----------------------------------The lender orders an appraisal by a professionalappraisal firm. It is paid for by the homeowner.This determines the market value of the home.However, the final value is not established untilthe Loan Underwriter employed by the lenderreviews the appraisal and approves it. After receiving all pertinent information fromthe homeowner and obtaining other requireditems, the loan package is submitted to the LoanUnderwriter for final approval. It generally takesanywhere from 1-5 days to underwrite a loan.Underwriting involves verifying all informationand making sure the loan complies with all lawsand regulations. A conditional approval is provided with afinal home value and any repairs or additional 25
  • 26. inspections required, as well as anything elsethe lender may need in order to issue a finalapproval, so the loan can close. REDLIGHT Your home is the collateral for a HECM loan and must be maintained to meet HUD stan- dards. As part of the loan origination process, your Lender will order an inspection of your home and the inspector will deliver a report indicating if repairs are required. If so, a portion of your loan will be set aside to pay for those repairs. It is your responsibility to hire a contractor to do the repairs. Once the repairs are completed, the contractor will sign a lien release form. Then the completed repairs will be inspected. At that point, the Servicer will disburse the funds from the set- aside to pay the contractor and return any remaining funds to your loan proceeds. A borrower has one year from the closing date of the loan to complete the repairs. If repairs are not completed, loan payments will be suspended until they are completed or the Servicer may request that HUD deems the loan due and payable. 26
  • 27. -----------------------------------6. CLOSING-----------------------------------Once the loan application has been approved,a closing (signing) of the reverse mortgageis scheduled with a title agent or attorney(depending on the state). The lender shouldconfirm the payment plan the borrower wishesto receive (i.e. amount of fixed monthly pay-ments, line of credit), plus any requested cashthe homeowner wishes to receive in a lumpsum at funding. Closing documents and finalfigures are prepared. Closing costs are normallyfinanced as part of the loan, but the homeowneris allowed to pay any costs in lieu of financing,if they so choose. If existing liens are identified, the payoffs areupdated accordingly. Your closing agent will pay REDLIGHT A reverse mortgage must be the only lien on a property. This means, in order to obtain a reverse mortgage you must pay off any existing mortgage(s) or other obligations for which a lien has been placed on the property. You can use your reverse mortgage proceeds to pay off the mortgage or other obligations. 27
  • 28. off all existing liens, verify taxes are paid andmake sure that you have a current homeowner’sinsurance policy. Before closing on a reverse mortgage,you may consider seeking the advice of a taxprofessional or elder law attorney in the eventyou are faced with a situation that can affectyour taxes, Medicaid or SSI eligibility. SocialSecurity and Medicare are not impacted at allby a reverse mortgage. Under the best case scenario, it takes a fewbusiness days to confirm all fees and payoffs,schedule a closing date, prepare the documentsand communicate to all parties involved. Closing agents who are NRMLA members willnot pressure you to close by a certain time framethat you are unable to meet or uncomfortablemeeting. And you still have an opportunity tochange your mind about getting the loan. 28
  • 29. -----------------------------------7. DISBURSEMENT OF FUNDS-----------------------------------The homeowner has three business days aftersigning the papers to cancel the loan. (Thesethree days are known as the rescission period.) Upon expiration of this period, the loan fundsare disbursed. The homeowner accesses thefunds in the form of the payment option selected.Any existing debt on the home is paid off. A newlien is placed on the home. The homeownermay use the loan proceeds for any purpose. The only exception to a homeowner’s rightof rescission is on a HECM for Purchase reversemortgage. There is no rescission option on apurchase money mortgage. You can choose toreceive the money from a reverse mortgage allat once as a lump sum, in fixed monthly paymentseither for a set term or for as long as you live inthe home, as a line of credit, or as a combinationof these. If you select fixed payments, your loan ser-vicer will disburse them on the first business dayof each month. As a borrower, you have the right to changeyour payment plan at any time. You simplyrequest a new Payment Plan Agreement formfrom your Servicer. A change may include asmall administrative fee of no more than $20. 29
