Reverse Mortgage Basics

1. Not intended for distribution to consumers; for
professional use only.

2.  Definitions & Terms
 Features & Benefits
 Typical Costs & Fees
 Property Eligibility
 Products & Payment Options
 Consumer Protections
 Forward vs. Reverse Comparison

3. A Home Equity Conversion Mortgage (HECM) is a
federally-insured FHA Home Loan that allows
seniors age 62 or older, to convert a portion of
their home equity into tax-free cash without
having to make a monthly mortgage payment

4.  Maximum Claim Amount – Lesser of the national lending limit
(currently $625,500) or the property value.
 Principal Limit – Determined by borrower’s age, max claim
amount and expected rate. Amount of funds the borrower
qualifies for.
 Counseling – HECM counseling is a loan requirement and must be
conducted by a HUD approved counselor prior to the processing of
the loan and the borrower paying any loan fees.
 Mandatory Obligations – Includes loan payoffs, liens seasoned
against the property, closing costs, repair set asides, taxes and
HOI required by the lender
 Non-Recourse – Home is the only source of repayment, regardless
of loan balance at maturity. All HECMs are non-recourse.

5.  Mortgage Insurance Premium (MIP) – HUD mandated insurance
guaranteeing the borrower will receive the promised loan advances
and not have to repay the loan balance if it exceeds the property
value. There are 2 types of MIP, upfront and ongoing. Ongoing MIP is
added to the loan balance each month at the rate of 1.25% annually.
Upfront (or initial) MIP is either .5% or 2.5% depending on the
borrower’s mandatory obligations and whether that exceeds more
than 60% usage of the principal limit.
 Expected Rate – Rate used to determine the Principal Limit - or
borrowers benefit amount
 Initial Rate – Note rate or applied rate - rate charged on the loan
balance at the start of the loan
 LIBOR – London Interbank Offer Rate - Index used to calculate HECM
ARM rates

6.  Repair Set-Aside – When repairs are required to be made to the
property, a set-aside is established and held in escrow until the
repairs are completed. Repair set-asides are generally 150% of
the repair amount and borrowers have 6 months to have the
required repairs completed.
 Repair Admin Fee – A fee charged at closing to cover the cost of
creating the set-aside account and administering to the repairs
 UPB – Unpaid Principal Balance. The initial loan amount paid out
at closing, consisting of closing costs, lien advances and any other
draws paid out at closing.

7.  All borrowers must be 62 or older and a citizen or legal resident
 All borrowers must be on the deed (some exceptions for
Life Estates & Trusts)
 Must be owner occupied and primary residence
 Life Estates ARE allowed; certain trusts are allowed
 No monthly mortgage payments required
 Borrower retains full ownership (title) to the home
 No employment or credit score required
 All borrowers are required to attend HUD counseling session
 No limitations on how the borrower uses the proceeds (use of
proceeds may be restricted during first 12 months based on mandatory obligations
and HECM requirements)

8.  No prepayment penalties if the borrower pays off the loan or sells
the property
 Social Security & Medicare benefits are typically not affected by
HECM proceeds
 Borrower’s non-borrowing spouse (NBS) may be protected from
a due and payable status if the borrower pre-deceases them if:
 NBS was married to the borrower at the time of closing and,
 NBS was properly disclosed as such at time of closing, and
 NBS has occupied and continues to occupy property as primary
residence AND continues to maintain home and pay property
taxes & homeowners insurance during the deferral period

9.  Borrower benefit amount based on:
 Age
 Current Interest Rates
 Property Value or FHA Lending Limit ($625,500 for reverse)
 Borrower MUST continue to:
 Maintain the property
 Pay property taxes
 Pay homeowners insurance
 Loan becomes due and payable when:
 Borrower sells the home
 Last surviving borrower passes away
 Last surviving borrower permanently moves out (more than 12
consecutive months of non-residence)

10.  Mortgage Insurance Premium
 Upfront MIP – 0.5% or 2.5% depending on whether or not
the Principal Limit Usage is less than or great than 60% at
closing
 Annual MIP – 1.25% of the ongoing loan balance
 Origination Fee
 2% of the first $200,000 in home value plus 1% thereafter,
capped at $6,000. FHA allows a minimum fee of $2,500
regardless of value
 Third Party Closing Costs
 Standard third party fees, including title insurance,
escrow/settlement fees, recording fees, appraisal fee, doc
prep fee
*All closing costs and fees, except for the cost of the appraisal, are typically
financed into the loan

