Reverse mortgage loans can be powerful tools for certain people in a particular financial situation, but many times borrowers have issues with getting to a loan’s closing based on a whole host of factors. These can include a predisposition to believing misinformation about the product category, issues related to their ability to qualify or even other financial or regulatory factors that could make getting to a loan’s closing a difficult task.
To that end, RMD is seeking to shine a spotlight on the issues that originators across the country face when it comes to shepherding a borrower through the origination process, and determining the source of certain issues based on their own qualifications, or their financial situation. In the first of this new series we call “Borrower Pain Points,” RMD sits down with two reverse mortgage veterans who serve with American Advisors Group (AAG) to determine some of the unique pain points that can present themselves for borrowers in the state of California.
How to approach general misgivings, levels of information
In talking to originators all over the country as RMD does on a regular basis, a series of regular misgivings from prospective borrowers tend to emerge related to their perceptions before speaking to a loan originator. The most prevalent of these is usually a borrower’s belief that “the bank will own the home,” but sometimes those common misgivings are mitigated by the research a prospect has done on their own primarily over the internet. This is according to Adam Huebner, recently-promoted to director of sales development at AAG.
However, Huebner also details that many other regular concerns emerge on the part of prospects related to future questions about their own retirement.
“We have a lot of insight because we’ve worked with a lot of different clients, and I can’t give you enough stories [about different kinds of misgivings],” Huebner says in an interview. “For instance, in-home care costs. I’ve talked to clients that have their kids call in for in-home care costs, because it’s already too late. They’ve liquidated all their assets. Or, a client’s calling in during the early stages of retirement in their late 60s, to potentially get rid of their long-term care insurance to potentially use equity as a resource to take care of that in their retirement.”
Oftentimes, the approach that works universally particularly for common misgivings is to have as much empathy as possible for what a borrower is going through, since the need they have for additional cash flow will likely be established very quickly in an early conversation.
“It’s best to go in with gratitude, empathy, and putting yourself in their shoes to become a problem solver for them,” Huebner says. “Going through this process with them, not at them is key.”
California-specific issues: prop 13, capital gains
In terms of the kinds of issues that are specific to California which may not have to be faced in other parts of the country, certain regulations and provisions related to taxes may be one such instance according to Laurie Libby, a national field sales officer for AAG based in California. Of particular note in regards to state-specific tax provisions is California’s Proposition 13, a law passed in 1978 as an amendment to the state constitution which is aimed at limiting property taxes for California residents.
“With that, you have multimillion dollar homes that are still paying $1300 a year in taxes,” Libby says. “And so, for seniors that have this huge amount of equity, there is this really low tax base. So, it it is a driver in saying, ‘well, why would I want to leave?’ The taxes are very low comparatively to somebody else that may have moved in next door and bought a high-value home.”
There is also the question of capital gains, she says. If someone has a home in the neighborhood of $1 million or more in value, that can only really be extracted through the use of an equity product if the person was averse to selling. When that is coupled with a desire not to leave and potentially give up a favorable property tax situation, people aren’t motivated to leave, she says.
“To come out here in the first place may have cost them a lot of money in capital gains, and it was going to cost them to suddenly do something different,” she says. “And people want to stay, especially if they’ve been in their home for 30 or 40 years, they’ve likely built a beautiful life here. So, I feel like giving them this great option to use the equity in their home, [given] the amount of wealth they have as opposed to someone in another part of the country makes sense. And in order to hold on to that while not having enough money to live their life, it only makes sense to use [a reverse mortgage] just to enhance their lifestyle.”
Lingering insecurity from economic crises
Many people who have turned 62 recently may have interacted negatively with the 2008-2009 financial crisis and collapse of the housing market as homeowners, and this is another thing that seems to have affected many seniors who have at least entertained the idea of getting a reverse mortgage, Huebner adds.
“I don’t necessarily think those crises had anything to do with the reverse mortgage, I just think that people were nervous coming out of that,” he says. “I think people are nervous to do any sort of mortgage transaction after that whole situation. Nowadays, people are definitely more open to exploring different options and different opportunities more than they used to be. It’s just a matter of an increased level of education and the fact that they’re doing research online. It’s not starting from square one as it used to be 10 years ago.”
This is one of the things that makes it all the more important to emphasize one of the key advantages that many reverse mortgage originators feel the industry generally does better than its forward counterpart, in emphasizing the more consultative nature of the reverse mortgage category, Libby says. Experience in the segment just helps add to the equation of overcoming lingering pain points.
“The younger generation of seniors really gets it, and they realize it’s a mortgage product,” Libby says. “But for others that need the security to feel like they have somebody shoulder to shoulder, they can have that extra help walking them through the process. Having somebody that has a lot of experience can certainly help.”