• TALC Regulations - To view and download the
  Total Annual Loan Cost (TALC) regulations, go to
  www.gpo.gov, select "Access to Government Information
  Products," select "Code of Federal Regulations," and then
  search for "12CFR226.33" (Title 12 Banks and Banking,
  Part 226 Truth in Lending [Regulation z], Section 226.33
  [Requirements for Reverse Mortgages]); and Part 226,
  Appendix K - Calculating TALC Tates for Reverse Mortgages. 

• TALC Tutorial - For a step by step explanation of
  TALC rates, click here.

• TALC History - The Home Owner Equity Protection
  Act (HOEPA) of 1994 subjected all reverse mortgages
  to a new Truth-in-Lending disclosure formulated
  specifically to fit them. This provision required lenders
  to project the total annual average cost of these loans
  on a consistent methodological basis, facilitating true
  "apples to apples" comparisons. It provided a fair and
  accurate way to evaluate and compare the true, total
  cost of reverse mortgage alternatives.

A comprehensive, standardized disclosure was
important because without it, reverse mortgage cost
comparisons were virtually impossible to make. The
unique structure and varied features of these loans
generate a pattern of annual average costs that varies
widely within a given transaction, and from one reverse
mortgage program to another.

Unique Structure - Because they require no repayment
for as long as borrowers live in their homes, reverse
mortgages have a rising balance over time. But they
are also "nonrecourse" loans, i. e., the amount due can
never exceed the home’s value. So the central lending
risk is that borrowers will live in their homes so long or
their homes will appreciate so little that the rising
balance will catch up to - and then be limited by - the
home’s value.

If that occurs, lenders may nonetheless be obligated to
make additional monthly loan advances for an indeter-
minate number of years or provide an ever-increasing
creditline despite the fact that the loan balance is now
limited. If a home’s value is decreasing, a lender would
be obligated to make additional loan advances in the
face of a decreasing loan balance. With loan balances
limited by home values on the one hand, and open-
ended loan advances on the other, the magnitude of
losses on reverse mortgages can be significant.

Moreover, the combined risk of appreciation and tenancy
had not previously been underwritten. So there was a
wide disparity in risk assessment and pricing structures
among different reverse mortgage programs. In addition,
the federally-insured program included an array of equity
limits that generated non-actuarial cross-subsidies within
its insurance pool. As a result, the different reverse
mortgage programs

• exhibited a wide array of pricing structures,
  including nonconventional cost items unfamiliar
  to most consumers; and

• provided a wide array of loan advance amounts
  (determined principally by borrower age and
  home value) and payout patterns.