• Fannie Mae Reverse Mortgage

Products and Services for the Mortgage and Reverse Mortgage Industry

Fannie Mae, originally the Federal National Mortgage Association, is a government chartered
mortgage broker, technically termed a government-sponsored enterprise (GSE), which has
become a cornerstone of the U.S. housing industry.

Fannie Mae Loans and the New Deal

In the late 1930s many Americans could not afford a home and many others were on the brink of
foreclosure. Franklin Delano Roosevelt, of New Deal fame, was instrumental in creating Fannie
Mae. At that time the new organization was a government subsidized agency entrusted with
creating a financial backbone that could adequately support the housing industry. A core
mission: to make homeownership possible and affordable for every American.

Since that time Fannie Mae has migrated from a government subsidized to a government
chartered corporation supported by a hefty foundation of private shareholders.

Fannie Mae Reverse Mortgages

In the secondary mortgage market and specifically the reverse mortgage business Fannie Mae is
a trusted name. The company serves as a clearinghouse for its proprietary reverse mortgage, the
Fannie Mae Home Keeper and provides the financial support for the federally insured
HECM.

The Home Keeper product is common in many lenders’ suites of products, and a reliable
alternative to the HUD Home Equity Conversion Mortgage (HECM).

Features of the Home Keeper Reverse Mortgage

Fannie Mae’s Home Keeper reverse mortgage is similar in many ways to the HUD HECM, but
with a few more flexible benefits.
In contrast to the HUD HECM the Home Keeper offers:

• Significantly higher borrowing limit—not based on the borrower’s county FHA limit.
• Allows a senior homeowner to leverage equity to purchase a new home (Home Keeper
for Home Purchase).
• Available for single-family home and condo owners.

Because Fannie Mae is a secondary market lender borrowers do not apply to Fannie Mae for the
Home Keeper, but to mortgage lenders that provide the product.

Other Fannie Mae Products and Services

But the Home Keeper reverse mortgage and the HECM constitute only a small fraction of the
products and services provided by Fannie Mae. The corporation also provides:

• Single-family mortgage products, including jumbo-conforming mortgages, streamlined

refinance mortgages, and a laundry list of fixed and ARM mortgages.
• Multi-family mortgage products and services
• Lender guidelines and educational materials
• Consumer informational materials
• Applications and loan documents for lenders

The Fannie Mae Home Keeper reverse mortgage is available from lenders across the nation.

• Cash Account

The Cash Account Plan is available to anyone 62 years or older who own homes with a
minimum value of $75,000. It differs from other reverse mortgage products in that it does not
offer the borrowers an option of getting monthly payments. It provides an open-end line of credit
that is available for as long as the borrower occupies the home. The borrower can draw on the
line of credit in full or part at any time; the minimum draw is $500. The unused portion of the
line of credit grows by 5% annually. Eligible home types include owner-occupied single-family
detached, manufactured, condominium, Planned Unit Development units, or one-to-four unit
residences if one unit is owner-occupied. Borrowers are required to obtain counseling from an
independent counselor prior to obtaining the loans.

A monthly servicing fee is automatically added to the loan. The interest rate charged to the
borrower is equal to the current six-month London Interbank Offered Rate plus 5 percentage
points. The rate is adjusted semi-annually, but the interest rate may never rise more than 6
percentage points above the initial rate.

The Cash Account Plan is available in two forms: the Standard Option and the Zero Point
Option. Under the Standard Option, a borrower pays a loan origination fee that is equal to 2% of
the first $500,000 of loan balance, 1.5% of the next $500,000, and 1% on the balance in excess
of $1 million.

Under the Zero Point Option, the borrower pays no loan origination fee. Closing costs, including
third party costs and excluding state and local taxes, will not exceed $3,500. At closing the
borrower is required to take a draw on the line of credit, and the minimum draw at closing is
75% of the line of credit. Subsequent draws have a minimum of $500. Full prepayment is
permitted, and, while there are no prepayment penalties, partial prepayment on the initial draw is
not permitted for the first 5 years. The Zero Point Option is generally marketed to senior
homeowners with homes valued at $450,000 or more.

