HECM vs Other Products

 

Feature HECM Home Keeper Financial Freedom Plan
Market HECM’s represent about 90% of the market for reverse mortgages.43,000 HECM loans originated in 2005. “ Homekeeper’s represent under 10% of the market for reverse mortgages. “Niche market – program targeted specifically for senior homeowners with substantial home equity (e.g. over $700,000).
Program Sponsor US Department of Housing and Urban Development; Federal Housing Administration (Government Program) Fannie Mae – Federal National Mortgage Association (Government-sponsored Entity) Financial Freedom (subsidiary of Indymac Bank, FSB)
Lenders Lenders are screened and approved by HUD. About 500 lenders nationwide ranging from very small to very large institutions (e.g. Wells Fargo).HECM Lenders Lenders are screened and approved by Fannie Mae. About 50 lenders nationwide large institutions (e.g. Wells Fargo) with local offices. Homekeeper Lenders Financial Freedom and correspondent lenders
Sponsor Website HUD HECM Program Fannie Mae Homekeeper Financialfreedom
Federally Insured? “Yes-insurance premiums are charged in two ways: as an initial mortgage insurance premium paid at closing and as 0.5% additional monthly interest charge. Should lender fail, FHA will make payments direct to borrower. Should lender fail, Fannie Mae (a government-sponsored entity) will guarantee payments to borrower. “ No
Security for Loan Reverse mortgage must be in first position; any other mortgage must be fully paid-off within specified time of closing Reverse mortgage must be in first position; any other mortgage must be fully paid-off within specified time of closing Reverse mortgage must be in first position; any other mortgage must be fully paid-off within specified time of closing
Loan Counseling Required? Yes-counseling required by an approved Fannie Mae or HUD counselor Yes-counseling required by an approved Fannie Mae or HUD counselor “Yes-third-part, typically Fannie Mae and/or HUD approved counselor
Payment Options Line of credit (borrower draws funds as needed) Line of credit (borrower draws funds as needed) Standard Option: line of credit ($500 minimum draw at closing, then borrower draws funds as needed); other options require 75% or 100% draw of funds at closing.
Term (specific period)
Tenure (life of borrower) Tenure (life of borrower)
Combination of above Combination of above
Can be changed Can be changed
Restrictions on Use of Loan Proceeds None – unless loan was contingent upon making property improvements None – unless loan was contingent upon making property improvements None – unless loan was contingent upon making property improvements
Credit Line Growth If credit line option is chosen, the unused portion of the credit line grows at the interest rate on the loan plus 0.5%. Full credit line available at loan origination – no growth of unused portion The unused line of credit grows by 5% per year on the pledged value.
Lending Value That Can Be Borrowed Against Maximum ranges from $200,160 to $362,790 for 2006, depending on HUD 203b geographic area lending limit $417,000 (higher limits in AK and HI) Financial Freedom Cash Account Plan reverse mortgages have virtually no limit on home value or the amount of the loan.
Loan Prepayment Penalty None None None
Major Factors Used in Determining Loan Amount Age of youngest borrower Age(s) of borrower(s) Age(s) of borrower(s)
Expected interest rates over life of loan Number of borrowers
Maximum claim amount (lesser of home value or HUD 203b limit for your county-see above) Adjusted property value (lesser of home value or Fannie Mae loan limit -see above) Home Value
Origination Fee Maximum 2% of lending limit or the value of home (whichever is less); lender may charge a minimum fee of $2,000;origination fees can be financed through loan “ “The maximum origination fee charged to the borrower for a Home Keeper reverse mortgage can be no more than $2,000 or 2 percent of the adjusted property value or purchase price, whichever is greater. Can be financed through loan. “ “The origination fee for the Standard Option program is a scaled percentage of the home’s value up to a maximum of 2%. Other Financial Freedom Plan programs have no origination fees, but require funds be drawn at closing thus incurring interest costs.
Interest Rate Variable rate, two options: annually adjusting or monthly adjusting “ “Variable rate, one option: monthly adjusting Variable rate, one option: semi-annual adjusting
Rate Index One-year treasury index as published by federal reserve (H15) One-month secondary CD index as published by federal reserve (H15) Six-month LIBOR index (London Interbank Offering Rate)
Rate Margin Set by federal regulation: monthly adjustable loan – 1.5% added to 1-year treasury rate; annually adjustable loan – 3.1% added to 1-year treasury rate. Set by Fannie Mae: currently 3.4% added to 1-month CD rate Currently 5.0% added to 6-month LIBOR rate
Annual Rate Adjustment Cap Annually adjusting loan: rate cannot increase more than 2% per year; Monthly adjusting loan: No annual cap None None
Lifetime Rate Adjustment Cap Annually adjusting loan: 5% over initial loan rate at closing; Monthly adjusting loan: 10% over initial loan rate at closing 12% over initial loan rate at closing 6% over initial loan rate at closing
Loan Maturity Can be for a fixed term (e.g.15 years) or based on when borrower dies, sells home or moves out Based on when borrower dies, sells home or moves out Based on when borrower dies, sells home or moves out
Residency Requirements “If borrower lives out of home for over 12 consecutive months, loan becomes due “ “If borrower lives out of home for over 12 consecutive months, loan becomes due “ “If borrower lives out of home for 375 of 475 days, loan becomes due
Age Requirements All borrowers must be 62 years of age or older All borrowers must be 62 years of age or older All borrowers must be 62 years of age or older
Servicing Fees Maximum $30/month for annually adjusted loans;$35/month maximum for monthly adjusted loans; a present value estimate of future service fees is set aside at closing based on the assumption the homeowner will live to 100. Maximum $30/month $20/month