Compare Reverse Mortgage Programs
There are three main reverse programs in operation today: HUD/FHA Home Equity Conversion Mortgage (HECM) program; Fannie Mae Homekeeper program and, Financial Freedom’s proprietary reverse mortgage programs. The chart below compares the three programs along various program features:
| Feature | HECM | Home Keeper | Financial Freedom Plan |
|---|---|---|---|
| Market | HECM’s represent about 85% of the market for reverse mortgages.85,000 HECM loans originated in 2006. | 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 | |||
| 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 | monthly adjustable loan – 1.5% added to 1-year treasury rate (many lenders have reduced their margin, lowering the borrowers margin to 1.0%; 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 3.5% 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 |
May 13th, 2007 at 10:06 pm
current rate for Financial Freedom’s Cash Account product is not 5% above 6-month LIBOR, but rather 3.5% above 6-month LIBOR.
August 26th, 2007 at 7:21 am
Federal Government and Politics…
I couldn’t understand some parts of this article, but it sounds interesting…