Home Equity Conversion Loan Agreement

HOME EQUITY CONVERSION LOAN AGREEMENT

FHA Case No.

THIS AGREEMENT is made this day of , 19 ,

among ("Borrower"),

("Lender") and the Secretary of Housing and Urban Development

("Secretary").

Article 1 - Definitions

1.1. Expected Average Mortgage Interest Rate means the amount indicated on

the attached payment plan (Exhibit 1). It is a constant interest rate used

to calculate monthly payments to the Borrower throughout the life of the

loan.

1.2. Loan Advances means all funds advanced from or charged to Borrower's

account under conditions set forth in this Loan Agreement, whether or not

actually paid to Borrower.

1.3. Loan Documents means the Note, Second Note, Security Instrument and

Second Security Instrument.

1.4. Maximum Claim Amount means the lesser of the appraised value of the

Property or the maximum dollar amount for an area established by the

Secretary for a one-family residence under section 2O3(b)(2) of the

National Housing Act (as adjusted where applicable under section 214 of the

National Housing Act). Both the appraised value and the maximum dollar

amount for the area shall be as of the date the conditional commitment is

issued. Closing costs shall not be taken into account in determining

appraised value.

1.5. Note means the promissory note signed by Borrower together with this

Loan Agreement and given to Lender to evidence Borrower's promise to repay,

with interest, Loan Advances by Lender or Lender's assignees.

1.6. Principal or Principal Balance means the sum of all Loan Advances

made as of a particular date, including interest and mortgage insurance

premiums.

1.7. Principal Limit means the amount indicated on the attached payment

plan (Exhibit 1) when this Loan Agreement is executed, and increases each

month for the life of the loan at a rate equal to one-twelfth of the sum of

the Expected Average Mortgage Interest Rate and one-half of one percent.

The Principal Limit is calculated by multiplying the Maximum Claim Amount

by a factor supplied by the Secretary, which is based on the age of the

youngest Borrower and the Expected Average Mortgage Interest Rate.

1.8. Principal Residence means the dwelling where the Borrower maintains

his or her permanent place of abode, and typically spends the majority of

the calendar year. A person may have only one principal residence at any

one time. The Property shall be considered to be the Principal Residence

of any Borrower who is temporarily or permanently in a health care

institution as long as the Property is the Principal Residence of at least

one other Borrower who is not in a health care institution.

1.9. Property means Borrower's property identified in the Security

Instrument.

1.10. Second Note means the promissory note signed by Borrower together

with this Loan Agreement and given to the Secretary to evidence Borrower's

promise to repay, with interest, Loan Advances by the Secretary secured by

the Second Security Instrument

1.11. Second Security Instrument means the mortgage, deed of trust,

security deed or other security instrument which is signed by Borrower

together with this Loan Agreement and which secures the Second Note.

1.12. Security Instrument means the mortgage, deed of trust, security deed

or other security instrument which is signed by Borrower together with this

Loan Agreement and which secures the Note.

Article 2 - Loan Advances

2.1. General. Lender agrees to make Loan Advances under the conditions

set forth in this Loan Agreement in consideration of the Note and Security

Instrument given by Borrower on the same date as this Loan Agreement.

2.2. Initial Advances.

2.2.1. Loan Advances shall be used by Lender to pay, or

reimburse Borrower for, closing costs listed in the Schedule of

Closing Costs (Exhibit 2) attached to and made a part of this

Loan Agreement, except that Loan Advances will only be used to

pay origination fees in an amount not exceeding $1,800.

2.2.2. Loan Advances shall be used by Lender to discharge the

liens on the Property listed in the Schedule of Liens (Exhibit 2)

attached to and made a part of this Loan Agreement.

2.2.3. Lender shall pay an initial Loan Advance to Borrower in

the amount indicated on the attached payment plan (Exhibit 1).

2.2.4. Initial advances required by this Section 2.2. shall be

made as soon as such advances are permitted by the applicable

provisions of 12 CFR Part 226 (Truth in Lending) governing

Borrower's right of rescission, but not before that time.

