1 HECM ProtocolChapter 5, Section D5-D-1 Section D. Reverse Mortgage loan Features and CostsOverviewContentsThis Section contains the following topics:TopicSee Page1. Types of Reverse Mortgage Products5-D-22. Reverse Mortgage loan limits and Principal Limits5-D-43. Reverse Mortgage Payment Plan Options5-D-64. Reverse Mortgage Note Rates/Interest Rates5-D-105. Retention of Title and Repayment of Debt5-D-156. Reverse Mortgage Non-Recourse Feature5-D-177. Mortgage Insurance/Insurance Premiums5-D-198. Reverse Mortgage loan Costs5-D-22 Chapter 5, Section DHECM Protocol5-D-21. Types of Reverse Mortgage ProductsIntroductionThis topic contains information how a Reverse Mortgage differs from a forward Mortgage , and types of Reverse DateMarch 18, a ReverseMortgageDiffers from aForwardMortgageIn a forward Mortgage , the borrower makes monthly payments to the lender,gradually building up his/her equity in the a Reverse Mortgage , the lender makes monthly payments to the borrower,gradually purchasing the equity in the home from the borrower.
2 Theborrower continues to hold title to the property, which is security for the Typesof ReverseMortgagesThe table below describes the three types of Reverse of Reverse MortgageDescriptionSingle purpose Reverse mortgageState and local government agencies usually offer thistype of loan , in which the borrower may use theproceeds in only one specific type of Reverse is often restricted to homeownerswith low or moderate : The borrower may use the proceeds for homerepairs or payment of Reverse mortgagePrivate lenders offer this type of Reverse Mortgage ,which is not insured by the Federal may use the loan proceeds for a variety Reverse mortgages may be more suitable forupper-income borrowers with high-value on next pageHECM ProtocolChapter 5, Section D5-D-31. Types of Reverse Mortgage Products,ContinuedPROTCL Types of Reverse Mortgages(continued)Type of Reverse MortgageDescriptionReverse Mortgage insured by theFederal Housing Administration(FHA)The Home Equity Conversion Mortgage (HECM) is areverse Mortgage insured by the Federal governmentthrough FHA.
3 FHA insures participating lenders againstlosses on HECM loans, and designs and administers theguidelines governing lender and borrower eligibility anduse of HECM may use a HECM for any of the followingpurposes: paying off any existing forward Mortgage accessing the home equity of a current residence (aftersatisfying any outstanding Mortgage debt on theproperty) refinancing an existing HECM, or purchasing a new residence and obtaining a reversemortgage in a single 5, Section DHECM Protocol5-D-42. Reverse Mortgage loan limits and Principal LimitsIntroductionThis topic contains information on HECM loan limits the principal limit on a HECM, and leftover equity reserve on a DateMarch 18, LoanLimitsHECM loan limits are set by law. The maximum claim amount is used todetermine the principal limit, defined as the lesser of the FHA national loan limit, or home s appraised for Purchase loan LimitThe loan limit on a HECM for purchase is the least of the FHA loan limit, theappraised value, or the sales : Proprietary Reverse mortgages may have higher loan limits thanHECMs, or no limits at all.
4 Clients may want to consider proprietaryproducts if they have a home with a high property value. Counselors mustinform clients that proprietary products may have higher Costs or substantiallylower loan -to-value ratios than on next pageHECM ProtocolChapter 5, Section D5-D-52. Reverse Mortgage loan limits and Principal limits , Limiton a HECMThe principal limit is the amount of money that a borrower may accessthrough a Reverse Mortgage . For HECM loans, the principal limit available tothe homeowner is determined by multiplying the maximum FHA insurance claim amount (which is the lesser of theappraised value of the property or the FHA loan limit)by a factor based on the age of the youngest borrower and the expected interestrate, which may be no lower than principal limit is calculated at closing and increases each month by one-twelfth of the sum of the note rate and the annual Mortgage insurancepremium EquityReserve on aHECMWhen a borrower takes out a Reverse Mortgage , there is a portion of the equityin the home that is reserved to reduce the lender s and FHA s risk.
5 Theamount reserved is determined by the ratio of the loan s principal limit to thehome 5, Section DHECM Protocol5-D-63. Reverse Mortgage Payment Plan OptionsIntroductionThis topic contains information on Reverse Mortgage payment plan options,including types of Reverse Mortgage payment plan options a description of the Reverse Mortgage payment plans HECM borrower changes to payment plans changes to payment plans on proprietary Reverse mortgages, and lender establishment of the monthly payment amount for term and DateMarch 18, Types ofPayment PlanOptionsThe lender disburses HECM loan proceeds to the borrower through thepayment plan of the borrower s choice. The borrower may choose one of thefollowing payment plan types: term tenure line of credit, or a combination of line of credit with term or tenure ( modified term or modified tenure, respectively).
