While the effects of the COVID-19 coronavirus pandemic have continued to have a pronounced effect on the economic stability of the United States, it has also managed to create some decidedly unique opportunities for selling reverse mortgages and providing additional benefits to seniors — and some financial organizations — that have suffered an economic shock.
There has also been an effect on instances of second appraisals sometimes required by the U.S. Department of Housing and Urban Development (HUD) ahead of the progression of a reverse mortgage loan.
This is according to a webinar hosted by members of the National Reverse Mortgage Lenders Association (NRMLA) HUD Issues Committee, which took place on Thursday afternoon. Keeping the economic instability being faced by seniors in mind during this moment is important, which is why renewed opportunity for reverse mortgages can help to provide necessary financial relief for affected older citizens.
Sales opportunities during COVID-19: community banks
With seniors inordinately impacted by the spread of the virus and because the economic toll may exacerbate an already chronic problem of making ends meet in retirement, the additional stability that a reverse mortgage can provide for seniors should not be overlooked as an opportunity to expand the reach of the product. This is according to Ken Krajewski, head of reverse mortgage lending at Southfield, Mich.-based 1st Nations Reverse Mortgage.
While realtors and financial planners may have additional reasons to now consider a reverse mortgage, another potentially untapped resource for new reverse business is smaller community banks, Krajewski explains.
“I think community banks are feeling this quite a bit, [seeing] people that are defaulting on their loans now asking for forbearance,” he says. “This is a problem that community banks need to shore up; they need to get these loans off of their books if they can. A reverse mortgage can be a solution for them, by educating them as to how the reverse mortgage can get a default off of their books. It can be a huge relief to smaller banks and community banks.”
Seniors living with forbearance
Another interesting dimension to the current situation for seniors rests in the idea that if they have requested a forbearance, then some seniors may be having a “practice run” concerning what it’s like to live with a key feature of a reverse mortgage, Krajewski says.
“[Older borrowers with forbearances] are living in their home without making a mortgage payment, and that realization — even right now during temporary forbearance — is a relief for them,” Krajewski says. “And, that stress of knowing that at some point in the future, whether it’s in one month or whether it’s in three-to-six months that payments are going to start to kick in again can be very stressful.”
Having an idea of what it’s like to live in the home without having to make a monthly mortgage payment could offer a senior a very unique, one-of-a-kind insight into what life with a reverse mortgage can be like, Krajewski says.
“And that may be a great opportunity for us to talk to our community banks, and find out how they can provide this solution to those older customers who are struggling to make payments or are in a forbearance situation,” he says. “When those payments kick back in, that may be a struggle for them to get back into the mode of making mortgage payments again.”
In terms of how the appraisal process has changed for reverse mortgage transactions, there has been significant movement first with the relief granted to the reverse mortgage industry by allowing exterior-only and desktop-only appraisals for some reverse mortgage instances, followed by the extension of that policy through June 30. There have been some positive results that have stemmed from these changes according to Kendra Rasmussen, VP of credit at American Advisors Group (AAG).
One positive result is that turn times for loans have been reduced, Rasmussen explains, resulting from less required instances of repairs from appraisers. The second positive outcome is a slight reduction in the instance of required second appraisals for loans submitted by AAG.
“We’ve experienced a 10% drop in the number of second appraisals that we’re seeing required by HUD when we submit the first appraisal to them,” Rasmussen explains. “So that was an unexpected win that we have been able to experience.”
Previously, national appraisal management company Mortgage Information Services, Inc. (MIS) related to RMD that the relaxed appraisal requirements had not caused any discernible increase in the amount of second appraisals required shortly after the onset of the pandemic and resulting national emergency declared by the president.
Potential post-relief appraisal risks
One concern that the industry should keep in mind is when the current appraisal relief inevitably ends. Previous first appraisals under the provisions of the relief then requiring a second appraisal after the relief lapses could present some problems, Rasmussen says.
“We’re going to have exterior appraisals that may then need a second appraisal, which will be a full appraisal,” she says. “And then you’re going to have a lot of things called out on that full appraisal that you and your borrower may not have anticipated. So, I would just [advise] a little bit of caution moving into that environment.”
Having the necessary conversations with borrowers and salespeople to understand that there may be challenges once the appraisal relief ends can be an important thing to do if the loan’s timeline presents the possibility of a first relaxed appraisal, and a second full appraisal, she says.