2.3. Set Asides.

2.3.1. Amounts set aside from the Principal Limit shall be

considered Loan Advances to the extent actually disbursed or

earned by Lender.

2.3.2. Lender shall initially set aside from the Principal Limit

the amount indicated on the attached payment plan (Exhibit 1) for

repairs to be made in accordance with a Repair Rider attached to

and made a part of this Loan Agreement (Exhibit 3).

2.3.3. Lender shall initially set aside from the Principal Limit

the amount indicated on the attached payment plan (Exhibit 1) to

be applied to payments due for first year property charges

consisting of taxes, hazard insurance, ground rents and

assessments.

2.3.4. Lender shall initially set aside from the Principal Limit

the amount indicated on the attached payment plan (Exhibit 1) to

be applied to payment due for a fixed monthly charge for

servicing activities of Lender or its servicer. Such servicing

activities are necessary to protect Lender's interest in the

Property. A servicing fee set aside, if any, is not available to

the Borrower for any purpose, except to pay for loan servicing.

2.4. Charges and Fees. Borrower shall pay to Lender reasonable and

customary charges and fees as permitted under 24 CFR 206.207 (a). Such

amounts shall be considered Loan Advances when actually disbursed by

Lender.

2.5. Monthly Payments.

2.5.1. Loan Advances paid directly to Borrower shall be made in

equal monthly payments if requested by Borrower.

2.5.2. Monthly payments shall be calculated for either the term

payment plan or the tenure payment plan, as requested by

Borrower.

2.5.3. Monthly payments under the term payment plan are made

only during a term chosen by Borrower and shall be calculated so

that the sum of (i) or (ii) added to (iii), (iv), (v) and (vi)

shall be equal to or less than the Principal Limit at the end of

the term:

(i) Initial Advances under Section 2.2., plus any initial

servicing fee set aside under Subsection 2.3.4., or

(ii) The Principal Balance at the time of a change in

payments under Sections 2.8. and 2.9. plus any remaining

servicing fee set aside under Subsection 2.3.4., and

(iii) The portion of the Principal Limit set aside as a

line of credit under Section 2.7., including any set asides

for repairs (Subsection 2.3.2.) and first year property

charges (Subsection 2.3.3.), and

(iv) All monthly payments due through the payment term,

including funds withheld for payment of property charges

under Section 2.10., and

(v) All mortgage insurance premiums, or monthly charges due

to the Secretary in lieu of mortgage insurance premiums,

which are due through the payment term (Subsection 2.13.),

and

(vi) All interest through the payment term. The Expected

Average Mortgage Interest Rate shall be used for this

purpose.

2.5.4. Monthly payments under the tenure payment plan shall be

calculated as in Subsection 2.5.3. as if there were a payment

term with the number of months in the term equal to the sum of

100 minus the age of the youngest Borrower multiplied by 12, but

payments shall continue until the loan becomes due and payable as

provided in the Loan Documents.

2.5.5. Monthly payments shall be paid to Borrower on the first

business day of a month.

2.5.6. If Borrower has requested monthly payments, payments

shall be indicated on the attached payment plan (Exhibit 1). The

payment plan may be changed by Borrower as provided in Sections

2.8. and 2.9.

2.6. Line of Credit without Monthly Payments.

2.6.1. Borrower can request Loan Advances under a line of credit

payment plan in amounts and at times determined by Borrower, if

the Principal Balance of the loan after the Loan Advance is made

is less than or equal to the applicable Principal Limit,

excluding any portion of the Principal Limit set aside under

Sections 2.3.2. or 2.3.4.

2.6.2. Line of credit payments shall be paid to Borrower within

five business days after Lender has received a written request

for payment by Borrower.

2.6.3. Lender may specify a form for line of credit payment

requests.

