When HECMs Don’t Fit, Originators Point Borrowers to Reverse Mortgage Alternatives

It’s a familiar refrain among even the most ardent supporters of Home Equity Conversion Mortgages: Reverse mortgages are not right for everyone.

In fact, one of the ways the industry has improved its image in recent years is by stressing that a reverse mortgage is a tool similar to any other loan. It can work well for some people in certain circumstances, but isn’t the best option for others. Still, originators say there are also cases where seniors need to be pointed to the right type of reverse mortgage needs.

“Just like any other financial planning tool, the reverse mortgage is not a fit for every borrower,” says Lisa Moriello, branch manager at loanDepot in Fairfield, Conn. “Each borrower is carefully educated, and their financial information is validated to make sure the reverse mortgage is a sustainable solution for the future.”


Originators identified multiple recurring instances in which a reverse mortgage might not be a good fit for a prospective borrower, including financial concerns, health care needs, and property upkeep. In those cases, originators say they try to inform seniors about other options that might better fit their lives.

“There are some seniors that this program will not help,” says John Leer, a reverse mortgage officer at KleinBank in Chanhassen, Minn. “There may be health concerns. There may be financial reasons. This is not a quick-fix program. It is a long-term financial planning tool. This is not a cheap solution to financial problems the senior has going on at this point in their lives.”

For instance, Moriello says, the hangup could be as simple as a borrower’s inability to cover tax and insurance costs — or that the property simply can’t work as a long-term site for the senior to age in place.

Sometimes, she says, a HECM for Purchase transaction can better help the borrower meet his or her needs.

“We show them the value of a reverse mortgage for purchase when trying to ‘right size’ a borrower’s living situation,” she says. “We give our clients the best possible information to make the right choices for their particular situation.”

The idea of serving as a full-service shop for senior borrowers has grown within the industry, with multiple appeals to “generational lending” — the idea that a single originator can provide a wide variety of mortgage services, from first-time homebuyer loans to HECMs, in order to ensure that they’ll always have the right fit for a borrower. Industry volume leader American Advisors Group recently incorporated that idea into its brand overhaul, which has seen the Orange, Calif.-based lender transform into a full-service home equity solutions company for seniors that offers forward loans, HECMs, proprietary reverse mortgages, and real estate brokerage services.

Acting like a counselor

For instance, originators told RMD that they sometimes suggest a traditional home equity line of credit — if the borrower qualifies — as well as seeking assistance from family members or changing personal spending habits.

Ed O’Connor, marketing manager for the HECM division of FirstBank, says a potential customer came to him to inquire about a reverse mortgage when all he needed was some extra cash to fix a leaky roof.

“There are other programs that will provide access to funds for small home repairs on the state and local level,” he says. “If there is a different option, we would point that out. We act like a counselor. We are there to educate and give them guidance. We provide enough information for them to make intelligent decisions.”

Ultimately, however, originators say it is not their job to tell borrowers what to do.

“I do not advise customers to do anything,” Leer says. “I educate them on options that are available for them to access.”

O’Connor agrees.

“It is not our job to dissect their financial life and decide what’s good for them and what’s not good for them,” he said. “We educate them. We give them the facts and then they can come to a decision on whether or not that’s a good idea.”

Plus, as O’Connor points out, if a reverse mortgage doesn’t work for a borrower the first time they inquire, chances are they will be back for guidance in the future.

“In five years, when their circumstances change, they will call back,” he says.

Written by Yasmin Rammohan

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  • It is interesting to read that a H4P is an alternative to a HECM. It seems what was being said is that a different home might be a better solution than keeping the current home. However, a H4P is still a HECM, not an alternative to a HECM.

    I also see the equity release products such as Unison as a fit in some cases where HECMs are less likely to fit. Our recommended alternatives should not be restricted to mortgage products alone.

