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.”
“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