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  1. 1. Housing Strategies for Long-Term Care August 6, 2004 Reverse Mortgages
  2. 2. Programs available <ul><li>FHA’s Home Equity Conversion Mortgage (HECM) </li></ul><ul><li>Fannie Mae’s Home Keeper </li></ul><ul><li>Private Programs for larger valued homes </li></ul>
  3. 3. Growth of Reverse Mortgages <ul><li>95% of the Reverse Mortgages are HECMs </li></ul><ul><li>In the current fiscal year, (October 1, 2003 – May 31, 2004), HECM insured 23,682 </li></ul><ul><li>Same time period a year ago 10,455 HECMs were insured </li></ul><ul><li>127% growth </li></ul><ul><li>Since 1980 when the HECM program began, 104,990 loans have been insured by HUD </li></ul><ul><li>Two-thirds of that, 62,619, were originated in the past 3.5 years </li></ul>
  4. 4. Future of Reverse Mortgages <ul><li>81.9% of Americans 65 to 74 own their home* </li></ul><ul><li>78.3% of Americans 75+ own their own home* </li></ul><ul><li>Senior homeowners 65+ has grown by more than 5.6 million since 1980 to 22.1 million** </li></ul><ul><li>In 2010 it is expected to grow by another 3 million to 25.1 million** </li></ul><ul><li>Senior homeowners have accumulated $1.8 trillion in equity out of their homes** </li></ul><ul><li>Approximately 400,000 senior homeowners in Minnesota </li></ul><ul><li>*Info from State of the Nation’s Housing report published by Harvard University’s Joint Center for Housing Studies (JCHS) </li></ul><ul><li>** Standard’s & Poor’s analysis of U.S. Census Bureau data </li></ul>
  5. 5. Future of Reverse Mortgages <ul><li>Last year only .3% of those eligible for a Reverse Mortgage nationally have done one </li></ul><ul><li>Demonstrates large demographic potential for Reverse Mortgages nationally and in Minnesota </li></ul><ul><li>Average age of the borrowers is mid-70’s </li></ul><ul><li>As Baby Boomers age and more people become familiar with Reverse Mortgages, the growth will continue </li></ul><ul><li>Baby Boomers are likely to do a Reverse Mortgage at an younger age </li></ul>
  6. 6. Originating a Reverse Mortgage <ul><li>Different than a conventional loan: </li></ul><ul><ul><li>Takes longer for borrowers to decide </li></ul></ul><ul><ul><li>Lenders have to be more like social workers rather than the “traditional sales person” </li></ul></ul><ul><ul><li>Processing different </li></ul></ul><ul><ul><li>Underwriting is different </li></ul></ul>
  7. 7. Originating a Reverse Mortgage <ul><li>Getting the word out: </li></ul><ul><ul><li>Lenders </li></ul></ul><ul><ul><li>NRMLA </li></ul></ul><ul><ul><li>Word of mouth </li></ul></ul><ul><ul><li>Counselors </li></ul></ul><ul><ul><li>AARP </li></ul></ul><ul><ul><li>Children are encouraging parents to do a Reverse Mortgage </li></ul></ul><ul><ul><li>Telemarketing is not done </li></ul></ul>
  8. 8. Minnesota Lenders are Growing <ul><li>As refinancing decreases, more lenders are getting into Reverse Mortgages </li></ul><ul><li>Some are licensed in MN but don’t have representatives here </li></ul><ul><li>To find a list of lenders: </li></ul><ul><ul><li>NRMLA: www.reversemortgage.org </li></ul></ul><ul><ul><li>HUD: www.hud.gov </li></ul></ul>
  9. 9. What to consider when talking to lenders <ul><li>Do they disclose all the information and identify all costs, explaining the program(s) and details accurately and clearly so you understand them? </li></ul><ul><li>Do they assist you in determining which program is most suitable for your needs? </li></ul><ul><li>Do they just try to “sell” the program to you or do they help you determine if the program is appropriate for your situation? </li></ul><ul><li>Do they encourage you to discuss the loan transaction with family and/or trusted advisors? </li></ul><ul><li>Are you treated with respect and dignity? </li></ul>
  10. 10. What to consider when talking to lenders <ul><li>Do they protect your privacy and confidentiality and not distribute personal financial information to any third party without permission from you? </li></ul><ul><li>How fast do they process their loans? </li></ul><ul><li>Who does the processing? </li></ul><ul><li>Where are their loans processed? </li></ul><ul><li>Who services the loans? </li></ul><ul><li>What type of customer service do they provide? </li></ul><ul><li>Once the loan is closed, will they answer questions and continue to provide customer service? </li></ul>
