BASICS IN REVERSE MORTGAGESGaetan Chevalier,

Reverse Mortgage Specialist,

UniTrust Mortgage Inc.

What is a Reverse Mortgage?

– Without leaving their homes

– Without income or credit to qualify (review for federal liens)

– Without having to make any monthly mortgage payments

– Without having to repay the loan until they move out permanently, sell the house or upon death

– No income, employment, medical or credit score qualification required

Reverse Mortgages are non-recourse loans that allow senior

homeowners age 62 and older to convert home equity into cash.

How Does a Reverse Mortgage Work?• Loan proceeds available to the borrower are based on a

number of factors: – Age of homeowner(s)– Value of home– Location of the home– Interest rate

• Proceeds available as lump sum, monthly payout, or line of credit option (growth rate) or combination

• Loan never exceeds value of home• Proceeds received can be tax-free income (consult tax

advisor)• Amount repaid is principal plus accrued interest, servicing

fees and mortgage insurance premium (MIP)• Third Party Counseling Session Required

Product ComparisonHome Equity

Conversion Mortgage

(HECM)HUD/FHA Insured

Fannie MaeHomeKeeper

Cash Account

(proprietaryproduct)

Market Share 95% 1% 4%

Maximum Loan Amount

$362,790 $417,000 N/A

Average Loan Size $133,000 $150,000 $483,000

Rate Components

1-year CMT + 1.50- Adjusts Monthly 1-month CD +

3.4%6-month

LIBOR + 5%1-year CMT + 3.10 - Adjusts Annually

Rates (as of 06/14/06)Monthly APR: 6.52%

8.75% APR 8.94% APRAnnual APR: 8.12%

Lifetime Cap

Monthly: Initial Rate + 10%

Initial Rate + 12%Initial Rate +

6%Annual: Initial Rate + 5%

Eligible Property Types

HECM HomeKeeper Cash Account

Single Family Home

New Construction

No Multi Units

PUD

Condo – Spot Approval

Single Family Home

New Construction

1 - 4 Units

PUD

Condo – Spot Approval

COOP (NY Only)

Single Family Home

No New Construction

1 - 4 Units

PUD

Condo - FHA or Spot Approval

Common Misconceptions• “The lender takes the house”

– Homeowner retains full ownership– Lender has a mortgage on the property

• “I can be thrown out of my home”– Homeowner can stay in home for as long as he/she chooses and

complies with loan terms

• “I can owe more than my home is worth”– Homeowner can never owe more than value of home

• “My heirs will be against it”– Once they understand how much they can help their parents,

experience demonstrates that many heirs are strongly in favor of reverse mortgages

When the Loan is Due and Payable

• Due and payable when last remaining borrower:– Sells home– Passes Away – Permanently leaves primary residence

• What is due?– The amount paid out to the borrower, plus the amount paid on behalf of

the borrower (MIP) , plus interest and servicing fees• Most lenders expects repayment within 12 months• Heirs or estate responsible for satisfying loan

– Refinance– Other Assets– Life Insurance

• Remaining Equity, if any, goes to estate or remaining heirs• Heirs / relatives not responsible for shortfall (non-recourse)

The Potential Market• 30+ million senior homeowners

• 60% of market is 65 – 70; Huge demographic wave underway

• 85% want to remain in home (AARP study)

• $3 trillion in home equity held by seniors

• Loan volume has increased by 70% per year for the past two years

• 100% growth in industry in past 12 months

• Fannie Mae studies show 90+% satisfaction rate

Potential Uses of Reverse Mortgages

• Help clients maintain independence

• Estate and retirement planning

• Supplemental income for personal use

• Funding college education for grandchildren

• Healthcare and hospital costs

• Purchase of life or long term care insurance

• Home improvement

More Products Will Be Added

• Starting age: 60

• Second Homes

• Fixed products with more flexibility

• More proprietary products = more choices

• RM Alternatives: – Equity Key– REX– Insurance

Home Equity Conversion Mortgage (HECM)Sample Scenario

• Age: 75 year old couple• Home Value: $450,000• Lending Limit: $294,500

• Available Principal Limit (Loan Amount): $186,554.24

• Costs (subtracted from Avail. Principal Limit):– Mortgage Insurance Premium: $5,890.00– Origination Fee: $5,890.00– GFE Financed Costs: $5,717.88 Total: $17,497.88

• Net available to Client: $169,056.36*

• Why so High?– No initial out-of-pocket expense to borrower– No ongoing payment back to RM Lender (lender takes risk)– Required and standard industry fees

*Assumes there are no other existing liens against property.

Cash Account Advantage Sample Scenario• Age: 75 year old couple• Home Value: $800,000• Lending Limit: None

• Available Principal Limit (Loan Amount): $336,000

• Costs (subtracted from Avail. Principal Limit):– Origination Fee: $6,720.00– Other Financed Costs: $3,369.80– Total: $10,089.80

• Net available to Client: $325,910.20*

• Why so High?– No initial out-of-pocket expense to borrower– No ongoing payment back to RM Lender (lender takes risk)– Required and standard industry fees

• BUT:– Can choose other plan options which will waive origination fee and / or the Other Financed

Costs

– *Assumes there are no other existing liens against property.

Who to contact with Questions

• Gaetan Chevalier

• Reverse Mortgage Specialist

• Office: 858-404-7300 x131

• Cell: 760-815-9271

• gchevalier@unitrustmortgage.com