Understanding Reverse Mortgage Math and Rate Sheets

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This comprehensive guide explains how to read a rate sheet, understand reverse mortgage math, and navigate the factors influencing loan pricing. Topics covered include Principal Limit, Principal Limit Factor, Margin, Initial Rate, Expected Rate, and Loan Comparison. By delving into these details, partners can calculate premiums, broker compensation, and gain a thorough understanding of mortgage policies.

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How to Read a Rate Sheet: A Comprehensive Guide

Objectives Partners will be able to: Understand Reverse Mortgage math as outlined on the Loan Comparison and how it factors into the pricing of their loans. Identify the process for obtaining HECM ARM index. Calculate the Premium or yield spread that LBF pays the broker to sell the loan to us (FHA HECM ARM and Fixed rate products as well as the Platinum 3.0 LOC and Platinum 3.0 Fixed). In addition they will be able to calculate the broker compensation based on the Premium Have a working knowledge regarding LBF policies

Policy Overview HECM 15-day Premium Lock for HECM products Unpaid Principal Balance Principal Limit Utilization (PLU) Origination fees on a fixed rate product Additional compensation based on percent of unused PL Platinum Rate LOC at closing when docs are drawn Platinum 3.0 Fixed Standard and Max LTV along with selected rates that offer Lender paid closing costs

Reverse Mortgage Math Principal Limit (PL) The PL is the total borrowing power available to the borrower at loan origination The PL is based on the following factors: Age of the youngest borrower or eligible non- borrowing spouse Rate Maximum Claim Amount lesser of the homes value or the nationwide HECM lending limit ($765,600) Maximum Claim Amount

Reverse Mortgage Math Principal Limit Factor (PLF) PLF tables are published by HUD and changed periodically Percentage used to calculate the borrower s PL Based on relevant age and expected interest rate PLF increase with borrower s age Tables begin at 3% and change every 0.125% up to 18.875%

Reverse Mortgage Math, continued 1. Margin (Lender Margin) For HECM ARMs, the margin is a percentage added to the CMT index the combination of the two numbers will equal the current interest rate 1 2. Initial Rate (also know as the applied interest rate or note rate) The interest rate applied to the borrower s loan balance Margin and CMT index = Initial Rate 2 3 3. Expected Rate An anticipated interest rate that is used to determine the PL on HECM loans On a fixed-rate HECM, the expected rate is the same as the interest rate HECM Arm, the expected rate equals the 10-year CMT rate plus the lender margin

Loan Comparison

Longbridge Financial Price Sheet FHA HECM ARM Products The index updates are reflected on the Price Sheet that is sent weekly to you by your Account Executive. These are dictated by the market and disclosed in the Wall Street Journal. The Wall Street Journal publishes the rate each Monday, to become effective on Tuesday. If Monday is not a business day, they publish on Tuesday to become effective Wednesday.

FHA HECM ARM Products The price is based on the 15-day locks premium and is paid on the Unpaid Principal Balance (UPB) Locate the column on the price sheet that contains your margin Next locate the column on the rate sheet that contains your percentage of UPB Where the two intersect is the broker premium that will be used in calculating your compensation In our example: 2.25% margin and 50.01% to 60% utilization, we have a premium of 105.750

Example - ARM Rate Pricing and Compensation In this example: $500,000 home PL = $326,500 Margin = 2.25% on a HECM CMT UPB is $170,149 To identify the PL utilization, we determine what percentage $170,000 is of the PL ($326,500) = 52.12% Premium from the LBF Price Sheet at 52.12% utilization = 105.750 $170,783 (UPB) X 5.750% (Premium) = $9,820

FHA HECM ARM Product Example In our example: 2.25% margin and utilization of 15%, we have a premium of 107.775 In addition there is a 150 bps on Unused PL

Example 2 HECM ARM, under 20% Utilization In this example: Same $500,000 home PL = $326,500 Margin = 2.25% on a HECM CMT UPB is $45,149 (closing costs and $25,000 cash) To identify the PL utilization, we determine what percentage $45,149 is of the PL ($326,500) = 13.38% Premium from the LBF Price Sheet at 10.01% - 20% utilization = 107.775 $45,149 (UPB) X 7.775% (Premium) =$3,510.33 $281,350.30 (unused PL) X 0.15% = $422 Total Compensation = $3,932.33

Fixed Rate HECM Pricing 15 -day Lock Premium, paid on UPB Each fixed interest rate has the same premium, but may have an origination fee Note: the origination fee is payable to LBF on all fixed broker products, not the broker. No credits are permissible

Example Fixed Rate Pricing and Compensation In this example: $500,000 home PL = $326,500 Fixed rate 3.43% UPB is $302,149.70 Origination fee = $4,750 payable to LBF Premium from the LBF Price Sheet = 108.250 $302,149.70 (UPB) X 8.250% (Premium) =$24,927

Platinum 3.0 LOC Pricing Rate is finalized when closing docs are drawn Broker Premium is paid on UPB Step 1 locate the margin in column one Step 2 calculate the utilization percentage Step 3 locate where the two intersect for the premium Our example of a 4.99% margin and 50% utilization has a corresponding Premium of 104.375

Example - Platinum 3.0 LOC In this example: $1,000,000 home PL = $560,000 LOC = $332,807.30 Margin = 4.99%% UPB is $236,192.70 To identify the PL utilization, we determine what percentage $236,192.70 is of the PL ($560,000) = 42.18% Premium from the LBF Price Sheet at 40.01% -50% utilization = 104,375 $236,192.70 (UPB) X 4.375% = $10,333

Platinum 3.0 Fixed Program Rate is finalized when closing docs are drawn Broker Premium is paid on UPB Each rate pays the same premium Lender Credits available on select interest rates

Example - Platinum 3.0 LOC In this example: $1,000,000 home PL = $978,000 Fixed Rate = 5.875% UPB is $978,000 Premium from the LBF Price Sheet = 104.00 $978,000 (UPB) X 4.00= $39,120