6 Reference: For a description of each of these types of plans, seeHECMP rotocol on next pageHECM ProtocolChapter 5, Section D5-D-73. Reverse Mortgage Payment Plan Options, :ReverseMortgagePayment PlansThe table below describes each of the types of Reverse Mortgage TypeDescriptionLine ofCreditWith a line of credit the borrower may choose to receive the entire principal limit from the line ofcredit at closing in one up-front draw or lump sum, , to pay off anexisting Mortgage (Note: This draw schedule is not a payment plan in itselfbut is simply an option with a line of credit.) the borrower may choose to access the money at any time over a period oftime until the line of credit is exhausted, and the line of credit is exhausted when the loan balance equals the with any HECM payment plan, a borrower with a line of credit who usesup the entire principal limit may stay in the home as long as he/she continuesto pay homeowners insurance and real estate taxes, and makes any necessaryhome of Credit GrowthThe unused portion of the line of credit grows at the credit line growth rate, which is equal to the compounding rate.
7 This is the same rate at which theprincipal limit and the loan balance grow, which is the current interest rate percent. Therefore, the amount of funds available to the borrower from aline of credit grows larger each month for as long as any funds mustnottell clients that HECM credit lines earn interest, because credit line growth is simply increased access to borrowing power,comparable to an increase in a credit limit on a credit card. Counselors shouldadvise clients that proprietary Reverse mortgages may have a lower credit linegrowth rate, or no credit line growth at all, which will affect the amount ofcash available to the borrower over the life of the on next pageChapter 5, Section DHECM Protocol5-D-83. Reverse Mortgage Payment Plan Options,ContinuedPROTCL Description: Reverse Mortgage Payment Plans(continued)PaymentPlan TypeDescriptionCaution.
8 If the client has indicated that his/her lender is trying to cross-sell anannuity or other investment, the counselor must provide the client with theOIG Hotline number to report the the tenure option, the borrower receives equal monthly payments aslong as the borrower maintains his/her primary residence in the if the loan balance exceeds the principal limit of the loan , the borrowerwill continue to receive of Term for Tenure PaymentsThe length of the term for tenure payments is calculated by subtracting the ageof the youngest borrower from 100 years, although the borrower will continueto receive payments if he/she lives past 100 years of the term option, the borrower chooses a fixed period of time duringwhich he/she receives equal monthly payments. At the end of the term, theborrower may remain in the home as long as he/she fulfills the obligationsunder the terms of the Mortgage by paying property taxes, hazard insurance, and other property charges, and maintaining the borrower may combine a line of credit option with term or tenure paymentoptions.
9 A combination plan known as a modified tenure plancombines a line of credit with monthly payments aslong as the borrower remains in the home, and modified term plancombines a line of credit with monthly payments for afixed period determined by the on next pageHECM ProtocolChapter 5, Section D5-D-93. Reverse Mortgage Payment Plan Options, toPayment PlansA HECM borrower may request to change his/her payment plan at any timeduring the life of the loan . The lender may charge a fee, not to exceed$ , for changing the payment borrower may change the term of payments receive an unscheduled payment suspend payments establish or terminate a line of credit, or receive the entire net principal limit (the difference between the currentprincipal limit and the outstanding loan balance) in one toPayment Planson ProprietaryReverseMortgagesProprietary Reverse mortgages may not offer different payment the proprietary product offers different payment plans, the lender may prohibit the borrower from changing the payment plan, or require the borrower to pay a fee to change the MonthlyPaymentAmount forTerm andTenure PlansThe lender establishes monthly payments to the borrower (term or tenure)
10 Byusing the net principal limit length of the term in months (for the tenure option, 100 years minus the ageof the current borrower), and expected either of these plans, the borrower may choose to receive less than themaximum monthly payment allowed under the plan, in which case theremaining funds are placed into a line of 5, Section DHECM Protocol5-D-104. Reverse Mortgage Note Rates/Interest RatesIntroductionThis topic contains information on the counselor s responsibility for explaining the Reverse Mortgage interestrate to the client Reverse Mortgage note rate interest rates for adjustable HECM loans eligible index types for adjustable rate HECMs a description of margin on an adjustable rate HECM a description of the interest rate cap on an adjustable rate HECM fixed interest rate HECMs, and the expected rate on a DateMarch 18, Explainingthe ReverseMortgageInterest Rate tothe ClientCounselors must ensure that the client understands the interest rate beingcharged by the lender for the Reverse either adjustable or fixed-rate loans, lower interest rates may be offset byhigher origination Costs .