• Jumbo Reverse Mortgage Loans for High-valued properties

These plans offer several options to provide seniors with a broad range of choice to access
significant home equity opportunities. The Jumbo Reverse Loan is similar to home equity loans
offered by banks. The benefit is a function of the home value and age with no income
qualification. No repayment moves out of the home.
Features and Benefits:

• Designed for borrowers age 62 years or older

• Virtually no maximum home value or loan limit
• Lifetime interest rate cap is 6% over the initial annual percentage rate(6 month Libor
[index] + 5% [margin])
• Proceeds/advances are not taxable
• No prepayment penalty
• Loan is non-recourse
• Eligible home types: Single family detached,manufactured,condo,PUD,1-4 rental unit if
one is owner occupied, co-ops in New York State
• Minimum home value at origination:$75000

Equity Choice

Available for all Jumbo Reverse mortgage Loan Optins, Equity Choice allows the borrower to
limit the loan obligation to a stated percentage of the full market value of the home resulting in
the amount of the or line of credit being less than the amount for which the borrower otherwise
qualifies. Borrowers may choose to protect a minimum of 10% and a maximum of 50% of their
home equity. This permits greater flexibility assuring a percentage of equity remaining to benefit
the borrower or heirs upon loan maturity.
Events of default under RML

RML is liable for foreclosure owing to the occurrence of the following events of default:

• If the borrower has not stayed in the property for a continuous period of one year.
• If the borrower fails to pay property taxes or maintain and repair the residential property
or fails to keep the home insured, the PLI reserves the right to insist on repayment of loan
by bringing the residential property to sale and utilizing the proceeds to meet the
outstanding balance of principal and interest.
• If the borrower declares bankruptcy.
• If the residential property so mortgaged to the PLI is donated or abandoned by the
borrower.
• If the borrower effects changes in the residential property that affects the security of the
loan for the lender. For example: renting out part or all of the house; adding a new owner
to the property’s title; changing the property’s zoning classification; or creating further
encumbrance on the property either by way of taking out new debt against it or alienating
the interest by way of a gift or will.
• Owing to perpetration of fraud or misrepresentation by the borrower.
• If the government under statutory provisions, seeks to acquire the residential property for
public use.
• If the government condemns the residential property(for example, for health or safety
reasons).
Reverse Mortgage Program Comparison

There are about 19 reverse mortgage programs to choose from, some of which have significant
pros and cons. While most emulate the HECM, they each have variations. The following is a
review of the programs from both the smaller niche lenders to the largest banks. Upon request by
our clients, we are happy to provide the names of our banking partners.
Home Equity Conversion Mortgage (HECM) – the FHA Reverse Mortgage

This is oldest of all reverse mortgages. Most reverse mortgages operate the same basic way as
the HECM. Congress designed it, HUD regulates it, FHA insures it, Fannie Mae funds it.

Pros: In some cases it provides the maximum amount of money of any program; often has the
lowest interest rate of all programs; a fixed rate reverse mortgage is available; typically low or no
out-of-pocket closing costs; offers the "tenure" income payment option; HUD controls the
guidelines and Congress strongly supports the program's use and expansion

Cons: May have higher total financed closing costs due to the required FHA reverse mortgage
insurance premium; low loan limits restrict the amount of cash available on some properties;
properties must meet FHA guidelines; Congress must continue to authorize its availability; HUD
controls the county loan limits and guidelines (for better or worse).

Fannie Mae Home Keeper Reverse Mortgage

Pros: Does not require FHA insurance; available for some Stock Cooperatives ("Co-ops"); may
offer a greater loan amount in rural counties than other programs

Cons: Often offers far less money than other programs; interest rates are greater than the HECM

Jumbo Reverse Mortgage

Similar to the others below, this Bank's reverse mortgage is like the HECM in most ways, but
has the following differences.

Pros: Lower closing costs than the HECM makes it a popular choice for some borrowers,
especially when a large line of credit is desired; home value limit is $5,000,000, allowing far
greater loan amounts than the HECM for homes with higher values; interest rates are comparable
to most home equity lines of credit

Cons: variable interest rates; may offer less cash than the HECM for some borrowers.
Fixed-Rate Jumbo Reverse Mortgage

Pros: The interest rate is fixed for the life of the loan; $10,000,000 home value limit; it does not
require FHA insurance; may have lower closing costs than the HECM.

Cons: Loan-to-value ratio is more conservative than the HECM for lower property values, which
is standard for all jumbo reverse mortgages; lump-sum only, no line-of-credit option

Niche Reverse Mortgages Programs

Pros: Some programs have more flexible guidelines which allow for unusual property types
and/or situations; some offer slightly more cash for certain borrowers

Cons: Not widely available among brokers