2.6.4. Lender shall provide Borrower with a statement of the

account every time a line of credit payment is made. The

statement shall include the current interest rate, the previous

Principal Balance, the amount of the current Loan Advance, the

current Principal Balance after the Loan Advance, and the current

Principal Limit.

2.7. Line of Credit with Monthly Payments.

2.7.1. Borrower may receive monthly payments under either a term

or tenure payment plan combined with a line of credit, as

indicated on the attached payment plan (Exhibit 1).

2.7.2. Subsections 2.6.2., 2.6.3. and 2.6.4. apply to a line of

credit combined with term or tenure payments.

2.7.3. If Borrower combines a line of credit with a term or

tenure payment plan, the Principal Limit is divided into: (a) an

amount for the line of credit payments, including repair and

property charge set asides, (b) an amount for monthly payments

which shall be calculated under Subsection 2.5.3. or 2.5.4. and

(c) an amount for a servicing fee set aside, if required by

Lender under Subsection 2.3.4. Amounts designated for line of

credit payments and monthly payments increase independently at

the same rate as the total Principal Limit increases under

Section 1.7. Borrower can request Loan Advances in amounts and

at times determined by Borrower, if the requested amount is less

than or equal to the difference between (a) the Principal Limit

applicable to the line of credit set aside and (b) the portion of

the outstanding Principal Balance attributable to draws on the

line of credit, including accrued interest and mortgage insurance

premium or monthly charge due to the Secretary, but excluding any

portion of the Principal Limit set aside under Subsections 2.3.2.

and 2.3.4.

2.7.4. A Borrower receiving monthly payments in combination with

a line of credit may prepay the outstanding mortgage balance in

accordance with the terms of the Note.

2.8. Change in Payments Generally.

2.8.1. Whenever the Principal Balance of the loan is less than

the Principal Limit, Borrower may change from any payment plan

allowable under this Loan Agreement to another.

2.8.2. If Borrower requests that monthly payments be made after

a change in payment plan, Lender shall recalculate future monthly

payments in accordance with Subsections 2.5.3. or 2.5.4.

2.8.3. Lender may charge a fee not to exceed twenty dollars,

whenever payments are recalculated and in any other circumstances

in which Borrower is required to sign a form acknowledging a

change in payment plan as provided in Subsection 2.8.5.

2.8.4. Loan Advances under a new payment plan shall be paid to

Borrower in the same manner and within the time period required

under Sections 2.5., 2.6. or 2.7.

2.8.5. Changes in the payment plan must be acknowledged by

Borrower by signing a form containing the same information as the

attached payment plan (Exhibit 1). Lender shall provide a copy

of the completed form to Borrower.

2.9. Change in Payments Due to Initial Repairs.

2.9.1. If initial repairs after closing, made in accordance with

the Repair Rider, are completed without using all of the repair

set aside, Lender shall inform Borrower of the completion and the

amount then available to the Borrower to be drawn under a line of

credit.

2.9.2. If initial repairs after closing, made in accordance with

the Repair Rider, cannot be fully funded from the repair set

aside, any additional Loan Advances needed to complete repairs

shall be made in the manner provided under Section 2.16.

2.9.3. If initial repairs are not completed when required by the

Repair Rider, Borrower shall not request and Lender shall not

make any further payments, except as needed to pay for repairs

required by the Repair Rider and mandatory Loan Advances under

Section 4.5. In order to complete the required repairs, Loan

Advances shall be made first from the repair set aside, and then

in the manner provided under Section 2.16.

2.10. Payment of Property Charges.

2.10.1 Borrower has elected to require Lender to use Loan

Advances to pay property charges consisting of taxes, hazard

insurance premiums, ground rents and special assessments if

indicated on the attached payment plan (Exhibit 1). Borrower may

change this election by notifying Lender and at that time Lender

shall pay to Borrower any amounts withheld from the Loan Advances

to pay property charges.

