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(As of February 2007)

If you apply for a mortgage, your inbox, answering machine, and mailbox may fill up quickly with competing offers from other mortgage companies. It’s not that the company you applied to is selling or sharing your information. Rather, it’s that creditors – including mortgage companies – are taking advantage of a federal law that allows them to identify potential customers for the products they offer, and then market to them. The Federal Trade Commission, the nation’s consumer protection agency, wants you to know why your application for a mortgage may trigger competing offers, how you can use them to your benefit, and how to stop getting them if that’s your choice.

The unsolicited calls, emails, and letters about competing offers often are called “prescreened” or “pre-approved” offers of credit. They are based on information in your credit report that suggests you meet criteria set by the creditor making the offer – for example, you live in a certain zip code, you have a certain number of credit cards, or you have a certain credit score. Credit bureaus and other consumer reporting companies sell lists of consumers who meet the criteria to insurance companies, lenders, and other creditors.

When you apply for a mortgage, the lender usually gets a copy of your credit report. At that point, an “inquiry” appears on your report showing that the lender has looked at it. The inquiry indicates you’re in the market for a loan. That’s why mortgage companies buy lists of consumers who have a recent inquiry from a mortgage company on their credit report. Federal law allows this practice if the offer of credit meets certain legal requirements.

Clearly, some mortgage companies benefit from the practice. But the FTC says consumers can benefit, too: prescreened offers can highlight other available products and make it easier to compare costs while you carefully check out the terms and conditions of any offers you might consider.

Still, some people may prefer not to receive prescreened offers of credit and insurance at all. Here’s how to stop them:

Call 1-888-5-OPTOUT (1-888-567-8688) or visit www.optoutprescreen.com. When you call this toll-free number or visit the website, you will be asked to provide certain personal information, including your home telephone number, name, Social Security number, and date of birth. The information you provide is confidential, and will be used only to process your request to opt out. Don’t enter any personal information until you have checked for indicators that the site is secure – a lock icon on your browser or a web address that begins https.

Opting out of prescreened offers does not affect your ability to apply for credit or to get it. Your opt out request will be processed within five days, but it may take up to 60 days before the prescreened offers stop coming. If you have a joint mortgage, both parties need to opt out to stop the prescreened offers. If or when you want to opt back in, use the same telephone number or website.

Put your phone number on the federal government’s National Do Not Call Registry to reduce the telemarketing calls you get at home. To register your phone number or to get information about the registry, visit www.donotcall.gov, or call 1-888-382-1222 from the phone number you want to register. You will get fewer telemarketing calls within 31 days of registering your number. Your number stays on the registry for five years, until it is disconnected, or until you take it off the registry.

That said, the FTC wants you to know that many companies use other tools to identify marketing prospects, and that the Do Not Call Registry won’t shield you from all telemarket­ers – for example, those with which you have a business relationship. Even if you opt out of prescreened offers and put your number on the National Do Not Call Registry, you can expect some unsolicited offers.

For more information about the Fair Credit Reporting Act, the law that spells out the terms under which companies can check credit reports, visit www.ftc.gov/credit.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Source: Federal Trade Commission

(As of June 2005)

Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to “reverse” mortgages. They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

In a “regular” mortgage, you make monthly payments to the lender. But in a “reverse” mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.

To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.

The three basic types of reverse mortgage are: single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations; federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.

HECMs and proprietary reverse mortgages tend to be more costly than other home loans. The up-front costs can be high, so they are generally most expensive if you stay in your home for just a short time. They are widely available, have no income or medical requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. The counselor must explain the loan’s costs, financial implications, and alternatives. For example, counselors should tell you about government or nonprofit programs for which you may qualify, and any single-purpose or proprietary reverse mortgages available in your area.

The amount of money you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, current interest rates, and where you live. In general, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

The HECM gives you choices in how the loan is paid to you. You can select fixed monthly cash advances for a specific period or for as long as you live in your home. Or you can opt for a line of credit, which allows you to draw on the loan proceeds at any time in amounts that you choose. You also can get a combination of monthly payments plus a line of credit.

