Despite lower reverse mortgage volumes in the wake of last fall’s program changes, originators say that the differences between the “old” and “new” product are largely unknown among the general public — and their main task is still upfront education about how Home Equity Conversion Mortgages work.
“Reverse mortgages, in general, are a foreign subject,” John Leer, a reverse mortgage officer at KleinBank in Chanhassen, Minn, said. “Typically, families or potential customers know very little about the product until they talk to a reverse mortgage originator or counselor.”
According to Lisa Moriello, branch manager at loanDepot in Fairfield, Conn., discussions with family members rarely have to do with the most recent changes from the Department of Housing and Urban Development. Rather, the conversations and concerns are similar to those of the past.
“They are typically focused on what the benefit to their family member is, and what are the possible concerns,” Moriello said.
Among those who are aware of the “old” and “new” reverse mortgages, there is some disappointment over the October 2 rule changes, which generally lowered the amount of money that borrowers could access.
“They don’t like that the principal limit is lowered,” Ed O’Connor, marketing manager for the HECM division of FirstBank, said. “Everyone would love to have access to more money.”
Yet Jeff Cota, senior HECM advisor at CrossCountry Mortgage, Inc. in San Diego, says the feedback he has received has been mostly positive.
“One of the largest topics with homeowners previously was that of the annual cost of the loan,” Cota told RMD in an e-mail. “With the lower, more competitive rates — coupled with the reduction in ongoing mortgage insurance premium — borrowers are able to realize the program benefits without the double-edged sword feeling of losing equity to higher annual fees in order to access their home’s equity.”
“Overall, these changes do impact the equity allowed to be accessed, but in turn create additional benefits in the form of savings for the borrower,” Cota continued. “We see this via both a decrease in rates and fees, while creating an interest rate environment more competitive with forward lending rates.”
In general, O’Connor noted that more education is necessary to get the word out about the reverse mortgage program.
“There are still plenty of people out there who could use a reverse mortgage, but they don’t know about it,” O’Connor said. “They haven’t heard of it.”
The opportunity for the industry continues to grow despite a serious post-October 2 reverse mortgage origination decline. Reports released in June, for instance, show that the level of untapped home equity in the U.S. keeps rising, while a variety of voices continue to raise the alarm about seniors’ lack of retirement preparedness.
“The reverse mortgage is another tool for today’s homeowner to help plan their retirement,” Moriello says. “We pride ourselves on helping to educate both the borrower and any family members they would choose to include in the conversation on the real-life applications of the reverse mortgages in their retirement planning.”
And because reverse mortgages are such a foreign subject for most, Moriello says the changes don’t have much of an impact on the consumer.
“Unless a borrower inquired into or considered a reverse mortgage before the most recent changes in October 2017, they typically have no opinion on the changes,” she said.
Leer echoes this sentiment.
“I don’t go into what it was before,” he said. “Only how it works today.”
Written by Yasmin Rammohan