2.10.2. If Borrower has made the election under Subsection

2.10.1. and Borrower is receiving monthly payments, Lender shall

withhold amounts from each monthly payment and use the amounts

withheld to make timely payments of property charges. The

amounts withheld shall be calculated as provided in Subsection

2.10.3. Amounts withheld from monthly payments shall not be

treated as Loan Advances and shall not bear interest except to

the extent actually disbursed by Lender.

2.10.3. Lender shall withhold from each monthly payment an

amount to pay (a) taxes and special assessments levied or to be

levied against the Property, (b) leasehold payments or ground

rents on the Property, and (c) premiums for fire, flood and other

hazard insurance required by the Security Instrument. Each

monthly withholding for items (a), (b) and (c) shall equal

one-twelfth of the annual amounts, as reasonably estimated by

Lender. The full annual amount for each item shall be paid by

Lender before an item would become delinquent. Lender shall add

the amounts for items (a), (b) and (c) to the Principal Balance

when paid. If at any time the withholding for item (a), (b), or

(c) exceeds the amount of actual property charges, Lender shall

pay the excess withholding to Borrower and add it to the

Principal Balance. If the total of the withholding for item (a),

(b), or (c) is insufficient to pay the item when due, the amount

necessary to make up the deficiency on or before the date the

item becomes due shall be paid as a Loan Advance in the manner

provided under Section 2.16.

2.10.4. If Borrower has made the election under Subsection

2.10.1. and Borrower is not receiving monthly payments, Lender

shall make Loan Advances under the line of credit payment plan as

needed to make timely payments of property charges, provided that

no such Loan Advance shall exceed the amount permitted by Section

2.6.1.

2.10.5. If Borrower fails to pay the property charges in a

timely manner, and has not elected to have Lender make the

payments, Lender shall pay the property charges as a Loan Advance

as required under Section 2.16. If a pattern of missed payments

occurs, Lender may establish procedures to pay the property

charges from Borrower's funds as if Borrower elected to have

Lender pay the property charges.

2.10.6. Lender shall immediately notify any Borrower who has

made the election under Subsection 2.10.1. whenever Lender

determines that amounts available from monthly payments or line

of credit payments will be insufficient to pay property charges.

2.11. Insurance and Condemnation Proceeds. If insurance or condemnation

proceeds are paid to Lender, the Principal Balance shall be reduced by the

amount of the proceeds not applied to restoration or repair of the damaged

Property and the available loan funds shall be recalculated. At the same

time, the Principal Limit also shall be reduced by the amount of the

proceeds applied to reduce the Principal Balance.

2.12. Interest

2.12.1. Interest shall be calculated as provided in the Loan

Documents.

2.12.2. Interest shall accrue daily and be added to the

Principal Balance as a Loan Advance at the end of each month.

2.13. Mortgage Insurance Premium (MIP); Monthly Charge.

2.13.1. Monthly MIP shall be calculated as provided in 24 CFR

Part 206. If the Security Instrument is held by the Secretary or

if the Secretary makes Loan Advances secured by the Second

Security Instrument, a monthly charge shall be due to the

Secretary and shall be calculated in the same manner as MIP.

2.13.2. The full amount of monthly MIP or monthly charge,

including any portion of the MIP retained by a Lender under 24

C.F.R. 206.109, shall be considered to be a Loan Advance to

Borrower on the later of the first day of the month or the day

Lender pays the MIP to the Secretary, if any MIP is due to the

Secretary. In the event that the Note becomes due and payable or

the Note is prepaid in full after the first day of the month,

Lender may add the accrued MIP to the Principal Balance or the

Secretary may add the accrued monthly charge to the Principal

Balance.

2.14. Manner of Payment For purposes of this Section "Borrower" shall not

include any person who signed this Loan Agreement but who has a Principal

Residence different from the Property. Only a Borrower has a right to

receive Loan Advances. Borrowers shall choose to receive Loan Advances by

either electronic funds transfer to a bank account designated by all

Borrowers or by check mailed to an address designated by all Borrowers,

except where all Borrowers agree that payment should be made directly to a

third party for the benefit of the Borrowers. Borrowers may change the

manner of payment by notifying Lender.

