Why Reverse Mortgage Professionals Should Focus on Accurate Conversations with Borrowers
Reverse mortgage professionals who regularly interact with potential or actual borrowers should take extra steps to ensure their presentations are as accurate as possible. Any proverbial “wiggle room” that exists in something that is bound by loan originators or other professionals is likely to be misinterpreted by a borrower, so language precision on the product category is essential.
That’s according to a trio of prominent reverse mortgage industry educators in a presentation at the National Reverse Mortgage Lenders Association (NRMLA) annual virtual meeting and exhibition in late 2020. Dan Hultquist, vice president of the National Reverse Mortgage Lenders Association (NRMLA) Organizational Development at Finance of America Reverse (FAR) was joined by Jim McMinn, Sales Training Manager at Longbridge Financial and Craig Barnes, Corporate Training Manager at Reverse Mortgage Funding (RMF) as they all donned Arbitrator shirts for the virtual meeting to call for “sanctions” on potential problems that might arise during interactions with borrowers.
In a general theme centered on presentation accuracy, educators have taken up a few different statements commonly used in the reverse mortgage profession to highlight why accuracy is so important in these interactions.
“You never have to make a payment on a reverse mortgage”
Payments are of course not required in a reverse mortgage transaction, but since it is always best to avoid definitive statements in trio interactions, adding a definitive ‘never’ to the Mortgage payment situation could be problematic, says McMinn.
“Now it is true that the borrower does not have to make a monthly mortgage payment, it is not mandatory,” he explains. “But there is a payment that is due at the end, [which is] all that unpaid balance that was borrowed. [That] Also, the interest has to be repaid at some point, so we don’t want to give the impression that it never needs to be repaid and that no payment is required.
Of course, the other parts of the payment equation revolve around taxes, insurance, and homeowners association (HOA) fees, if necessary. If a property at the center of a reverse mortgage transaction is in a flood-prone area, flood insurance will also be required as part of the reverse mortgage transaction in some form, he says. To say, however, that there are more costs involved after obtaining a reverse mortgage is simply incorrect and should be avoided, he says.
“By making this statement, you are misleading the borrower into believing that there will be no payment to be made,” he says. “We can make a statement saying there are no monthly mortgage payments required. It’s a much better statement. But, these other obligations remain intact, and they should be aware that they must be paid on a timely basis. “
“Reverse Mortgages Can Free You From Your Debt”
Reverse mortgages can be used to help consolidate or eliminate certain forms of debt, but saying that a reverse mortgage will make someone “debt free” is something that should generally be avoided, according to Barnes. Following up on an earlier piece of the presentation where the trio advised against using definitive statements such as “never” and “always,” Barnes believed the word “free” should also be a candidate for inclusion on this list.
“Remember that by paying off maybe their existing mortgage and maybe a second mortgage or HELOC, whatever we do, we’re eliminating that debt. But, the borrower always incurs other debts, ”he said.
Going further, Barnes cited a 2016 Consent Order from the Consumer Financial Protection Bureau (CFPB) when the agency reviewed the advertisement from American Advisors Group (AAG), discussing what a reverse mortgage is in terms of consumer debt.
“In truth and fact, a reverse mortgage cannot eliminate all of a consumer’s debt,” the CFPB said in the December 2016 consent order. “A reverse mortgage in and of itself is debt and, for example, therefore, cannot be used to eliminate all of a consumer’s debt. “
Making that statement also flies in the face of a simple reality involved in maintaining a loan, says Barnes.
“So, don’t forget to pay attention to these things like [the statement that] “Reverse mortgages can free you from your debt,” says Barnes. “In fact, a loan balance, even if [a borrower] pays off most of their loan balance, most lenders still need $ 50 or $ 100 of loan balance to keep the loan open. Again, it’s still a debt.
“Public loans”, conditions of tenure
A Home Equity Conversion Mortgage (HECM) is sponsored by the Federal Housing Administration (FHA) and the US Department of Housing and Urban Development (HUD), but that does not make it a “government loan.” Describing an HECM as such would be a highly discouraged inaccuracy, according to McMinn.
“Now it is true that reverse mortgages are insured by the FHA and therefore have protections built into it because of the insurance,” McMinn said. “But HUD does not fund these loans. loans are created and funded by lenders that are not government agencies. HUD is the overseer of the FHA and therefore sets the standards that lenders must meet. They will also enforce the rules as needed if someone does not meet those standards. “
Describing to a borrower that an HECM is a “government loan” is simply misleading, and the role that government agencies play in insuring the lender against losses should be clearly explained. Additionally, a long-standing adage with loan officers is that a reverse mortgage borrower must occupy the home for “the majority of the year,” which is technically another inaccuracy according to Hultquist.
“This is one of the key points we wanted to make about hearsay that is transmitted from a loan originator to a loan originator,” he says. “No, that’s technically not correct. Sometimes when I present on this topic, I ask loan originators: “How many days must the last HECM borrower be away from home before the loan becomes due?” “”
Such a question poses a slightly different problem, and lenders typically respond for six months, a little over a semester, or 12 consecutive months. None of the typical answers are correct, says Hultquist.
“The key here is number one, you can’t establish another primary residence, you can only have one primary residence,” he says. “And you must continue to certify your occupation every year. But, can you roam national parks for a year? Yes you can.”
What causes a reverse mortgage to mature is 12 consecutive months for mental or physical illness, he says. The relevant clause in Chapter 13-32 of the Administration of Insured Home Mortgages (4330.1) manual details this.
“The field office should avoid declaring a mortgage payable when a solution to a problem can be resolved,” reads part of the relevant section. “However, the field office may determine that the mortgage is due and payable if […] the mortgagor has not occupied the property as a primary residence for more than 12 months due to mental or physical illness, and there is no serious reason to expect a re-occupation within 2 months .
A lender or investor might have the option of extending the loan in special circumstances with some sort of verification, such as with a doctor, Hultquist says.