Reverse mortgage counseling is an important part of the process and lenders and counselors would agree that it can be improved. Despite HUD’s plan to eventually release new HECM counseling protocols, one issue that still needs to be addressed is the “suitability” issue which continues to be a concern from legislators.
I came across Hunch and thought it or a similar tool could provide some value to the reverse mortgage industry. Hunch is basically an engine designed to help people make decisions based on collective knowledge. The people from Hunch talk a bit about their algorithm below:
At the core of Hunch is a question selection algorithm built by our small gaggle of MIT computer scientists with backgrounds in machine learning. The algorithm is always asking itself, "What can I ask you next which will lead to the best possible result for this decision?" The choice of which questions to ask and when to ask them will vary based on what you’ve already been asked (and how you’ve answered) so far, the same way that a human expert would adjust a line of questioning based on your responses. The idea is that if someone says they’re a vegetarian, you don’t want to then immediately ask them how they want their steak cooked.
In choosing what to ask you, Hunch’s question selection algorithm tries to do two things. First, it tries to find a question which will discriminate well among the remaining possible decision outcomes for you – thus filtering the remaining choices from "many" to "fewer". Second, the algorithm looks for a question which can help optimize and rank the remaining decision results to present you with the ones you’ll like the most. It’s trying to ensure that you’ll like outcome #1 better than outcome #5.
I’m sure your wondering, what does this have to do with reverse mortgages? Not much, but if you head over to Hunch and ask “Should I get a reverse mortgage?” you will see what I’m getting at.
I ran through the list of questions Hunch asks and after going through the process half a dozen times, each outcome provided a balanced decision based on the answers provided.
Below is an example of a decision I received from Hunch, which said that It sounds like a reverse mortgage is probably right for you. Why did Hunch pick this? See the questions and answers below.
- Do you: Own your home and live in it?
You answered: ▸ Yes
- For what purposes would you use the money from a reverse mortgage?
You answered: ▸ For health care or routine household expenses
- How strongly do you feel about continuing to live in your current home for the foreseeable future?
You answered: ▸ I love my home and can’t imagine living anywhere else
- Have you looked into alternatives to a reverse mortgage, such as a home equity loan or home equity line of credit (HELOC)?
You answered: ▸ Yes
- Do you currently have:
You answered: ▸ Only fixed income from social security or another source
Answers that didn’t match.
- How old are you?
You answered: ▶ 62 – 69 years old
- Do you think it’s likely you would sell your home and/or move out of it within the next 3-5 years?
You answered: ▶ Maybe
The questions from Hunch are similar to many of the questions a counselor would ask to help determine whether a reverse mortgage is a good option for someone. See where I’m going with this?
I’ll be the first to admit that nothing can totally replace a good counseling session or originator who spends the time needed to explain the product but I do believe asking the right questions can help determine whether a reverse mortgage is “suitable”, maybe even before counseling.
The industry needs to realize that concerns from legislators over suitability will not go away, so why not develop a way to define suitability by an independent third party. It would be great to have counselors do this, but it’s not their job to be a financial planner anymore than a reverse mortgage originator.
Many calculators and other tools available are lead generation vehicles (no problem with that) and involve getting a phone call(s) instead of independent information based on questions answered by potential borrowers. Most lead generators only ask for age, loan balance, location, and I’ve yet to see any that qualify borrowers any further than the basics.
Someone could take something like Hunch (which does have an API), and build out on top of it with more detailed descriptions of why a reverse mortgage is or isn’t a good option based on answers given. Now I know that a tool like this is far from perfect but why shouldn’t lenders have a tool like this on their webpage along with their calculator?
The internet age is already here, and while all seniors may not be part of it yet, they will be in the next few years. These type of consumers want information before they pick up the phone and should have a way to receive basic feedback and information based upon a standard set of questions.
Also, it’s not the same to answer these type of questions in a FAQ section part of your website. Do you want to be like 99.9% of reverse mortgage lenders and do that or provide your visitors with an interactive experience to help them understand whether a reverse mortgage is the right product for them?
I also think something like this could provide new opportunities for lead providers as well. Would you pay more for a lead which answered certain questions listed above more than others? I sure would, because it provides more information based on individual answers which help to determine whether a reverse mortgage may be “suitable” for the consumer.
Like I said before, Hunch may not be perfect, but it’s a hell of a lot better than anything else we have in our industry. I realize that using Hunch to determine suitability is a long shot, but I do think it provides a step in the right direction of where the industry needs to go. So ask Hunch if you should get a reverse mortgage and let me know what you think.