No matter the business, there are always issues that can come up when trying to close a deal. In the reverse mortgage industry these hurdles can be particularly bothersome because, as most loan originators know, consumers have access to all kinds of inaccurate information that could make them nervous about engaging in a reverse mortgage loan.
One of the issues that can derail a new loan before it starts is closing costs, often seen as a negative by reverse mortgage critics. Because reverse mortgage upfront costs are so high, critics say, it’s likely not worth it to get one. However, ignoring the benefits that can come for certain borrowers could be detrimental to a prospective client’s financial health he or she is in a situation where a reverse mortgage could help achieve some kind of goal.
“Like a doctor, you have to present all the right options for the patient,” says Tom O’Donoghue, originator with Reverse Loans Now in Granada Hills, Calif. “You hope [they need] just a band-aid, but I’m not going to tell them that’s all they need if I know in the back of my head [they have other problems].”
Letting a borrower know about the options is far more preferable than not having any options, O’Donoghue says. One of the things that needs to be weighed in those conversations is how much benefit a borrower can have by engaging in a reverse mortgage versus not taking one in the first place.
A question of value
Closing costs are definitely a concern among potential borrowers O’Donoghue speaks with, but they also lead to valuable product conversations, and discussing the potential problems the reverse mortgage could solve versus not taking one at all.
“I address [closing costs] right off the bat,” O’Donoghue says. “When it comes to the cost of doing business, what do you get for that value? Is it going to change your life? Is it worth it for them? So, I always try to ask what the long-term gain is. If they’re going to move in a couple of years, then I’ll look at a totally different strategy for them.”
Looking at the cost-benefit analysis of a reverse mortgage is essential to framing conversations about closing costs, and how a reverse mortgage could potentially help clients reach their goals. This can depend on how long they wish to stay in their homes.
A borrower’s outlook
The approach to a conversation about costs can also depend on the outlook of the borrower, and what his or her feelings are when heading into an originator’s office to talk about a reverse mortgage in the first place.
“Most [borrowers] just want to get the money without caring about what it’s going to cost them, so what I try to do is pump the brakes on the transaction,” O’Donoghue says. “They may be acting like they’re desperate, or they may [actually] be desperate, but I try not to let them make decisions based on desperation.”
A needs-based borrower and a more strategy-driven borrower will also have different priorities, according to Scott Harmes, national manager of the C2 Reverse division of C2 Financial Corp in San Diego, Calif.
“The FHA borrower tends to be more needs-driven, so if the principal limit factor they can achieve can address their needs, closing costs are not necessarily a deal-killer, nor is mortgage insurance (MI),” Harmes explains. “The jumbo proprietary borrower tends to be more strategy-driven, and in looking at that strategy, the closing costs are a bigger point of analysis than for the needs-driven borrower.”
Comparing costs, educating borrowers
While relating the closing costs to the overall cost of sale is effective, there are different issues that can be brought up and explored with clients, according to Harmes.
“I’m more apt to compare it to the costs of a traditional mortgage, and then I like to separate out the closing costs and the mortgage insurance,” Harmes says. “Typically, closing costs are going to be the counseling, the appraisal, the lender fees, escrow, title and recording. That’s universal no matter what type of recorded instrument you’re [using] for real estate-collateralized lending.”
When broken out this way, the biggest issue is related to the MIP costs, Harmes says. However, new product options exist that can allow the inclusion of those costs to instead be viewed as a benefit to the borrower. When those MIP costs are compared with some of the newer proprietary options available to some borrowers, selling the MIP as a benefit becomes possible.
“It’s interesting: we see on a regular basis that, especially if there’s a line of credit involved, they want to go with the HECM product,” Harmes explains. “Comparing the proprietary to the HECM gives you the ability to sell the MIP as a benefit, and it strengthens the ability to sell it as a benefit. That’s because you could say that a client doesn’t have to have it, but then they don’t get the guarantees for the long-term terms of the loan from FHA that [they could have] otherwise.”
One of the persistent issues concerning the discussion of costs with borrowers is the presence of misinformation surrounding reverse mortgages, Harmes says. Making closing costs a part of the borrower education process also allows a loan officer to discuss the positives of the product alongside them.
“There’s a certain proportion of the demographic that we don’t get to talk to, because they’ve gotten misinformation, and never even look at it,” he says. “By the time we’re actually into a conversation about the closing costs, typically the closing costs are only part of the education. So, the closing costs on any loan can be viewed as a negative, but it’s part of the education. You’re talking about the closing costs, but you’re also getting to talk about the benefits.”
Simplifying, and getting on top of the issue
One key to solving issues related to providing borrowers with good information and addressing their concerns is in the accurate simplification of the reverse mortgage transaction for senior clients, Harmes says.
“Rather than relying on the [software] counseling packs [which clock in at] 39 pages to explain the whole process, we’ll actually provide videos [with] an analysis, with a cursor moving around the analysis, and we have standardized videos available to our loan officers,” Harmes says. “So, they can walk the borrower through the initial options matrix, and then walk them through the analysis and proposal. That way, they have a hard copy in their hands, and they’re getting a video guide to go through it.”
That kind of simplification can address key issues like closing costs, while also keeping the attention of senior borrowers.
Another key to overcoming any issues that could be presented by closing costs is for the loan officer to address it first in a conversation before the client has an opportunity to bring it up as a grievance, O’Donoghue says. By getting out in front of it in an initial conversation with a borrower, it immediately addresses a likely concern of the client while also allowing the loan officer to stay in control of the conversation.
“I would say just get on top of it in the very beginning, just address it,” O’Donoghue advises. “I always address it, and don’t give them the chance to even think about it. I just do it right off the bat, so I’m in control of the situation in letting them know what it can and can’t do, and if it doesn’t make sense, then I tell them not to do it.”
Former staffers from HUD, FHA and the GSEs weigh in on how to press ahead in this volatile reverse mortgage climate.