  11. 11. Costs of the Reverse Mortgage <ul><li>Origination Fee – 2% or $2,000 </li></ul><ul><li>FHA Mortgage Insurance Premium – 2% </li></ul><ul><li>Appraisal – $350 - $500 </li></ul><ul><li>Credit Report – $18 - $20 </li></ul><ul><li>Flood Certification – $18 - $20 </li></ul><ul><li>Courier Fee - $30 each </li></ul><ul><li>Escrow, Settlement Fee – $250 - $300 </li></ul><ul><li>Abstract or Title Search – $125 - $150 </li></ul><ul><li>Title Examination – $125 - $130 </li></ul>
  12. 12. Costs of the Reverse Mortgage continued <ul><li>Document Preparation Fee – $125 </li></ul><ul><li>Title Insurance – based on property value </li></ul><ul><li>Endorsements – 2 at $50 each </li></ul><ul><li>Recording Fees – $25 - $30 each mortgage + $5 conservation fee </li></ul><ul><li>County Tax/Mortgage Registration Tax – Based on the principal limit </li></ul><ul><li>Plat Drawing – $60 </li></ul><ul><li>Name Search – $30 </li></ul><ul><li>Assessment Search – $30 </li></ul>
  13. 13. Myths of Reverse Mortgages <ul><li>You give up ownership </li></ul><ul><li>Your home must be completely paid off or have a low mortgage balance </li></ul><ul><li>You can lose your home because of a reverse mortgage </li></ul><ul><li>At the end of a certain period of time you must move out of your home </li></ul><ul><li>If you use all the money available from the reverse mortgage, you’ll have to move </li></ul><ul><li>When the loan is repaid the lender will take ALL the remaining equity or the home </li></ul><ul><li>One needs to be cash poor and house rich before considering a reverse mortgage </li></ul>
  14. 14. Truths of Reverse Mortgages <ul><li>Like other mortgages, borrower maintains ownership and title remains in their name </li></ul><ul><li>Enough proceeds to pay off any liens or mortgages </li></ul><ul><li>Not at risk of losing home for not making payments </li></ul><ul><li>Stay in home as long as it is the primary residence of the borrower(s) whether Reverse Mortgage funds have been used or not </li></ul><ul><li>When loan repaid, any remaining equity is the borrowers or their heirs </li></ul><ul><li>Amount repaid on the loan includes financed closing costs, all cash advanced during loan, accrued interest </li></ul><ul><li>People often do the Reverse Mortgage, as with a conventional loan, to access the equity in their home now to have more “elbow room” </li></ul>
  15. 15. Positives <ul><li>Removes financial stress </li></ul><ul><li>Don’t have to make monthly payments </li></ul><ul><li>Income and credit not considered for qualifying </li></ul><ul><li>Non-recourse loan, borrowers or their heirs are never required to pay more than the value of the home for repayment / no personal liability </li></ul><ul><li>With line of credit option, unused portion of line of credit grows </li></ul><ul><li>Tax-free (consult tax advisor) </li></ul><ul><li>Social Security and Medicare are not affected </li></ul><ul><li>Interest rate lower than with a conventional mortgage </li></ul><ul><li>No restrictions on how proceeds used </li></ul><ul><li>Stay in home as long as you choose </li></ul>
  16. 16. Negatives <ul><li>Closing costs perceived as high </li></ul><ul><li>Less equity for borrower or heirs than without the Reverse Mortgage </li></ul>
  17. 17. Uses of Reverse Mortgages
  18. 18. Reverse Mortgages & other Financing Options <ul><li>Home Improvement Grants </li></ul><ul><li>Elderly Waiver </li></ul>
  19. 19. Reverse Mortgages and Long Term Care <ul><li>Seniors want to stay in their home </li></ul><ul><li>Nearly 2 trillion in home equity </li></ul><ul><li>With the 80+% who own their home , 73% are free and clear </li></ul><ul><li>Pay for their own long term care </li></ul><ul><li>Remain in their home </li></ul><ul><li>Make choices they feel is right for them </li></ul><ul><li>Maintain their dignity, security, independence, and control </li></ul><ul><li>Strengthen community and long term care systems </li></ul><ul><li>Reduce burden on state and local budgets </li></ul>
  20. 20. How the State Could Assist <ul><li>Education </li></ul><ul><li>Employees </li></ul><ul><li>Retirement programs </li></ul><ul><li>Media </li></ul><ul><li>Legislation </li></ul>
  21. 21. How the State Could Assist <ul><li>New York is proposing Reverse Mortgage program to help seniors pay for long term care </li></ul><ul><li>June 13 Newsday.com reported that “1/4 of the $42 billion now spent on Medicaid in New York goes to long-term care of the disabled, chiefly people who cannot be tended in home settings.” </li></ul><ul><li>Proceeds from a Reverse Mortgage could help people stay in their home and cover their costs, not relying on Medicaid </li></ul>