Loan officers detail the challenges of explaining reverse mortgages

Reverse mortgage professionals encounter a variety of challenges when introducing product specifications to a prospective customer for the first time.

These elements may include an explanation of how the loan proceeds work, clarifying the realities of negative amortization, or something as basic as communicating to a family member why their loved one is thinking of utilizing the product in the first place.

Some of these topics came up during a panel at April’s National Reverse Mortgage Lenders Association (NRMLA) Western Regional Meeting in Irvine, California. The panel was moderated by Alissa Prieto of Longbridge Financial and included Lisa Moriello of loanDepot, Tom O’Donoghue of Reverse Loans Now and Ernie Severson of Summerlin Financial Inc.

The biggest challenge is…

To kick off the discussion, Prieto asked about the biggest challenge the panelists have in explaining reverse mortgages to potential borrowers — and how they overcome any hurdles that arise.

For O’Donoghue, one of the things he often tries to do is to speak to the client with as many of their trusted advisers present in the office as possible.

“I want their kids there, the financial planners, their estate attorneys — anybody who has any type of influence in their life,” he said. “I want them at the table so I can handle any negative feedback all at once.”

After going over who he is and what he aims to bring to the table, he asks the potential borrower about their reasons for seeking out a reverse mortgage.

“‘What’s going on in your life that you think you want to get a reverse mortgage for?’ I ask them that, and then I shut my mouth and don’t talk,” O’Donoghue said.

The reasons vary, but some common ones relate to the recent death of a spouse, some type of decline in cash flow, or an associated concern about how little the potential borrower’s adult children might be able to help them when they need it.

After listening to the client’s concerns, O’Donoghue starts looking for potential alternatives to the loan itself through a brainstorming session with everyone in the room.

An adult child might explain their own financial challenges about why they might not be able to help their parent financially. This can shift the conversation to the potential sale of property or the liquidation of other assets.

It’s only after going through these other options that O’Donoghue will bring up the Federal Housing Administration (FHA)-sponsored Home Equity Conversion Mortgage (HECM).

O’Donoghue makes clear that HECM loans are not inexpensive. But after hearing the financial dynamics in play for the family, and if it seems that the numbers support a well-qualified buyer, he said his success rate is very high in connecting the customer with a HECM loan.

“If the numbers are there and it all makes sense, they can care less about the cost, from my experience,” he said.

Across a 14-year reverse mortgage career, O’Donoghue said he has had only a few instances in which a borrower’s adult child complained forcefully about the upfront cost of the loan in comparison with the potential for relief the loan could bring.

Talking to the kids, lower-value homes

Moriello said she often encounters the adult children of a potential borrower who, in a slightly different circumstance, might be speaking to her as potential borrowers themselves.

“And I joke around when I say ‘the kids,’ because I just recently did a loan in [Washington, D.C.] [in which] I had to talk to all six kids, who were each qualified to have their own reverse mortgage,” she said to laughs from the audience.

“So I think of it as an opportunity. When you’re speaking to the children in the family, they may be in their 50s or in their 60s already themselves.”

Still, the underlying reality is that they participate in these early conversations to ensure that their loved one is being taken care of, Moriello said.

“Some think of it as, ‘Don’t go into it borrowing trouble,’” Moriello explained. “What I mean by that is, don’t go into it thinking that they’re going to oppose you. They just want to know that their family is being taken care of, and that you’re doing the right thing by their mom and what they have to do next to handle it.”

For Severson, one of the more common issues he runs into is related to a potential HECM on a home that might be smaller or of lesser value.

It can be a real challenge when a potential customer becomes enthusiastic about the reverse mortgage and what it can do, but then when the numbers come back, they realize it might not help them as much as they need it to.

“In my world, that’s been the biggest hurdle to get over,” Severson said. “And honestly, I can’t argue with them. This is a waiting game. I sit down with them trying to figure out other options, just because I won’t put them into something that’s not going to be beneficial to them.”