To pay or not to pay: That is the questionMartin Taylorreverse mortgages, advisor program, HECMs, negative amortization, pre-payment
A closer look at repaying reverse
mortgages
Indeed, it is a cliche to think about the New Year as the time for
reinvention and reclamation. But a little thing like a cliche
should never get in the way of a big opportunity to share some
insight about how you can look ahead to evolve and become a better
reverse mortgage loan officer in the coming year.
The second in a series of articles that will examine the nuances
of reverse mortgages and how to best represent them, this article
expands on our previous piece ("Reverse psychology," The
Mortgage Press, September 2007) that discussed the correct
function of a reverse mortgage line of credit and how an advisor
program can help rookies in the reverse sector gain valuable
experience.
As with the line of credit, many new reverse mortgage loan
officers can also become confused when attempting to overcome
objections of seniors who are opposed to this complex loan.
A large amount of reverse products are Home Equity Conversion
Mortgages (HECMs), which are variable loans that negatively
amortize. Many seniors view these loans as the type to
avoid--until, that is, they are properly educated about the total
complexion of the loan.
If you are faced with a situation in which a senior pushes back
because of negative amortization, be sure to inform him that he
does have the option of paying down the mortgage just like with any
traditional forward mortgage. The only difference is there is no
monthly payment requirement, and he shouldn't check his mailbox for
a bill, as none will ever come.
At the risk of imposing another cliche, we all are familiar with
the saying, "If it sounds too good to be true, it probably is." How
many times have we heard this from experts? And how many times do
you think weary seniors have heard this about reverse
mortgages?
Your job as a competent and knowledgeable loan officer is to
thoroughly explain the gradations of the loan to put the senior at
ease and ultimately assure him that this loan is not too good to be
true, but rather it is too good to be missed. This involves walking
the prospective client through the optional payment process, which
is as follows:
1. The lender will first apply the pre-payment to the portion of
the principle representing aggregate payments for mortgage
insurance premiums and servicing fees.
2. Payments will then be applied to accrued interest.
3. Finally, payments will go toward the principal balance.
Be sure to explain to the senior that should he choose to make
any payments on the home, he will not be expected to send in a
check on a monthly basis.
One of the attractive features of a reverse mortgage is the
flexibility it offers. So, whether a borrower chooses to make a
payment every month, every quarter or bi-annually, there is no
penalty to do so, and the bonus is that he can take control of the
loan balance as it increases over time. What's more, often
repayments toward the principal will also increase the line of
credit by the exact repayment amount.
You will find that seniors often choose to make payments out of
habit (after all, think about how many mortgage payments they have
made in their lifetimes). And other seniors will choose to make
payments out of insecurity or uncertainty. Whatever the case may
be, over time, they will realize there is no reason to make these
payments, so long as their insurance and taxes are paid current and
that the home is kept in reasonable repair.
Also, you may encounter resistance to the loan because seniors
fear there will be nothing left for their heirs or that they could
lose their home all together. The reality is, as a HECM, it is
government backed and secured, protecting the senior. And with
probable appreciation, there should be plenty of equity for their
heirs to enjoy.
To win the confidence of the senior, you want to avoid just
selling the loan benefits to close the deal. Rather, you want to
extend counsel and educate seniors with full disclosure so that
they walk into this loan with eyes wide open and you start looking
at a career that is taking off.
Don't forget to be on the lookout for our next installment,
which will cover qualifying property types and how to mitigate the
dangers of removing a spouse off the title. In the meantime, if you
have any questions about any of the topics that have been covered
thus far or if you have a reverse mortgage situation you would like
us to explore further, feel free to contact me.
Happy New Year!
Martin Taylor is the owner of Bellevue, Wash.-based Stay In Home Reverse Mortgage
Inc. He may be reached at (800) 963-8011 or through his
company's Web site, www.stayinhome.com.