HECMs generally provide larger loan advances at a lower total cost compared with proprietary loans. But owners of higher-valued homes may get bigger loan advances from a proprietary reverse mortgage. That is, if you have a higher appraised value without a large mortgage, then you may likely qualify for greater funds. Location (for example, your neighborhood) is only one part of the determination of appraised value.

Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.

As you consider a reverse mortgage, be aware that:

Lenders generally charge origination fees and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender generally sets these fees and costs.

The amount you owe on a reverse mortgage generally grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases over time as loan funds are advanced to you and interest accrues on the loan.

Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to a financial index and will likely change according to market conditions.

Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets for you and your heirs. A “nonrecourse” clause, found in most reverse mortgages, prevents either you or your estate from owing more than the value of your home when the loan is repaid.

Because you retain title to your home, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. So, for example, if you don’t pay property taxes or maintain homeowner’s insurance, you risk the loan becoming due and payable.

Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.

If you are considering a reverse mortgage, shop around to compare your options and the offered terms. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. It will help you ask more informed questions, which could lead to a better deal.

If you want to make a home repair or improvement or need help paying your property taxes, you may want to find out if you qualify for any low-cost single-purpose loans that may be available in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call toll-free, 1-800-677-1116. Ask the AAA for information about available “loan programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs.

If you are interested in a federally-insured HECM, know that all HECM lenders must follow HUD rules, and that many of the loan costs including the interest rate will be the same no matter which lender you select. Still, some costs including the origination fee, other closing costs, and servicing fees may vary among lenders.

If you live in a higher-valued home, you may be able to borrow more from a proprietary reverse mortgage. But it generally will cost more. The best way to see key differences between a HECM and a proprietary loan is with a detailed side-by-side comparison of future costs and benefits. Many HECM counselors and lenders can provide you with this important information.

No matter which type of reverse mortgage you are considering, be certain you understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates, which show the projected annual average cost of a reverse mortgage, including all itemized costs.

Be cautious if anyone tries to sell you something, like an annuity, and suggests that a reverse mortgage would be an easy way to pay for it. If you don’t fully understand what they’re selling, or you’re not sure you need what they’re selling, be even more skeptical.

Keep in mind that your total cost would be the cost of what they’re selling plus the cost of the reverse mortgage. If you think you need what they’re selling, shop around before you buy.

No matter why you decide to take a reverse mortgage, you generally have at least three business days after signing the loan documents to cancel it for any reason without penalty. Remember that you must cancel in writing. The lender must return any money you have paid so far for the financing.

If you suspect that anyone is violating the law, let the counselor, lender, or loan servicer know. Then, file a complaint with: your state Attorney General’s office or state banking regulatory agency, and the Federal Trade Commission (FTC). You can do that online at ftc.gov or by phone, toll-free, at 1-877-FTC-HELP (1-877-382-4357).

Whether a reverse mortgage is right for you is a big question. Consider all your options. You may qualify for less costly alternatives. Contact the following organizations for more information:

Reverse Mortgage Education Project AARP Foundation 601 E Street, NW Washington, DC 20049 1-800-209-8085 www.aarp.org/revmort/list

U. S. Department of Housing and Urban Development (HUD) 451 7th Street, SW Washington, DC 20410 1-888-466-3487 www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm

Federal Trade Commission Consumer Response Center 600 Pennsylvania Avenue, NW Washington, DC 20580 www.ftc.gov/bcp/menus/consumer/credit.shtm — Click on “Mortgages & Your Home” 1-877-FTC-HELP (1-877-382-4357)

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Source: Federal Trade Commission

(As of February 2008)

If you’re refinancing your mortgage or applying for a home equity installment loan, you should know about the Home Ownership and Equity Protection Act of 1994 (HOEPA). The law addresses certain deceptive and unfair practices in home equity lending. It amends the Truth in Lending Act (TILA) and establishes requirements for certain loans with high rates and/or high fees. The rules for these loans are contained in Section 32 of Regulation Z, which implements the TILA, so the loans also are called "Section 32 Mortgages." Here's what loans are covered, the law's disclosure requirements, prohibited features, and actions you can take against a lender who is violating the law.

