Taking a conservative approach to writing reverse mortgages, Sun West Mortgage, Cerritos, Calif., prefers to be careful on the front-end and “aggressive” on the servicing side, according to Pavan Agarwal, vice-president of the family-owned firm. Agarwal, who joined the company right out of college, says Sun West is “proactive in servicing,” particularly when taxes come due,” calling borrowers to remind them. “Most seniors don’t default because they intend to,” Agarwal notes, “but, rather, they forget to make the payments. It’s mostly a training and re-education” issue, he says.
Not surprisingly, origination volumes are down lately at Sun West, which got into the reverse mortgage business in 2004. Agarwal tells RMD that the company has experienced a 30 to 40 percent reduction in HECM volume this year due to the reduced principal limit factors and a depressed housing market. “However, Sun West has more than compensated for the drop through an increase in its FHA forward and commercial lending channels,” he assures listeners.
However, the generally depressed housing market is an area of concern, says Agarwal, explaining that reverse mortgage originators should be beware of investors who attempt to put a senior in an upside-down property. “If you originate a loan like that,” he warns, “you [end up having] seniors who may not be committed to the property; who may never have owned a property before and doesn’t understand what the responsibilities of a homeowner are.”
Agarwal believes there is no “one-size-fits-all” reverse mortgage customer. “You have to know what is important to each borrower,” he says. “An older customer may opt for lower upfront closing costs in exchange for a higher note [interest] rate. A lot of borrowers took money out and went for no closing costs but with higher margins,” Agarwal says. “They didn’t get as high a PLF [loan amount] but like the idea of not using their home equity to pay closing costs.” Hands-on care seems to be the prescription.
Written by Neil Morse