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MBA Releases White Paper Outlining Fundamental Data Management Concepts for the Real Estate Finance Industry

Aug 25, 2008

Forward on reverse: Does John Neincash need mortgage payments?Atare E. Agbamu, CRMSreverse mortgage, refinance, underwriting rules The names mentioned in this article have been changed to preserve anonymity. A few months ago, Karen Docless, a very likeable and effective account executive with one of America's leading financial behemoths, came to our office to "train" us on some of their "new" mortgage products. At one point in her 45-minute presentation, she recounted how she helped 79-year-old John Neincash refinance by putting him into one of their new no-doc, no-income products. Karen Docless was at her self-congratulatory best. She really believed she had helped the septuagenarian get financing that could have been hard for him to obtain under normal home mortgage underwriting rules. Predictably, I asked her whether she considered a reverse mortgage for Mr. Neincash. She said she did not. Then, she added, "Atare, I really needed that loan." Good-naturedly, we laughed it off. She continued with her training. Although I admire Karen Docless for her strong people skills and for her effectiveness as an account executive, I was bothered not only by the mortgage product she admitted giving to a 79-year-old man, but also by her reason for doing it: " ... I really needed that loan." For an elder customer who's probably already pressed for cash, does it make sense to tie him to a mortgage loan with a monthly payment obligation? You do not have to be a genius to figure out how John Neincash will fare with his no-doc cash-out refinance. He will soon begin returning the cash back to the lender in monthly payments. Between his daily cash needs and his monthly payment obligation to the lender, he may run out of cash and his ability to make payments to his lender. He will miss payments. Default will happen, followed by foreclosure. Mortgage product suitability (or putting the John Neincashes of America into mortgage products that take their needs, their age and their total financial situation into consideration) is going to be one of the biggest challenges for the mortgage industry in the 21st century. It will make "predatory lending" look like a picnic. A June 2005 United Press International report says homebuyers are being lured into "choosing risky mortgages like adjustable-rate and interest-only" loans. Is every adjustable-rate, interest-only and no-doc loan unsuitable or risky? It depends on the needs and circumstances of the borrower. As a professional mortgage originator, you must decide what mortgage product is suitable for your borrower based on your borrower's needs and financial situation, not yours. If a borrower insists on going against your professional judgment and product recommendation, you should require him to sign a statement absolving your company and you of responsibility for any adverse consequences. What mortgage programs are there for seniors 62 and older who need cash from their homes, but do not want or cannot afford the burden of monthly mortgage payments? Reverse mortgages! Only reverse mortgages! Are reverse mortgages suitable for every senior borrower? No. Should every senior borrower (62 and older) who calls you up or comes into your office for a mortgage know about reverse mortgages? I believe they should. As mortgage loan officers in a marketplace with a growing senior population, we have a duty (as with our non-senior customers) to ask a simple question of ourselves before we recommend a mortgage product to a customer: Is this loan suitable for this borrower? In an evolving marketplace with customers that have abundant home equity yet are lacking in extra cash, reverse mortgage programs may be the most suitable solution that mortgage brokers and lenders can use to meet the long-term, extra-cash needs of America's expanding senior population. For suitability and for sound strategic reasons, mortgage brokers and lenders should consider adding reverse mortgages to their product offerings. They should also think about training their origination staff in reverse mortgages so that they can better evaluate reverse mortgage candidates and make appropriate program recommendations. It is what I call reverse-readiness. It could be your most astute marketing and business move in the new, ageless marketplace we have slipped into. Failing to be reverse mortgage-ready may suggest gross insensitivity to the needs of our flourishing senior customers at best. At worst, it could expose mortgage lenders and brokers to potential legal and financial risks. I believe reverse mortgage know-how is a competitive advantage in 21st century mortgage lending. Are you reverse-ready? Think reverse, move forward! Atare Agbamu is president of ThinkReverse LLC, a reverse mortgage training and consulting firm based in the Twin Cities and is a consultant with Credo Mortgage. Atare is regarded as an emerging authority on reverse mortgages and is frequently consulted by financial professionals and families across America. His reverse mortgage interviews have been webcast on MortgageMag Live! He can be reached by phone at (651) 389-1105 or e-mail [email protected].
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