© 2004 Beth Paterson 1-877-590-96481

Housing Strategies forLong-Term CareAugust 6, 2004

Reverse Mortgages

© 2004 Beth Paterson 1-877-590-96482

Programs available

FHA’s Home Equity Conversion Mortgage (HECM)

Fannie Mae’s Home Keeper Private Programs for larger valued homes

© 2004 Beth Paterson 1-877-590-96483

Growth of Reverse Mortgages

95% of the Reverse Mortgages are HECMs In the current fiscal year, (October 1, 2003 – May

31, 2004), HECM insured 23,682 Same time period a year ago 10,455 HECMs were

insured 127% growth Since 1980 when the HECM program began,

104,990 loans have been insured by HUD Two-thirds of that, 62,619, were originated in the

past 3.5 years

© 2004 Beth Paterson 1-877-590-96484

Future of Reverse Mortgages

81.9% of Americans 65 to 74 own their home* 78.3% of Americans 75+ own their own home* Senior homeowners 65+ has grown by more than 5.6

million since 1980 to 22.1 million** In 2010 it is expected to grow by another 3 million to 25.1

million** Senior homeowners have accumulated $1.8 trillion in

equity out of their homes** Approximately 400,000 senior homeowners in Minnesota

*Info from State of the Nation’s Housing report published by Harvard University’s Joint Center for Housing Studies (JCHS)** Standard’s & Poor’s analysis of U.S. Census Bureau data

© 2004 Beth Paterson 1-877-590-96485

Future of Reverse Mortgages

Last year only .3% of those eligible for a Reverse Mortgage nationally have done one

Demonstrates large demographic potential for Reverse Mortgages nationally and in Minnesota

Average age of the borrowers is mid-70’s As Baby Boomers age and more people become familiar

with Reverse Mortgages, the growth will continue Baby Boomers are likely to do a Reverse Mortgage at an

younger age

© 2004 Beth Paterson 1-877-590-96486

Originating a Reverse Mortgage

Different than a conventional loan:– Takes longer for borrowers to decide– Lenders have to be more like social workers rather

than the “traditional sales person”– Processing different– Underwriting is different

© 2004 Beth Paterson 1-877-590-96487

Originating a Reverse Mortgage

Getting the word out:– Lenders– NRMLA– Word of mouth– Counselors– AARP– Children are encouraging parents to do a Reverse Mortgage– Telemarketing is not done

© 2004 Beth Paterson 1-877-590-96488

Minnesota Lenders are Growing

As refinancing decreases, more lenders are getting into Reverse Mortgages

Some are licensed in MN but don’t have representatives here

To find a list of lenders:– NRMLA: www.reversemortgage.org– HUD: www.hud.gov

© 2004 Beth Paterson 1-877-590-96489

What to consider when talking to lenders

Do they disclose all the information and identify all costs, explaining the program(s) and details accurately and clearly so you understand them?

Do they assist you in determining which program is most suitable for your needs?

Do they just try to “sell” the program to you or do they help you determine if the program is appropriate for your situation?

Do they encourage you to discuss the loan transaction with family and/or trusted advisors?

Are you treated with respect and dignity?

© 2004 Beth Paterson 1-877-590-964810

What to consider when talking to lenders

Do they protect your privacy and confidentiality and not distribute personal financial information to any third party without permission from you?

How fast do they process their loans? Who does the processing? Where are their loans processed? Who services the loans? What type of customer service do they provide? Once the loan is closed, will they answer questions and

continue to provide customer service?

© 2004 Beth Paterson 1-877-590-964811

Costs of the Reverse Mortgage

Origination Fee – 2% or $2,000 FHA Mortgage Insurance Premium – 2% Appraisal – $350 - $500 Credit Report – $18 - $20 Flood Certification – $18 - $20 Courier Fee - $30 each Escrow, Settlement Fee – $250 - $300 Abstract or Title Search – $125 - $150 Title Examination – $125 - $130

© 2004 Beth Paterson 1-877-590-964812

Costs of the Reverse Mortgage continued

Document Preparation Fee – $125 Title Insurance – based on property value Endorsements – 2 at $50 each Recording Fees – $25 - $30 each mortgage + $5

conservation fee County Tax/Mortgage Registration Tax – Based on the

principal limit Plat Drawing – $60 Name Search – $30 Assessment Search – $30

© 2004 Beth Paterson 1-877-590-964813

Myths of Reverse Mortgages

You give up ownership Your home must be completely paid off or have a low mortgage

balance You can lose your home because of a reverse mortgage At the end of a certain period of time you must move out of your

home If you use all the money available from the reverse mortgage, you’ll

have to move When the loan is repaid the lender will take ALL the remaining

equity or the home One needs to be cash poor and house rich before considering a

reverse mortgage

© 2004 Beth Paterson 1-877-590-964814

Truths of Reverse Mortgages

Like other mortgages, borrower maintains ownership and title remains in their name

Enough proceeds to pay off any liens or mortgages Not at risk of losing home for not making payments Stay in home as long as it is the primary residence of the borrower(s)

whether Reverse Mortgage funds have been used or not When loan repaid, any remaining equity is the borrowers or their

heirs Amount repaid on the loan includes financed closing costs, all cash

advanced during loan, accrued interest People often do the Reverse Mortgage, as with a conventional loan, to

access the equity in their home now to have more “elbow room”

© 2004 Beth Paterson 1-877-590-964815

Positives

Removes financial stress Don’t have to make monthly payments Income and credit not considered for qualifying Non-recourse loan, borrowers or their heirs are never required to pay

more than the value of the home for repayment / no personal liability With line of credit option, unused portion of line of credit grows Tax-free (consult tax advisor) Social Security and Medicare are not affected Interest rate lower than with a conventional mortgage No restrictions on how proceeds used Stay in home as long as you choose

© 2004 Beth Paterson 1-877-590-964816

Negatives

Closing costs perceived as high Less equity for borrower or heirs than without the

Reverse Mortgage

© 2004 Beth Paterson 1-877-590-964817

Uses of Reverse Mortgages

© 2004 Beth Paterson 1-877-590-964818

Reverse Mortgages & other Financing Options

Home Improvement Grants Elderly Waiver

© 2004 Beth Paterson 1-877-590-964819

Reverse Mortgages and Long Term Care

Seniors want to stay in their home Nearly 2 trillion in home equity With the 80+% who own their home , 73% are free and

clear Pay for their own long term care Remain in their home Make choices they feel is right for them Maintain their dignity, security, independence, and control Strengthen community and long term care systems Reduce burden on state and local budgets

© 2004 Beth Paterson 1-877-590-964820

How the State Could Assist

Education Employees Retirement programs Media Legislation

© 2004 Beth Paterson 1-877-590-964821

How the State Could Assist

New York is proposing Reverse Mortgage program to help seniors pay for long term care

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.”

Proceeds from a Reverse Mortgage could help people stay in their home and cover their costs, not relying on Medicaid