    It is sad to read that some feel they act like counselors. It is hard to understand how they believe they follow a regimented protocol with properly archived documentation which includes reviewing the output of computer programs designed to help the senior understand what is best for them. Worse originators and other originating staff are both biased and lack independence as to HECM prospects. We may hold a CRMP by taking an exam provided through a trade association and meeting minimum practice standards but that is not the same as passing the HUD counseling exam and meeting their other standards. Counselors do not earn their income if and when a HECM closes; that is what makes them both independent and unbiased.

    I sell through education but refuse to close a sale before acting in a competent, responsible, and professional manner towards those I serve. I am glad to be an originator and not a counselor. I am glad there are counselors for unlike an originator they are independent and their income is not contingent on making an origination. Let counselors counsel and originators competently, responsibly, and professionally sell HECMs and other reverse mortgages through sufficient education.

    • “It is interesting to read that a H4P is an alternative to a HECM. It seems what was being said is that a different home might be a better solution than keeping the current home.”

      Exactly – and this is where future HECM growth is going to come from.

      I’m seeing more clients in large homes they can no longer afford or maintain. With existing liens (including HECMs) they may only net out 250-300K after selling – barely enough to buy a run down condo for cash since they usually can’t qualify for a forward loan.

      H4P lets me get them into a far nicer property with cash reserves left over. Two of my clients that were adamantly against HECMs were enthusiastic about H4P when I showed them the leverage it provided for purchasing.
      “However, a H4P is still a HECM, not an alternative to a HECM.”

      Well yes – and no.

      You can’t draw against it as I’ve had to explain to a few of these borrowers that wanted to pull the down payment out right away.

      In fact I tell them to think of it as an FHA forward loan especially if the kids are living with them and expect to end up with the house. They should at least pay the interest and MI every month to keep the balance from growing.

      • Soza, I don’t understand what limits a H4P borrower to draw down on a line of credit that they have in their adjustable rate H4P? If the H4P is fixed rate advising to pay the HECM down means the senior is essentially throwing those dollars away. If properly put together, the heirs can always pay the lesser of the balance due on the HECM or 95% of the appraised value when the last borrower passes away. With a fixed rate HECM it is better to save the payments for termination particularly when the borrower is getting an OK return on the investments they buy with the payments they would use to prepay their HECM.

        You sound like you are of the old school that only recommends fixed rate HECMs in a H4P situation. That is a disputable position. In fact there is growing evidence that a higher percentage of H4P borrowers are, in fact, choosing adjustable rate H4Ps.

  • Interesting article. I am still trying to figure out if the article is telling us to guide those that a HECM will not fit their needs to another lending source? Or if we are to act as an advisor or not act as an advisor?

    It is funny, we actually do find ourselves advising when you really think about it. Don’t get me wrong, I agree with Carmine DeSota on the statement he or she made:

    “Let counselors counsel and originators competently, responsibly, and professionally sell HECMs and other reverse mortgages through sufficient education”. Well said Carmine!

    We are there to educate our senior borrowers but we are also there to fact find! Ask questions, discover the seniors true needs, see how are product can fit their needs. In most cases, if they are looking to borrow for some reason or another, we can discover other needs as well!

    In short, the end results should usually wind up being if they are going to have to borrow money, the HECM or one of our proprietary products are the way to go.

    It may come down to the reverse mortgage can satisfy the borrowing need and aid in the retirement planning benefits for the senior

    I find myself talking people out if taking out a reverse mortgage if it does not truly fit the need. What is most important before anything else is that the senior client’s best interest and what is best for them comes first!

    John A. Smaldone

    • John,

      I am not trying to split hairs but the information we use and that the counselor has at his/her disposal will many times be different. Our requirement is to gather sufficient information to show that the prospect will meet financial assessment minimum requirements.

      Counselors will generally have the detailed information found in the BCU input provided by the borrower. To say that the BCU input is accurate or complete is shaky but it very well could be.

      What I doubt is that either the LO or counselor has the extensive data that a financial planner who has been working with the client for 10 or more years would have. This is why we should overlook such sources as the best resource for helping making the determinations you describe.

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