With the more recent news coming from a spate of earnings reports indicating that forward mortgage businesses have suffered in the wake of a transition to a more purchase-oriented market, certain forward professionals may be considering expanding their product suites to encompass reverse mortgages.
Earlier this year, HW Media — the parent company of HousingWire and RMD — held a virtual event designed to answer the burning questions forward professionals may have about the reverse mortgage industry and its products. A lively Q&A session created significant engagement between forward mortgage professionals and reverse mortgage industry experts, which was previously partially recapped on RMD.
Now, we will take a final look at more burning questions that forward mortgage professionals had for the panel of reverse mortgage experts during the event.
Closing for cash, common objections and seller concessions
Reverse mortgage industry professionals are all too familiar with a raft of misconceptions that can fuel hesitancy to engage with the reverse mortgage industry, but answering those questions that may come up with borrowers or referral partners requires patience and knowledge. This is according to Christina Harmes Hika, a reverse mortgage originator with Amerifund Home Loans.
“With objections, you’ve got to know your stuff,” she says. “The most common way I help people relate is when they say something to me about not wanting ‘the bank to own my house.’ So I ask, ‘is that how your current mortgage works?’ That stops them. It’s a little bit of a shock, because they think [a reverse mortgage] is totally different. It’s not, it’s still a mortgage. The difference is that you don’t have to make those monthly payments.”
One attendee also asked about how reverse mortgage professionals get around issues of seller concession since a seller can’t pay any of a buyer’s closing costs on a Home Equity Conversion Mortgage (HECM) for Purchase (H4P) loan. Sometimes, you just can’t get around it, Hermes Hika says. Closing for cash can provide a potential solution if that’s an option. That can also come with other issues.
“If you close for cash, you’re going to have to prove occupancy,” she explains. “That’s the biggest hurdle that I’ve had when somebody closes for cash and the very next day they say they want to do their reverse now. We’ve got to prove occupancy. So, you need to coordinate with your AE and see what that lender is going to require to do that, and that they actually inhabit the home from wherever they were living. There’s some other documentation requirements there too.”
For seller concessions, education remains a key priority, she explains.
“For that, I educate, educate, educate,” she says. “I say, ‘Here is how it’s going to work before you get into a contract.’ If I can tell my real estate agents to bring me the client way before they find the property so that we can qualify them, of course, but also educate the agent and the client on how to set up that contract. Because that can really be a killer, and it’s different than other mortgages, so you really need to alert everyone to it.”
Dan Hultquist, national reverse mortgage sales training director at Fairway Independent Mortgage Corp., agreed with Harmes Hika’s assessment.
“You don’t want to work with a real estate agent unless they understand how to write a contract for a HECM for Purchase loan,” he added. “You also need to have a very good understanding with your builder or developer about what they’re allowed to do. And it’s not just the seller, or the builder. It’s also the lender. We can’t offer any lender credits on a HECM for Purchase either.”
This is because the U.S. Department of Housing and Urban Development (HUD) is very strict about what can — and cannot — be paid on a HECM transaction, and by whom, he said.
“You need to make sure that the real estate agent understands how to write the contract and maybe adjust the sales price and whatever you need to do to accommodate,” he said.
When a reverse mortgage may not be a good fit
In instances where it becomes clear to a reverse mortgage professional that originating such a loan may not be the best strategy, both financial advisors and originators themselves can take different approaches to relay their perspectives. This is according to Harmes Hika and Stephen Resch, VP of retirement strategies at Finance of America Reverse (FAR).
“I have a conversation with them as early as possible,” Resch said, speaking in his capacity as a financial advisor. “I will know my clients, so I have a good idea if they’re intending to stay in their homes. I want to put a reverse with someone who’s planning to stay in that home for the long-term and who wants to age in place there. If I know that they’re planning to move to Florida or somewhere else in another five years, I’m going to talk to them about reverses, but I’m going to suggest that we do it when they get into their new home.”
He describes having gone through a case in which a reverse mortgage was discussed for three years with a client, but the decision was made to delay getting the loan until they moved to another state.
“This is going to be their retirement home,” he said. “We’re going to do a reverse on that home now. It’s going to be their long-term care plan. So, I like to just do it in a place where I know they’re going to be there for an extended period of time, unless we’re talking proprietary loan, where we could get in there with low closing costs. That’s a different ballgame. That could be more of a shorter-term strategic purpose. But the FHA product’s definitely a longer-term situation.”
Working as an older reverse mortgage borrower
In terms of qualifications, one attendee asked if someone who is still working at the age of 85 would qualify for a reverse mortgage even if they’re not retired. Hulqtuist responded affirmatively, saying that more potential flexibility options exist for a senior who is not reliant on a fixed income since they’re still employed.
“I like to discuss the option of maybe making optional payments,” he said. “Usually when I find out that a client is still working, it becomes a flexible payment. They’re making a [regimented forward mortgage] payment right now, and with a reverse they will have a flexible payment. Sometimes there are there advantages to making payments, it depends on their long-term goals and what else they could do with that money.”
Sometimes there are tax implications for making payments on a reverse mortgage, meaning they might get a form 1098 as they prepare their taxes in January of the following year, he said.
“But every time they make a payment, it boosts their line of credit dollar for dollar, which means now they’re increasing their future security,” he said. “I generally don’t see that in the 80s. But I see a lot of 62-year-olds that are still working, that might have an incentive to make a payment from time to time.”
Watch the full HW Media reverse mortgage event online.