A loan is covered by the law if it meets the following tests:

• For a first-lien loan, that is, the original mortgage on the property, the annual percentage rate (APR) exceeds by more than eight percentage points the rates on Treasury securities of comparable maturity;
• For a second-lien loan, that is, a second mortgage, the APR exceeds by more than 10 percentage points the rates in Treasury securities of comparable maturity; or
• The total fees and points payable by the consumer at or before closing exceed the larger of $561 or eight percent of the total loan amount. (The $561 figure is for 2008. This amount is adjusted annually by the Federal Reserve Board, based on changes in the Consumer Price Index.) Credit insurance premiums for insurance written in connection with the credit transaction are counted as fees.

The rules primarily affect refinancing and home equity installment loans that also meet the definition of a high-rate or high-fee loan. The rules do not cover loans to buy or build your home, reverse mortgages or home equity lines of credit (similar to revolving credit accounts).

If your loan meets the above tests, you must receive several disclosures at least three business days before the loan is finalized:

• The lender must give you a written notice stating that the loan need not be completed, even though you've signed the loan application and received the required disclosures. You have three business days to decide whether to sign the loan agreement after you receive the special Section 32 disclosures.
• The notice must warn you that, because the lender will have a mortgage on your home, you could lose the residence and any money put into it, if you fail to make payments.
• The lender must disclose the APR, the regular payment amount (including any balloon payment where the law permits balloon payments, discussed below), and the loan amount (plus where the amount borrowed includes credit insurance premiums, that fact must be stated). For variable rate loans, the lender must disclose that the rate and monthly payment may increase and state the amount of the maximum monthly payment.

These disclosures are in addition to the other TILA disclosures that you must receive no later than the closing of the loan.

The following features are banned from high-rate, high-fee loans:

• All balloon payments – where the regular payments do not fully pay off the principal balance and a lump sum payment of more than twice the amount of the regular payments is required - for loans with less than five-year terms. There is an exception for bridge loans of less than one year used by consumers to buy or build a home: In that situation, balloon payments are not prohibited.
• Negative amortization, which involves smaller monthly payments that do not fully pay off the loan and that cause an increase in your total principal debt.
• Default interest rates higher than pre-default rates. Rebates of interest upon default calculated by any method less favorable than the actuarial method. A repayment schedule that consolidates more than two periodic payments that are to be paid in advance from the proceeds of the loan.
• Most prepayment penalties, including refunds of unearned interest calculated by any method less favorable than the actuarial method. The exception is if:
1. The lender verifies that your total monthly debt (including the mortgage) is 50 percent or less of your monthly gross income;
2. You get the money to prepay the loan from a source other than the lender or an affiliate lender; and the lender exercises the penalty clause during the first five years following execution of the mortgage.
• A due-on-demand clause. The exceptions are if:
  1. There is fraud or material misrepresentation by the consumer in connection with the loan;
  2. The consumer fails to meet the repayment terms of the agreement; or
  3. There is any action by the consumer that adversely affects the creditor's security.

Creditors also may not:

• Make loans based on the collateral value of your property without regard to your ability to repay the loan. In addition, proceeds for home improvement loans must be disbursed either directly to you, jointly to you and the home improvement contractor or, in some instances, to the escrow agent.
• Refinance a HOEPA loan into another HOEPA loan within the first 12 months of origination, unless the new loan is in the borrower's best interest. The prohibition also applies to assignees holding or servicing the loan.
• Wrongfully document a closed-end, high-cost loan as an open-end loan. For example, a high-cost mortgage may not be structured as a home equity line of credit if there is no reasonable expectation that repeat transactions will occur.

You may have the right to sue a lender for violations of these new requirements. In a successful suit, you may be able to recover statutory and actual damages, court costs and attorney's fees. In addition, a violation of the high-rate, high-fee requirements of the TILA may enable you to rescind (or cancel) the loan for up to three years.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Source: Federal Trade Commission