Southern California is one of the most prolific reverse mortgage markets in the country, with high property values providing the possibility for seniors to tap into a potentially large pool of equity in order to more adequately fund a retirement. For some, a reverse mortgage can also provide a much-needed way out of serious financial hardship, giving a loan officer a very unique opportunity to make a major difference in someone’s life for the better.
For Tom O’Donoghue, originator with Reverse Loans Now out of Granada Hills, Calif., ending up in the reverse mortgage industry was a winding experience, and the potential to make a difference in a client’s life ended up landing on Tom’s shoulders rather quickly.
In the latest edition of our “Origins” series, O’Donoghue tells RMD about his long journey out of forward origination and into the world of reverse, and how one client’s unique situation proved to be his most difficult – and most rewarding – career accomplishment.
How long have you been originating?
I have been originating mortgage loans since October of 1987 and in October of 2012 switched solely to reverse originations.
How did you first learn about the reverse mortgage product, and what led to your initial realization that reverse origination was something you could do?
I read an article in GQ Magazine 25 years ago explaining equity share reverse loans in Florida that were simply criminal in every way. The story went on to explain how the FBI was cracking down on these reverse loans, and after reading that story I swore I would never do reverse loans. It wasn’t until I was with Wells Fargo as a forward loan officer that I learned about the FHA HECM product and how they were completely different from 20 years prior.
I had a family member asking me about getting a reverse loan, and I knew maybe 20 percent of what was needed. Since I was not allowed to originate them at the time, I worked with a reverse loan officer rep with Wells Fargo, who helped my family member and taught me some more of the basics.
When I saw my relative at a family function five months later, they seemed like a new person, full of hope and energy because of the reverse loan. After that, I knew I wanted to switch gears and move 100 percent into reverse origination.
What would you say was your earliest big test that you found most challenging in your career as an originator?
Overcoming the major negative public opinion and myths of reverse loans took me years to battle in my area of the San Fernando Valley. It wasn’t until conducting countless seminars, lunch and learns, CPA/CFP training and Realtor presentations that the tide began to shift. I was still able to originate during this season, but it was tough.
What is your most unusual case that you’ve had to deal with in your capacity as an originator, and how did you solve it?
That’s an easy question to answer, but it’s also a long story.
That case involved my client Hope Landeros, who has given me permission to use her name in this story. I was referred to her from a forward loan officer who told me that Hope needed help, and thought that a reverse mortgage was a better fit for her. This forward officer said she knew that the one person to trust in getting Hope a reverse loan was Tom O’Donoghue.
I was told that Hope’s home of 53 years was [owned] free and clear, and worth about $375,000. Her age at the time was 78 years old, and she was a widow. Hope had come from Mexico with her husband, they became U.S. citizens, and her husband started his own landscape company working from 7:00 AM to 3:00 PM. He would then go to work at a now-closed GM plant from 5:00 PM to 1:00 AM.
[When they arrived here,] their goal was to pay off their home in 10 years. They didn’t have the chance, though, since Hope’s husband died of a massive heart attack 21 months later.
When Hope arrived in the U.S., she had a second grade education and could not read or write in either English or Spanish. So, the family’s oldest daughter took over paying the bills for Hope and took care of her finances.
This daughter ended up forging loan documents and without Hope knowing it, allowed her property to go into foreclosure. All of this was discovered after I started the reverse mortgage loan process, and it took me 37 months to finally bring closure to Hope with a reverse loan that ended up saving her house.
Sadly, there were no investigations from the LAPD, CFPB or California Senator Barbara Boxer’s office. They were of no assistance until we got a sympathetic judge to help us.
What would you classify as your biggest accomplishment in your work as a reverse mortgage originator?
Helping Hope Landeros.
What do you think is needed for potential borrowers to be more fully educated about home equity release?
Creating more seminars to educate through senior centers, temples, churches, and other non-profits.
Where do you see the reverse mortgage industry in 5-10 years?
With only 7 ½ years’ experience and seeing three major changes with a few more expected, I think the HECM will be close to being eliminated and that jumbo products will pick up a majority of the slack by adding Private Mortgage Insurance, as is used on forward loans to help increase the principal limits that are available on HECM.
With either HECM or jumbo, the reverse loan will be a product that will continue to evolve just like it did from 25 years ago in that GQ article. Reverse loans are not going away.
What is the industry’s biggest challenge today, and how can it be overcome?
Our biggest challenge is ourselves. In sales of any type, you will have to adjust to the new rules, and those that don’t sadly don’t make it. It’s like the poor animal that gets separated from the rest of the herd leaving the jackals to come and attack it. We must change and adapt. Working with CFPs and CPAs has been a growing source of business to me, and has given exposure to thousands of new clients.
I believe I read that 57% of seniors’ homes are free and clear [with no forward mortgage obligations attached], that represents a lot of opportunities that can change lives. I figured, based on my market, that I need to close two more loans per year to make up for the lower PLFs that arrived in October of 2017. If two more loans is too much for me, then I should go flip burgers instead.
Complete the sentence: If I could change one thing about the reverse mortgage it would be: __________
I still think the October 2017 changes affect a few too many potential clients, and it hurts when I can’t help them.
If I could erase one reverse mortgage misconception it would be: __________
That reverse loans are too expensive.
I prefer explaining this issue as compared to selling a home that costs an average of 8 percent in total commissions, transfer taxes, and other costs. The average home sale in my market just hit $700,000, so that is roughly $56,000 compared to around $9,000 on what my average client pays. When I am done explaining the benefits gained, the fears of the costs go out the door.