What's Not to Like About Reverse Mortgages?

Monday, 28 December 2009 19:15

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Fees are a large part of the reverse mortgage process and one of the biggest concerns for a senior.  If not done properly, you will lose your client every time.  Education is a key and if you can’t explain the financial side of things, you might want to get out of the reverse mortgage arena.

If you truly have a passion for reverse mortgages and what it is you are creating for the senior community, then you should embrace the fee equation as a benefit.  After all, you are in many instances a life changer for those seniors.  I can’t begin to tell you how many seniors I have talked with who mentioned they were working with another loan officer who explained the benefits and informed the client that the costs are much like a traditional refinance forward mortgage.  The loan officer went through all these steps only to fail to inform the client about the UFMIP.  After the client received the paperwork, they lost absolute trust in the loan officer and the reverse mortgage program all together. For those of us who are trying to overcome the myths of a reverse mortgage, it takes knowledge and experience to face these issues that come up periodically that slander the reverse mortgage program.  So being able to navigate through these fees and terms is paramount to whether you will actually close the loan or in the case above, alienate the client and hamper the reverse program even further.

Seniors get it, they’ve been around the block quite a few times and they understand the benefits of a reverse mortgage from the previous conversation with you when you were explaining the reverse mortgage program.  In fact, the senior already knows what they plan to do with the money.  Seniors always want to get to the bottom line: “What’s This Going to Cost Me?”  So selling the fees and educating the senior on the VALUE of these fees is what I like best.  It’s the “nuts and bolts” that structure the complete understanding of a reverse mortgage and, if done right, all of the seniors’ concerns will be met.  Reverse mortgages are not something you sell to a senior; rather they are a program about which you educate the client.  Honestly, “What’s not to like about Reverse Mortgages?”      

It is true to some degree that the cost of title, escrow and origination follow suit to a traditional mortgage but the UFMIP is 2% of the Maximum Claim Amount (MCA).  Let’s break down the UFMIP.  The first part reads Up Front Mortgage Insurance Premium the HECM customer pays FHA for insuring that the cash advances will continue if the lender defaults; there in its own words “If the Lender Defaults” interesting do you see where I’m going with this?  Remember to break down every aspect for the client and explain it thoroughly.  The second half of the UFMIP is that it protects the lender against home price decline at maturity.  It’s 2% of the lending limit or maximum claim amount (MCA).  UFMIP is also the biggest fee -- which brings me back to making sure you do your due diligence in educating the client.

One way to offset the fees associated with a reverse mortgage is to paint a picture on the amount of interest they are currently paying on their existing mortgage month after month and year after year. Use the client’s current situation.  An example on a $300,000 loan amount at 5.25% equates to a monthly interest payment of $1,312.50 and an annual interest payment of $15,750.  Granted that the reverse mortgage is a negative amortization loan and yes you are financing the closing costs, but the trade off is that a reverse mortgage allows you to enjoy these proceeds now and the estate will pay for them in the end.  So the second part of the UFMIP is to protect the lender against home price decline at maturity but I like what it accomplishes for the borrower now and its heirs later when they sell the estate.

Remember the potential client is in need now and that is just one of the benefits of the reverse mortgage. Interest is just that, “Interest”, and it is the money spent to borrow against their current home that they will never recover. Don’t Apologize, Empathize it’s a little known fact that reverse mortgages are expensive loans upfront.  Newspaper articles mention it, potential borrowers are aware of it, and as loan officers, you have to know how to sell these costs.  Instead of apologizing for all the fees, empathize with your client.  Most likely, when you are sensitive and understand your client’s feelings, they will be more accepting to the cost of their investment.  Your clients will then be reassured and confident that their decision for a reverse mortgage is right for them. I say live for today and help the senior to see the real VALUE in the fees associated with the Reverse mortgage.