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].