  • 30. Once the agreement is executed, the new pay-ment plan will go into effect the first businessday of the next month.-----------------------------------8. LIFE OF LOAN ISSUES-----------------------------------After the loan closes, a loan “servicer“ managesthe account and is responsible for disbursingmonthly payments to the homeowner (if thispayment option is chosen), advancing fundsfrom the line of credit upon request, collecting REDLIGHT A reverse mortgage borrower is responsi- ble for staying current on their real estate taxes and homeowner’s insurance. As a borrower you can pay the taxes yourself or set up a set-aside and have the Servicer pay them for you. If you go into arrears on your taxes and insurance, you take the chance of going into default. When your loan is in default, your Servicer will request that HUD deem the loan due and payable. Additional counseling is available to those who find themselves in default. Your servicer will help you find a counselor. A counselor will work with you to try to set up an acceptable repayment plan. 30
  • 31. any voluntary repayments and sending periodicstatements. The servicer is also responsible for monitor-ing to make sure that real estate taxes are paid,insurance is maintained on the home, and theborrower continues to live in the property. A Servicer who is a NRMLA member willalways be available to make sure you are awareof the current loan balance and all costs, as wellas answer any questions you might have aboutyour reverse mortgage. The Servicer has internal systems in place toinform and alert you if there are any tax and/orinsurance issues with your loan and will notifyyou promptly if you fall behind on eitherresponsibility. Servicers have also implemented safety netsthat are intended to prevent borrower fraud,identity theft or outside parties taking undue advantage of borrowers. 31
  • 32. -----------------------------------9. Last Stop: SETTLING THE LOAN ACCOUNT-----------------------------------The homeowner doesn’t make any monthlymortgage payments during the life of the loan.The loan is repaid when the homeowner or lastsurviving spouse on title ceases to occupy thehome as a principal residence. The reverse mortgage is a non-recourse loan,which means no debt will be left to the heirs andif the loan balance is less than the market valueof the home, the additional equity is retainedby the homeowner/heirs (if the home is sold). If a name is removed from the title, that personis no longer an owner of the home. When theperson whose name is on the deed passes, thesurviving spouse or the heirs are responsible forinforming the loanservicer. Servicers REDLIGHTalso audit deaths All reverse mortgageof borrowers using borrowers musta variety of tools. be at least 62.Future paymentsstop at death, butinterest, mortgage insurance premium andhomeowner’s insurance continue to accrue untilthe loan is settled. The Servicer will mail a notice 32
  • 33. to the surviving spouse or heirs informing themthe loan is now due and payable. The survivingspouse or the heirs are responsible for payingback the reverse mortgage loan. The loan can bepaid back out of other resources or by sellingthe home. If there is a balance from the sale ofthe home after the reverse mortgage is paid, itbelongs to the heirs. When the borrower sells or conveys title ofthe property, passes away or does not maintainthe property as principal residence for a periodexceeding twelve months due to physical ormental illness, you have reached what is calleda “maturity event.” This means the loan is dueand payable. You or your estate will workclosely with the Servicer to ensure your loan ispaid in full in a timely manner. The estate willhave six months to satisfy the debt. In the fifthmonth, you will receive a letter from the Serviceradvising you have 30 days to settle the loan,but can request a 90-day extension, which mustbe approved by HUD. You may also request asecond 90-day extension. If the 30-day demandletter is not responded to, or after the 90-dayapproved extensions expire, or if the borrowerhas no heirs to help pay off the loan, the Servicermay initiate foreclosure. If, however, you or your estate are activelyworking to either refinance your property or sell 33
