Financial Freedom Senior Funding Corp., of Irvine, CA, offers the Cash Account Plan as a proprietary reverse mortgage product. 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 (LIBOR) 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.
The Cash Account Plan is currently available in the District of Columbia and 24 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, Utah, Vermont, Virginia, Washington and Wyoming.
This post was written with text from the Congressional Research Service report Reverse Mortgages: Background and Issues, April 8, 2008.
