Considering that the reverse mortgage industry is the subject of a lot of misguided information in the minds of the public, one of the most efficient paths to improving the reputational issues of the industry comes in direct interactions between loan originators and their clients. Words in these instances matter, which is precisely why absolutism and definitive statements should be avoided unless an LO is absolutely sure about the accuracy of the information they’re presenting.
The importance of accuracy was the theme of a presentation made by a trio of prominent reverse mortgage industry educators at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Annual Meeting & Expo last month. Dan Hultquist, VP of organizational development at Finance of America Reverse (FAR) was joined by Jim McMinn, sales training manager at Longbridge Financial and Craig Barnes, corporate education leader at Reverse Mortgage Funding (RMF) as they all donned referee shirts for the virtual meeting to call “penalties” on potential issues that could crop up during borrower interactions.
To that end, specific definitive statements that some reverse mortgage professionals have used were called out by the trio as examples of what to avoid in borrower interactions.
Saying a borrower can ‘always’ refinance a reverse mortgage
Definitive statements can give a reverse mortgage client an inaccurate perspective concerning what they can do, especially if the guidance they receive comes from a professional whom they believe has done their due-diligence in determining the accuracy of their advice. Making definitive statements in general can be irresponsible because of all the factors that could affect what is being said, Hultquist says.
“We’ve got to be really careful making definitive statements, because the lawsuits are in the exceptions,” he says. “And if there’s an exception, you can’t say definitively that this is how the world works.”
First tackling the idea that a borrower will “always” have the ability to refinance out of an existing mortgage, the “always” word choice should be avoided because it makes certain assumptions about the future that may not ultimately conform with reality.
“In the words of Wendell Johnson, ‘always and never are two words you should always remember never to use,’” Hultquist cites. “[That’s true] especially in this case. Never assume what the future holds. The HECM-to-HECM refinance option is never guaranteed: not from a regulatory standpoint, and not on a loan level with that client.”
The amount of other components in play makes the “can always refinance” statement of particular importance to avoid, since the interaction of all the components combine into a situation that can prove to be very difficult to predict, he says.
“There’s just too many variables: home value, interest rates, the regulatory environment, [etc.],” he explains. “And so sometimes, all we need to do is add the word ‘may.’ […] The word ‘may,’ it might be all you need. You ‘may’ have the ability to refinance if there’s a bonafide advantage in doing so. That would be a good way to explain it to the client.”
A borrower ‘never’ has to worry about foreclosure
Another statement to avoid is telling a borrower that they “never have to worry about foreclosure,” which is demonstrably false for both reverse and traditional mortgage borrowers, Barnes explains.
“Of course, there is the possibility that the borrower would be foreclosed on, it’s a possibility, just like it is if you have a forward mortgage,” he says. “Just like if you own a home and you don’t have a mortgage: if you don’t maintain it, if you don’t pay your taxes or your insurance, there is the possibility of that loan being foreclosed on, it’s no different if they have a reverse mortgage.”
Monthly payments may not be required for a reverse mortgage borrower of course, but the ability for a lender to foreclose on the loan still exists. It can also come down to typical reasons for default, Barnes says.
“The borrower who doesn’t do those needed repairs within most likely 12 months, well technically their loan is in default,” Barnes explains. “So, that means it could end up in foreclosure. There are, of course, lots of remedies that we have to get that fixed beforehand. But again, you never want to say that there is ‘never the possibility of foreclosure.’”
This is also part of the reason why the financial assessment was implemented by the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) in the first place, Barnes says.
“HUD wants to make sure that after the loan closes, the borrower still has the needed residual income to pay their bills, pay their living expenses, and also maintain the property,” he says. “So, that’s all wrapped up in the foreclosure discussion, and we certainly never want to give the borrower the impression that they would never, ever be foreclosed on.”
Foreclosure: reasons are the same across forward and reverse mortgages
Hultquist added that an old friend of his once got in touch with him about a story in the media related to foreclosure on a reverse mortgage,but the story itself avoided the idea that the reason for the foreclosure came down to something that would trigger the same response on the forward side.
“The guy didn’t pay his taxes,” Hultquist explained about the subject of the story. “Isn’t he going to lose his home anyway? It’s not about the reverse mortgage. And so, we like to say as a homeowner, there’s always risk of foreclosure. [That risk is present] whether you have a traditional mortgage, a reverse mortgage, or no mortgage at all.”
Barnes added that the same would apply to him if he didn’t pay the taxes associated with his own home, and that homeownership comes with responsibilities that continue even after a client gets a reverse mortgage loan.
“There’s no difference, you’re still the homeowner, you’re still responsible for all the stuff that you were responsible for before,” he says. “When people ask me and I trained on it, I talked a lot about the idea that other than not making monthly payments, the reasons for a foreclosure are the same as they would be if they had a forward mortgage.”