One of the advantages of a reverse mortgage product is the versatility with which it can be employed by a borrower. While the product can often be used to help ease the financial situation of a needs-based borrower who is house rich and cash poor, it can also be used by a pool of more affluent borrowers as a strategic finance tool to bolster his or her financial standing.
Of course, though, something that’s very difficult for anyone to plan for – whether rich or poor – is some kind of upheaval in life that can be related to finances, family, employment or a number of other disruptions.
These borrowers are understandably distressed by what has taken place in their life, which can require a bit of a different tact than what’s observed with a more “typical” reverse mortgage client. Oftentimes they require a more careful and consultative approach than even more traditional borrower segments, which is saying something considering that reverse mortgage originators themselves tend to be more consultatively-minded people.
It can be a tricky balance between having a consultative and reassuring approach to a distressed borrower while also making sure all the business requirements are satisfied, but striking that balance is almost a required skill for any reverse mortgage originator according to John Luddy, senior vice president of reverse mortgage lending at Norcom Mortgage in Avon, Conn.
Managing the emotions of the transaction
“In the reverse business, you need to be the steady hand at the helm, and help [the client] navigate through the crisis [that led them to you], because many of our needs-based borrowers are really crisis-driven,” Luddy tells RMD in an interview. “Although you need to be filled with empathy for the people, you have to be the one that manages the emotions of the transaction.”
This is something that Luddy knows a lot about, having previously served as a second generation funeral director before making the transition into the reverse mortgage industry. The crossover in the consultative skill-sets required by both professions is very present, Luddy says.
“Even though the people are consumed with grief and might not want to move forward and make all these decisions when there’s been a death in the family, the funeral director has to help them through those decisions,” Luddy explains. “Keep them on the right track, and make sure that their decisions are good. It really, can ultimately be very much the same in the reverse mortgage business.”
For other longtime originators, leaning on empathy for the borrower’s situation also has to be punctuated by maintaining clear eyes so that the loan is being made with the borrower’s full understanding while also minimizing the possibility of rash action.
“While life-changing events can be dynamic, you have to remember to add additional grace and understanding to the borrower and make sure they are moving forward with the proper mindset and not out of emotions,” says Tom O’Donoghue, owner of Reverse Loans Now in Granada Hills, Calif. “You want to make sure that the possible reverse loan is not a ‘knee-jerk’ reaction, so you must do more homework with their heirs and other financial influencers.”
For a distressed borrower, greater information about the product and how it could potentially help them can also offer that person something that the distressing situation may have deprived them of: a feeling of control over the trajectory of his or her life.
“You want to make sure that they are well-educated on all of the options and that they are involved in selecting the option that will work best for them,” says Brandi Braley, originator with Neighborhood Mortgage in Bellingham, Wash. “I think that once they know that they have options and that they are still in control it helps to keep the stress level down. Just letting people know that there are options for them can help.”
How borrowers’ situations determine individualized approaches
When the necessity arises to have a conversation with a distressed borrower about their own situation, different tacts are required depending on the thing that is serving as the source of his or her distress. This helps determine whether a firmer or softer hand is required in the conversation, Luddy says.
“There are some people who need the ‘Dutch Uncle’ to wake them up financially, to tell them ‘you cannot spend any more money on credit cards buying your children stuff. We’re going to get you straightened out and get you on the straight-and-narrow,’” he says. “But then, there are other people who, because of [something like] the loss of a spouse, need someone with much more empathy to hear their life story.”
Different kinds of pain elicit different reactions in people, and that’s why listening to the source of the distress first is so important. The authenticity of the originator is also key in these situations, says O’Donoghue.
“Never say, ‘I know how you feel.’ That is the kiss of death in trying to be sympathetic,” he says. “Giving empathy is the key to gaining trust and creating influence. Find out what the two or three most important things are in their lives, and build your relationship and proposals around those items. Don’t be desperate for the deal, and make sure you are building [the relationship].”
An understanding of a borrower’s sources of distress can also help the originator connect them to additional resources that can help relieve some of the pressures that borrower may be feeling, advises Braley.
“Once you have listened to the borrower you might also be able to help direct them to other organizations that can assist them in other ways,” she says. “In my community, we have a group that for a small annual fee can have people come and do small repairs around seniors’ homes. This helps them keep their costs down and helps them stay in their homes by having someone come and do those odds and ends that they can no longer do.”
Identifying the best stress-reducing benefits
Zeroing in on the biggest stressors in the lives of distressed borrowers and offering viable solutions to them is an essential part of a successful reverse mortgage, particularly for those borrowers who are needs-based. In examining the scenarios of his career, John Luddy identifies the most persistent culprits that cause trouble for a segment of his borrowers.
“I’ve got a whole group of borrowers who get by month-to-month. But, when their property taxes come due, it becomes very difficult for them, particularly in a state like Connecticut [where the property taxes are high],” he says. “If you’ve been retired for any period of time and using old money [to make ends meet], it’s very difficult to keep your property taxes up.”
This is where the HECM line of credit can serve as a big stress relief for people in this kind of situation, he says.
“Taking the money and putting it in the line of credit, and drawing off the growth each year to pay for the taxes and homeowners’ insurance becomes a relief,” says Luddy. They know it’s a renewable resource, that they have the backup and the money that’s in the line of credit if the roof starts to leak.”
Situations change depending on the borrower, of course, but identifying the product features that can best help to serve a segment of distressed borrowers helps to emphasize how this product can help the senior demographic, Luddy says.
“We [as originators] should all recognize what a privilege it is to be able to step in and do this for a living, and to be able to make a living by being able to help someone never have to worry about money again,” Luddy says. “It’s just such a privilege.”