March 12th, 2017
If you read the trade press, you might be led to believe that the Home Equity Conversion Mortgage industry is experiencing a kind of public-relations renaissance, as popular media outlets begin to present a more balanced picture of reverse mortgages and their potential benefits for Americans aged 62 and older.
It’s certainly true to an extent — as RMD reported last week, the vast majority of HECM mentions in the media over the past year have been either positive or neutral, according to PR tracking data obtained by the National Reverse Mortgage Lenders Association, and originators across the country have seen a shift in the tide of public perception. But of course, as even HECM boosters and several passionate RMD commenters have pointed out, everything isn’t sunshine and rainbows on the ground, and reverse mortgage professionals around the country continue to face the same nagging set of misconceptions.
Steven Sless, branch manager at Home Point Financial Corporation in Owings Mills, Md., recently related a story to RMD about sitting down with a Certified Financial Planner to purchase a life insurance policy. After opening with some small talk about their lives and finding out that Sless was in the reverse mortgage industry, the planner still had the same questions he fields from average consumers.
“There’s not a lot of knowledge, and not a lot of want, to really dive deep and understand the product and how it works,” Sless says.
That knowledge gap lies at the heart of the problem. Loren Riddick, branch manager at the Loren Riddick Team of Peoples Home Equity, Inc. in Alcoa, Tenn., says he didn’t trust reverse mortgages up until very recently, despite not knowing all that much about them.
“About six years ago, I thought it was the biggest crock of bull I’d ever heard of,” Riddick told RMD. But after taking the time to learn about the product and see how it could help certain borrowers, Riddick became a believer, and he says he’s closed more than 100 HECMs — and he’s now been around the industry long enough to have heard all of the misconceptions himself from the other side of the table.
But Wait, Doesn’t the Bank Own the House?
If your typical reverse-mortgage originator had a crisp $10 bill for every time he or she heard this question from potential borrowers, inquisitive fellow party guests, or skeptical journalists, he or she probably wouldn’t have to be working in the first place.
Riddick says this problem stems from an understandable confusion on the part of the borrower about why a bank would ever offer such an arrangement. A typical consumer understands how a bank makes money off of a forward mortgage, Riddick notes, charging interest over time on a loan used to pay for a house. But when it comes to a reverse mortgage, receiving money from a bank with seemingly nothing in return is often too much to process, and consumers thus naturally assume the bank has to take ownership of the home.
“Folks just can’t get their arms around: How does the bank make money?” Riddick says.
To combat this, Riddick generally tries to marry the concepts of forward and reverse mortgages in his clients’ minds, first asking them where they sent their forward regular mortgage payments, then inquiring as to whether or not that bank owns their home. More often than not, he says, they believe that the forward-mortgage lender also retains ownership until the loan is fully paid off.
“Well, that’s false,” Riddick says, slipping into the pitch he gives inquisitive clients. “Because if the bank owns the property, then the bank would have to sign the purchase contract. The bank would have to give you permission to build a deck, or paint a room.”
Aren’t Reverse Mortgages Expensive?
Sless called out the “stigma” of reverse mortgages as high-cost loans as the top misconception he faces on a daily basis, despite declines in the mortgage insurance premium and closing fees that aren’t all that different from those required for a forward loan, and note .
His solution: Be as clear as possible about all fees upfront, and emphasize that it’s a one-time expense. “We have to communicate effectively the benefits to the borrower — even if they’re at a 2.5% MIP due to their equity position, you’re still going to be able to recoup your costs relatively quickly,” Sless says.
Isn’t a Reverse Mortgage Only for the Desperate?
Larry Waters, a senior reverse mortgage consultant at Resolute Bank in Hayden, Idaho, says he can’t still shake the perception of HECM loans as a product of last resort — a misunderstanding that, unlike the other ones discussed in this article, may actually result in willing applicants being turned away. Waters notes he frequently receives interest from potential borrowers that have run out of savings, but who eventually cannot receive a reverse mortgage due to the Financial Assessment and other reforms that have made it significantly harder for underqualified applicants to close.
“With these last-resort cases today, it may not work,” Waters said in an e-mail to RMD. “If they have a large existing mortgage balance, combined with bad credit results, they may now be required to have a LESA [life expectancy set-aside], and then they may not have enough equity to qualify for the loan.”
Waters says the industry should focus on promoting the loans as a supplementary product for the financially healthy.
“The new message today is that people need to be more proactive and be in good financial shape to obtain this loan,” Waters says.
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