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.
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