2.15. Protection of Property.

2.15.1. If Borrower vacates or abandons the Property, or if

Borrower is in default under the Security Instrument, then Lender

may make reasonable expenditures to protect and preserve the

Property and these expenditures will be considered Loan Advances

as required under Section 2.16.

2.15.2. If Borrower fails to pay governmental or municipal

charges, fines or impositions that are not Included in Section

2.10. or if there is a legal proceeding that may significantly

affect Lender's rights in the Property (such as a proceeding in

bankruptcy, for condemnation or to enforce laws or regulations),

then Lender may do and pay whatever is necessary to protect the

value of the Property and Lender's rights in the Property. These

expenditures will be considered Loan Advances as required under

Section 2.16.

2.16. Unscheduled Payments. Loan Advances made pursuant to Sections 2.4.,

2.9.2., 2.9.3., 2.10.3., 2.10.5., and 2.15. shall be made from a line of

credit under Section 2.6. or 2.7. to the extent possible. If no line of

credit sufficient to make the Loan Advances exists, any future monthly

payments must be recalculated in accordance with Subsection 2.5.3. or

2.5.4. to create a line of credit sufficient to make the Loan Advances.

Article 3 - Late Charge

3.1. Amount Due. Lender shall pay a late charge to Borrower for any late

payment. If Lender does not mail or electronically transfer a scheduled

monthly payment to Borrower on the first business day of the month or mail

or electronically transfer a line of credit payment to Borrower within 5

business days of the date Lender received the request, the late charge

shall be 10 percent of the entire amount that should have been paid to the

Borrower for that month or as a result of that request. For each

additional day that Lender fails to make payment, Lender shall pay interest

on the late payment at the interest rate stated in

the Loan Documents. If the Loan Documents provide for an adjustable

interest rate, the rate in effect when the late charge first accrues shall

be used. In no event shall the total late charge and interest exceed five

hundred dollars. Any late charge shall be paid from Lender's funds and

shall not be added to the unpaid Principal Balance.

3.2. Waiver. The Secretary may waive a late charge where the Secretary

determines that the late payment resulted from circumstances beyond

Lender's control and that no act or omission of Lender contributed to the

late payment. At the time Lender requests a waiver, Lender shall inform

Borrower that a waiver of late charge has been requested from the Secretary

and that the late charge will be sent to Borrower if the waiver is denied.

If the Secretary denies the waiver, Lender shall pay to Borrower the late

charge and interest that accrued from the date the payment was late until

the date the waiver was requested.

Article 4 - Termination of Lender's Obligation

to Make Loan Advances

4.1. Loan Due and Payable. Lender shall have no obligation to make Loan

Advances if Lender has notified Borrower that immediate payment in full to

Lender is required under one or more of the Loan Documents unless and until

the notice is rescinded by Lender.

4.2. Loan Advances by Secretary. If the Security Instrument has been

assigned to the Secretary or the Secretary notifies Lender and Borrower

that Loan Advances are secured by the Second Security Instrument, Lender

shall have no further obligation to make Loan Advances under this Loan

Agreement, unless the Secretary accepts later reimbursement by the Lender

for all Loan Advances made, earned or disbursed by the Secretary. The

Secretary may establish procedures for handling requests for payments and

changes in payment plans during the interval between Lender's notification

of intent to assign the Security Instrument to the Secretary and completion

of the assignment. Borrower shall be informed of such procedures by Lender

and/or the Secretary, and Borrower shall comply with such procedures.

4.3. Lien Status Jeopardized. Lender shall have no obligation to make

further Loan Advances if the Lender or the Secretary determines that the

lien status of the Security Instrument or the Second Security Instrument is

jeopardized under State laws as described in Paragraph 12(a) of the

Security Instrument or Second Security Instrument and the lien status is

not extended in accordance with Paragraph 12(a).

