Reverse Originators Manage Appraisal Expectations as Fallout Continues

With home values at sustained lows, many originators are finding no shortage of those interested in reverse mortgages. Finding those who qualify is another story, and managing their expectations is becoming increasingly important, they say.

“The business is out there, but it’s finding the ones that will work at appraised value,” says Jack Belles, Reverse Mortgage of New England, of the challenge he faces today. “We have to fish through so many now to get one or two that work,” he says.

In most cases, the home equity is not great enough or the appraised value is too low. For many, the appraised value can be a surprise.

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While the discrepancies are not tracked by appraisal management companies for compliance reasons, AMC Landmark Reverse estimates that fallout ranges from 25% to 40%, based on data from the company’s Assurance Program, which it launched last year.

Through that program, borrowers have the option to pay a lower fee upfront paid to the AMC, and if the loan does not close, the remainder of the cost is paid by the AMC.

There are three main factors that impact the fallout range, says Erik Richard, CEO of Landmark Reverse. First, the Assurance Program reduces risk, so it could lead to more fallout. Second, the locations of the transactions have some bearing on fallout. And finally, originator research plays a part.

“The better your research technique is the more accurate your result will be,” Richard says. “It’s not so much the amount of research but more how you look at the data points.”

For many originators, the research involves taking a look at comparable sales via online real estate resources. Originators say borrowers are still sometimes shocked at the appraised value.

“They may say, ‘But I had it appraised two years ago,'” says Keith Lyson, regional manager for Stay In Home, a division of Axia Financial. “But I say, ‘it’s not what it is today.'”

Lyson does his own research and often shares it with borrowers upfront. “Typically they come in a little lower then anybody expects,” he says.

Appraisal discrepancies continue to present problems, one originator told RMD, but many say it is more about managing the expectations of borrowers whose homes may have lost 20% to 30% or more since the last appraisal.

“We spend a lot of time lowering people’s expectations on appraisals,” Belles says.

It doesn’t happen without time, effort and research, Richard says. “We find a lot of times those who do look at data don’t always look at it in the right way.”

That said, “There is some really solid work that’s been done with some,” he says.

Written by Elizabeth Ecker

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  • The article could have been written in 2008.  Most seniors in our area are much better in tune with the market and the value of their homes.  Their expectations are much more reasonable.
     
    It is odd but it seems more originators are not properly preparing seniors about reverse mortgages early in the lending process.  Counselors are even complaining about it.
     
    This problem seems to have its roots in two areas: counseling and call centers.  First counseling agency executives are perpetuating the “celestial” concept that somehow seniors who when they reach out to lenders are in the state of the “most teachable moment” about reverse mortgages.  Of course the pragmatic truth is many have attended seminars, researched HECMs on the Internet and read about them on the NCOA, HUD, and other websites.  They have seen DVDs and commercials on TV.  They have read articles in magazines and newspapers.  They have talked with friends and relatives.  They opened their mail.  They have participated in Tweets and blogs.  The most teachable moment about reverse mortgages ended somewhere for most seniors days, weeks, months, or even years before calling an originator.
     
    The second most probable source is call centers.  There contact with prospects is far more frequent and there is a need to quickly move from prospect to prospect.  There is little time to spend with those who are just looking or need a lot of attention.  In that environment it makes a lot of sense to move prospects to counseling as quickly as possible.  That saves time and time in that scenario is money to the originator.
     
    Few boots on the ground originators have the time or can afford the loss of prospects to some ethereal or celestial concept of the very much disputed “most teachable moment.”  If seniors are not being prepared for even appraisal, we have taken several steps backward.  This shows putting counseling before application is a mistake and needs to be put back into the bottle and corked.

  • Bingo.  But don’t fret. The Foundation for Homeowners is building a team to respond to this issue as we speak.  We recognized some time ago that this was a problem the Reverse Mortgage industry was going to face, but we were not sure how the government would respond. So we decided to position ourselves to offer help to those seniors that are not qualifying as a result of this misfortune. Were are almost there, but we are a Non Profit trying to reach across all 50 states. We have helped seniors close the equity gap since we began 10 years ago, and sometimes that gap was pretty wide, now the climate has changed and many more seniors are affected. But that’s ok, because the strength of our agency  has increased also. We’re on the side of the seniors but we support the program because seniors NEED it. Just keep in mind during your discussions on to solve this BIG issue, The Foundation for Homeowners is a part of the equation that will answer this problem. 

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