  • 34. your property so as to satisfy your reversemortgage, then foreclosure may be forestalled. The key to a proper and clean end to a loan isto work closely with your Servicer from the timethe loan is called due and payable.-----------------------------------10. THE NRMLA ADVANTAGE-----------------------------------NRMLA is there for you. This Road Map has beencreated with you in mind to provide you all theinformation you need to determine if you wouldlike to further explore reverse mortgages. If you have any additional questions, pleasego to reversemortgage.org and use our GetHelp form. If you want to contact someone about reversemortgages, please go to reversemortgage.organd use our Find a Lender search tool and entera state or company. If you ever have any questions or any complaintsabout anything your lender, servicer, closingagent or appraiser has done, NRMLA will fieldand respond to those questions and complaints.Simply go to reversemortgage.org and Reporta Problem. 34
  • 35. NATIONAL REVERSE MORTGAGE LENDERS ASSOCIATION PLEDGE TO REVERSE MORTGAGE BORROWERS The mission of the National Reverse Mortgage Lenders Association is to educate you about reverse mortgages and to help you determine if one might be the right choice for you. We know your home is a prized possession of you and your family. We are sensitive to the fact that utilizing your home equity while you remain in the home is a major financial and emotional decision. All NRMLA members are required to abide by a Code of Ethics & Professional Responsibility in which we pledge to serve you with integrity. Your best interests are our primary consideration. Prior to you getting a reverse mortgage, as a NRMLA member we will:➔ Know and comply with all State and ➔ Prepare loan comparison projections and Federal laws and regulations that protect an amortization table for the loan being pro- reverse mortgage borrowers. posed to review at your counseling session.➔ Present you with the full range of reverse ➔ Not charge any fees prior to the completion mortgage products available from our of mandatory counseling. company. ➔ Help you analyze your financial ability to meet➔ Clearly explain the terms, benefits and your responsibilities under the reverse mortgage. costs of each product we present. ➔ Recommend that you seek professional➔ Inform you of your responsibilities as a advice if you are receiving assistance from reverse mortgage borrower including SSI, Medicaid or other government programs. paying real estate taxes on time, keeping ➔ Recommend you seek professional tax the property properly insured and advice when appropriate. maintaining the home in sound condition. ➔ Allow you to decide when to close on the➔ Work with you and, if you request, with reverse mortgage loan and not pressure your family and financial advisors either you to make a decision. face-to-face or on the telephone as fre- ➔ Provide you with opportunities during the quently as you choose to educate you, loan process to change your mind and not answer any and all questions and help take the loan. you assess whether a reverse mortgage might be beneficial to you. ➔ Pay off the existing liens shown of record, verify taxes are paid, and make sure that➔ Explain the benefits of and statutory you have proper insurance upon closing. requirement that you have reverse mort- gage counseling. Once you have a reverse mortgage, a NRMLA➔ Provide you with a list of HUD-approved member loan servicer will: independent housing counseling organi- ➔ Notify you promptly if you have fallen behind zations that employ exam qualified coun- in your tax and insurance obligations and selors to serve you. The choice of the direct you to seek advice in the event you organization is yours and yours alone. are not able to fulfill your responsibilities.➔ Help you prepare for your counseling ➔ Keep you informed of your current loan session to makeit most effective by pro- balance and of all costs by providing regular viding you with questions you might ask statements detailing your account. and information you should be prepared ➔ Be available to answer any questions you to provide to the counselor. may have about your account. You can BORROW WITH CONFIDENCE from a NRMLA member. Copyright © National Reverse Mortgage Lenders Association 2011 35
  • 36. The Certified Reverse Mortgage Professionaldesignation gives experienced lenders andloan originators an opportunity to furtherdemonstrate their dedication andknowledge. Look for the CRMP logoon your loan originator’s businesscard and promotional materials. You can borrow with confidence from a NRMLA lender.National Reverse Mortgage Lenders Association 1400 16th Street, Suite 420 • Washington, DC 20036 Phone: 202-939-1760 • www.ReverseMortgage.org