4.4. Bankruptcy. Lender shall have no obligation to make further Loan

Advances on or following the date that a petition for bankruptcy of

Borrower is filed.

4.5. Mandatory Loan Advances. Notwithstanding anything in Sections 4.1.

through 4.4., all Loan Advances under Sections 2.10 (property charges),

2.12. (interest), 2.13. (MIP or monthly charge), 2.15. (protection of

Property) or 2.3.4. (servicing fee) shall be considered mandatory Loan

Advances by Lender.

4.6. Prepayment in Full. Lender shall not make Loan Advances if Borrower

has paid the Note in full (or the Second Note, if the Secretary has assumed

the Lender's rights and obligations under Article 5).

Article 5 - HUD Obligation

If the Lender has no further obligation to make payments to Borrower

because of Section 4.2., the Secretary shall assume the rights and

obligations of Lender under this Loan Agreement, except the Secretary shall

not assume any obligation of paying flood, fire and other hazard insurance

from Loan Advances. If the Secretary makes Loan Advances to Borrower under

the Second Security Instrument, the

portion of the Principal Limit available for Loan Advances shall be the

difference between the current Principal Limit and the combined Principal

Balances on the Security Instrument less accrued interest and the Second

Security Instrument.

Article 6 - Miscellaneous

6.1. Forbearance Not a Waiver. Any forbearance by Lender in exercising

any right or remedy shall not be a waiver of or preclude the exercise of

any right or remedy.

6.2. Successors and Assigns Bounds; Joint and Several Liability;

Co-Signers. The covenants and agreements of this Loan Agreement shall bind

and benefit the successors and assigns of Lender. An assignment made in

accordance with the regulations of the Secretary shall fully relieve the

Lender of its obligations under this Loan Agreement. Borrower may not

assign any rights or obligations under this Loan Agreement. Borrower's

covenants and agreements shall be joint and several.

6.3. Notices. Any notice to Borrower provided for in this Loan Agreement

shall be given by delivering it or by mailing it by first class mail unless

applicable law requires use of another method. The notice shall be

directed to the property address shown in the Security Instrument or any

other address all Borrowers jointly designate. Any notice to Lender shall

be given by first class mail to Lender's address stated herein or any

address Lender designates by notice to Borrower. Any notice to the

Secretary shall be given by first class mail to the HUD Field Office with

jurisdiction over the Property or any other place designated by the

Secretary. Any notice provided for in this Loan Agreement shall be deemed

to have been given to Borrower, Lender or the Secretary when given as

provided in this Section.

6.4. Governing Law; Severability. This Loan Agreement shall be governed

by Federal law and the law of the jurisdiction in which the Property is

located. In the event that any provision or clause of this Loan Agreement

conflicts with applicable law, such conflict shall not affect other

provisions of this Loan Agreement which can be given effect without the

conflicting provision. To this end the provisions of this Loan Agreement

are declared to be severable.

6.5. Copies. Lender, Borrower and the Secretary shall each receive one

original executed copy of this Loan Agreement when signed by the Secretary.

6.6. When Agreement Becomes Binding. This Loan Agreement shall bind

Lender and Borrower when both Lender and Borrower have signed, whether or

not the Secretary signs this Loan Agreement. This Loan Agreement shall

bind the Secretary only when and if the Secretary has signed and a Mortgage

Insurance Certificate is issued for the Security Instrument.

BY SIGNING BELOW the parties accept and agree to the terms contained

in this Loan Agreement and the exhibits.

___________________________ (SEAL)

Borrower

___________________________ (SEAL)

Borrower

_________________________________

(Name of Lender)

By:_________________________ (SEAL)

Secretary of Housing and Urban

Development

By:_________________________ (SEAL)

___________________________________________________________________________

Exhibit 1

[Payment Plan is Appendix 11]

___________________________________________________________________________

Exhibit 2

Schedule of Closing Costs

Item Amount

Schedule of Liens

Item Amount

___________________________________________________________________________

Exhibit 3

[Repair Rider is Appendix 10]