March 29th, 2016
From an educational standpoint, Home Equity Conversion Mortgage (HECM) counselors are the first line of defense in the ongoing struggle to dispel the most common reverse mortgage myths and misconceptions.
Mandatory HECM counseling provides seniors with the necessary exposure to make an informed decision about getting a reverse mortgage. Like originators, the job of a HECM counselor is also rooted in education as they help prospective borrowers more clearly understand the inner workings of reverse mortgages.
Despite this dual effort on the educational front, and the wide variety of positive press from the mainstream media lately, several reverse mortgage illusions have yet to evaporate into the ether.
Borrowers, in fact, still own their homes
One of the most common misconceptions of reverse mortgages is that borrowers automatically relinquish ownership of their homes once they obtain a HECM.
Perhaps the result of negative media representation in the past, the lingering effect of this myth has obscured the truth about reverse mortgages among the general public. The reality is often a pleasant revelation for seniors once they undergo HECM counseling.
“Seniors are under this misconception that they don’t own the home anymore—the lender does,” said Sherry Tetreault, a Tenn.-based certified credit counselor with ClearPoint Credit Counseling.
Although many prospective borrowers already have some knowledge of reverse mortgages, having done their own research prior to the counseling session, Tetreault, who has been a credit counselor for 16 years and a HECM counselor for seven years, admits that the misunderstanding about the transfer of homeownership continues to be one of the most frequently asked questions during the counseling process.
“They are always surprised to learn they still, in fact, own the home even with a reverse mortgage,” she said.
No payments necessary?
The internet provides a wealth of knowledge on just about anything. With a few keystrokes and clicks, even unsavvy web browsers can find the most basic information on reverse mortgages to aid them in their quest for knowledge.
Unfortunately, not everything published on the internet is vetted for accuracy. So it’s not beyond reason to be naturally suspicious of financial products that offer extra cash flow without requiring a monthly payment in return.
“Most of the time, when seniors are coming for counseling, they are skeptical about why they are able to get this [reverse mortgage] loan and not have to make payments,” Tetreault said.
Tetreault’s job then is to clarify that the funds obtained from a reverse mortgage must be repaid at a later date, and that just because borrowers aren’t required to make monthly payments toward the loan balance, they are still required to maintain their property taxes and homeowner’s insurance.
Clarifying what makes the reverse mortgage become due and payable creates some surprise among prospective borrowers, Tetreault said, but it also opens the door to other questions that seniors might not have thought about previously, such as what happens if they do not pay property taxes and insurance payments on time.
“We talk about what their responsibilities are as reverse mortgage borrowers to make sure they do not put themselves at risk of foreclosure,” she said.
The million-dollar question
HECM counseling is a necessary stepping stone in the older homeowner’s journey to get a reverse mortgage. This decision is typically prompted by a significant need, whether that is the result of an unexpected personal issue or even the intrigue of using home equity to supplement retirement wealth.
In many cases, the million-dollar question is: how much money can I get from a reverse mortgage?
One of the things ClearPoint does off-the-bat is ask counselees how they plan to use the money they receive from a reverse mortgage; whether that means using these funds for daily or future expenses, paying off debt, etc.
In understanding what the loan proceeds will be used for, Tetreault said counselors can help prospective borrowers determine if a reverse mortgage is really the right product for them, or if there are other alternatives that might fit best with their financial plans.
At the end of the day, the decision to get a reverse mortgage hinges upon education and the awareness of what other resources are available to seniors that can help them accomplish their personal needs.
“Education empowers consumers,” Tetreault said. “Whether seniors take that information and decide to get the reverse mortgage or not, at least they are educated and have an understanding of all the choices and options available to them.”
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