As proprietary products gain appeal among prospective reverse mortgage borrowers, some companies are confronted with a new conundrum: prospects who qualify for both jumbo and Home Equity Conversion Mortgage (HECM) options.
“California has a lot of borrowers with homes valued between $700,000 to $800,000,” says Christina Harmes, assistant manager of the C2 Reverse division of C2 Financial Corp in San Diego, Calif. “Since a lot of our business is in California, we have a lot of experience presenting options and refining our process with borrowers in this range.”
Suiting the needs of the borrower
In scenarios where C2 loan officers determine that a potential borrower could benefit from either a HECM or a jumbo product, the next step is consultative in nature in order to determine the intentions of the borrower in taking out the loan, Harmes says.
“We never project a choice for the client because depending on their goals, a different loan type suits their needs best,” Harmes says.
This is an attitude shared by Laurie MacNaughton, reverse mortgage specialist at Atlantic Coast Mortgage in Fairfax, Virginia, who agrees that it all comes down to what suits a potential borrower’s unique situation best.
“My recommendation simply boils down to what best suits borrowers’ needs,” says MacNaughton. “I ask many, many questions regarding both near- and long-term goals, and then present the various options.”
How to present the best option
Harmes offered one scenario where the more traditional route of accessing home equity can serve as a better option than a proprietary product.
“If they are a younger reverse borrower, have a large mortgage to pay off and really would prefer a low fixed rate they will often choose a HECM,” Harmes explains. “In situations like planning for the cost of future care, the HECM is the most often-chosen option as they may want a tenure payment or the growth feature of the HECM’s line of credit.”
Conversely, borrowers who may have an aversion to the HECM’s closing costs may go with a proprietary option that has no initial mortgage insurance, Harmes explained. Still, potential value does not lead to a uniform standard concerning which recommendations to make.
“There really is no rule of thumb for selecting a program based on value, it really comes down to asking questions and listening to the goals and concerns the borrower has,” Harmes says. “Sometimes, only one type of reverse fits well, but when there are multiple options it’s important to educate the client and let them decide.”
Asking the right amount of questions to give the presiding loan officer the best perspective of a potential borrower’s financial situation is invaluable for both relaying good information about a product that will work best for them, and for whittling down the options to a core selection of potential products that the loan officer can present, explains MacNaughton.
“Most of the time only a couple products truly make sense, so [asking a lot of questions] simplifies matters,” MacNaughton says. “Another helpful determining factor is input given in advance by my referral partners, as they often have had a long-term relationship with the clients and are looking to accomplish specific goals.”
The right way
Presenting the best options to a client in order to give them a path towards succeeding in their financial goals has to come first in order to see potential borrowers through the process of origination in an ethical manner. Sometimes, this can mean withholding an opinion even in scenarios where the client may ask for it.
“Clients frequently ask my opinion,” MacNaughton says. “[And it’s] a question I dodge by saying, ‘Based upon what you’ve told me, here are the advantages of the various options.’ I make a concerted effort to not think in terms of my paycheck, as I personally do not think this is a legitimate factor to consider.”
Taking an exhaustive approach to questioning and presentation practices ultimately helps companies avoid improper loan positioning, Harmes adds, since C2 Reverse has observed other lenders make decisions that could be avoided if they had been more concerned with presenting borrowers with the best information.
“A recent example, one client had a free and clear house and a competitor’s quote had a maximum draw on a line of credit (LOC) product, but upon talking to the client we found out she didn’t want or need those excess funds and didn’t know she had a choice in taking a smaller draw against the line of credit,” Harmes says.
The interests of the client
One of the few constants C2 observes in the business concerns loan officers advising clients to go with a fixed rate reverse mortgage if existing mandatory obligations use nearly all of the principal limit.
“The client is often best served with a fixed rate reverse mortgage rather than unnecessarily being exposed to interest rate risk,” Harmes says.