11.  Eligible Property Types
 Single Family Residence
 2-4 units, as long as one unit is borrowers primary residence
 Manufactured Homes
 FHA Approved Condo’s
 PUD’s
 Certain Mixed Use Properties
 Ineligible Property Types
 Investment Properties
 Vacation Homes
 Cooperatives
 Bed & Breakfasts
 Condotels
 New Construction without a Certificate of Occupancy

12.  Adjustable Rate Mortgages (ARMs)
 Open-ended line of credit offered with a variety of
margins as either a monthly or annually adjusted rate.
 Note rate based on the one month LIBOR index + Lender
margin, or the one year LIBOR index + a margin. Ability to
draw funds using a variety of payment plans including a
line of credit.
 Fixed Rate
 Closed-end loan offered with a variety of rates, set by the
lender. Proceeds taken as a one-time full draw at closing.

13.  Closed End Loan
 Rate Never Changes
 Good Lifetime Rate
 One Lump Sum
 Sometimes More Money is
Available upfront
 Great for clients that need
upfront funds quickly or
prefer no changes to rates
over time
 May give up some proceeds
 MUST take a lump sum
draw of all funds at closing.
 Open Ended Loan
 Rates can change
monthly/annually
 Interest rate caps
 Multiple Options for
accessing funds
 Line of Credit Growth
 Great for clients needing
flexible amounts over time
 More payout options.

14.  Lump Sum
 Draw all available funds at closing. Mandatory on Fixed Rate
loans.
 Line of Credit
 Payments made when the borrower requests disbursement as
long as there are available funds. LOC also has a growth feature
where the available LOC grows over time giving the borrower
access to additional funds.
 Tenure
 Equal monthly payments for as long as the borrower occupies
the property as his/her primary residence.
 Term
 Equal monthly payments over a fixed period of time
 Modified Tenure or Term
 Same characteristics as the Term or Tenure plan above, but
adding a line of credit feature

15.  HECMS are non-recourse loans
 HUD mandated counseling for all borrowers
 NO pre-payment penalties
 Fixed rates or interest rate caps
 Origination Fee caps
 Protection for Non-Borrowing Spouses
 Pre-counseling, Application & Closing disclosures
required, as well as required Re-Disclosures

16.  Payments are due monthly
 Interest is included in the
payment paid to the lender
every month
 Mortgage insurance is
included in the payment and
paid to the lender every
month
Traditional Mortgage
 Payment is due when the
borrower no longer lives in
the home
 Interest is ADDED to the
balance every month
 Mortgage insurance is added
to the balance every month
Reverse Mortgage

17. Loan Example:
Youngest Borrower: Age 75
Property Value: $200,00
Annual ARM Interest Rate: 3.06%
PRINCIPAL LIMIT = $122,800
(Gross Benefit Amount)
*Calculations based on data as of 11/20/2014

18. Please Contact:
Bob Garczewski
HECM Correspondent Manager
FirstBank Reverse Mortgage
(765)760-8931
rgarczewski@firstbankonline.com

19. FirstBank is a TN State chartered Depository Bank regulated by the TDFI
and the FDIC. A Reverse Mortgage is an FHA-insured loan
Homeowners must be 62 years of age of older and live in the home as
their primary residence. Homes must meet FHA/HUD minimum property
standards. Borrowers must maintain hazard and flood insurance
premiums, property taxes, utilities and make any property repairs.
Although there are no monthly principal and interest mortgage
payments, interest accrues on the portion of the loan amount disbursed.
Reverse mortgages can use up all or some of the equity in your home and
the amount you owe on a reverse mortgage grows over time. Loan must
meet underwriting requirements. Program rates, fees, terms and
conditions are not available in all states and subject to change. FirstBank
Mortgage is a division of FirstBank. All products and services offered
through FirstBank NMLS# 472433. This document is advertising by
FirstBank and is not from FHA/HUD. This document is not approved by
any government agency.