Archive for May 2009

Edu-selling . . Reverse Mortgages

May 20, 2009

j0438494Looking back over the past four years in selling this product, Reverse Mortgages, it has been an interesting ride. Fulfilling . .  absolutely . . . Easy . . . “NOT”. This is a product that over the years has received much criticism. There are several reasons for this:

1. The Name: I am sorry, but I wish they would have come up with a different name for this product.  Anything dealing with finance that has the name “reverse” in it subconciously for all of us, doesn’t seem right. Going backwards isn’t where most people want to go.

2. Home Equity as a Source of Cash Flow: One of the reasons many financial professionals have not come on to the reverse mortgage is due to the fact that they have always been trained to not use home equity as a source. A few years ago there was an idea out there that many took advantage of with their home equity . . .  cashing it out and using the funds for iinvestments. Ouch . . . though in the roaring ’90’s this made some sense for many, the current financial crisis has shown the reality of what happens when we do this. Foreclosures are at an all time high. Reverse Mortgages are different . . . very different.

3. Misunderstood: Certainly the name, as mentioned on #1 has made reverse mortgages misunderstood, but the original reverse mortgages (back in the 50’s & 60’s) did not have the protections in place as the Home Equity Conversion Mortgages (HECM’s). Areas of misunderstanding include ownership, default scenarios, depletion of equity, and others. Today’s product has many protections for the homeowner as well as their estate.

4. Audience/Market: Because this product is solely for seniors, it has been difficult getting in front of the masses of seniors. We all know that seniors are often taken advantage of and they know it. Anything that sounds too good to be true, well, is often too good to be true. As a group, it is difficult to develop the trust needed with this audience to truly educate and build the relationship. It simply takes time!

5. Lastly, but there is probably more to add, is the SALES PROCESS. The foundation of this product is that it is much different than many other products. I call it EDU-SELLING. That is, educating the client so that they can make the best decision for themselves in their current situation. The educational process is the sales process. Once the product is understood, then if it accomplishes the goals of the client, they make the decision. This is too important of a transaction for the typical sales process (I call it hard selling) to be used. Today, many brokers use this method since it is what they know.  I believe that when the hard sell is used, it is felt by the client, and they turn and run the other direction.

In the end, the client wants to know that the sales associate is one who can be trusted and who gives the clients room and time to process. Edu-selling provides the clients with information that they need to make the right decision for them. Sometimes it is quick, but often times it takes months for this process to occur. But in the end, these are clients that are happy with their decision.

Reverse Mortgages: The Future?

May 19, 2009

j0433797If you have been one to follow the reverse mortgage industry over the years, you have seen a lot of change. For the first 15 years of the HECM product, there was virtually little change. The product was what the product was. HECM150 was basically what was sold as the main product throughout the country. Today there is change what seems to be every week. With the economic issues that our country is facing, the industry has been required to change.

Dennis Haber an attorney that has focused on the reverse mortgage industry and has been influential within this industry. He has written a couple of blogs that draw attention to the current and pending situation around the reverse mortgage product and is an advocate for the industry. Here, he explains what he calls the Reverse Mortgage Storm, Hurricane 1 & 2:

The Reverse Mortgage Storm, Hurricane 1

The Reverse Mortgage Storm, Hurricane 2

Reverse Mortgage Industry – Current Implications

May 14, 2009

j0440988The reverse mortgage industry continues to grow nationwide. The numbers Year to Date have increased both in applications and in total endorsements (closings). But this is just a small picture of the overall industry. Over the past two years we have seen an industry get hit hard by a drop in home values, economic uncertanties, and interest rate adjustments. In addition, there has been a huge increase in the number of people who are originating reverse mortgages. Though this is good news from the standpoint that this product has become more of a standard product within the financial industry, it has impacted the total number of loans that any one individual can do. So we have a small increase in the total number of endorsements, coupled by more people doing them. This leaves many unable to close enough loans to make any kind of a marginal living. Many originators are finding business very difficult as competition has impacted the overall market.

This scenario is not surprising to me. Four years ago when I started in the industry it was an inevitable consequence to the financial condition of many of our seniors. I predicted the fact that banks and credit unions, as well as mortgage brokers would find this tool as one they need to add to their product mix. It was my attempt to make an impact in the industry at that time to position myself to be the local expert. And I have done just that!

What I did not see coming was the huge reduction in home values. At that time values were going, let me just say “bazerko” (sorry, probably not a word). Values are often much lower than the homeowners realize. Recently I had a home appraised that the homeowner was expecting $600-$700k in value. It is a phenomenal home! It was appraised at $485k. Now this is somewhat of an anomoly because of the lack of similar comparisons available, but more times than not, values are underestimated because there was a lack of understanding. The conversation of value is a critical one to have with the homeowners. Managing expectations provides open communication, and in the end, good relationships with clients (whether or not they were able to do the loan).

The other thing that was not expected was the increase in interest rate margins that we have seen with Fannie Mae. Fannie Mae, who purchases 90% of all reverse mortgages, has moved into a live pricing environment where the interest rates could fluctuate during the processing of the loan. For some, this reduces the expected benefit or all out takes them out of their ability to attain a reverse mortgage. Though I have been able to work around most of these situations to this point, it remains an unsettling reality in today’s market.

Balancing the Cost of Reverse Mortgages

May 12, 2009

CB068300It seems that every so often the issue about the cost of reverse mortgages flashes across my computer screen. In every industry there are skeptics about a solid financial product, but the reality remains, users of the product are much better people to ask. For example, if I was to find out if a particular brand of lawn mower is worth the cost, I wouldn’t ask the person who sells the lawn mower. I would ask the people who have had the lawn mower for an extended period of time. Neither would I ask manufacturers of a different lawn mower. Both groups of people would have a potential bias towards that particular lawn mower. I also wouldn’t ask a company that specializes mowing lawns as a service for they may play down lawn mowers as better sell their service.

However, the people that would provide good, unbiased information are the users of that particular lawn mower. Preferably they would be people who have used the lawn mower for a few different seasons. They would know if the lawn mower stands up to the reputation that is out there.

The same has to be said about reverse mortgages. Though it is always a good idea to get information from non-users, it is important to not judge the product by people who have not used the product, or don’t know many people who use the product. It sounds silly, but this is what happens with albeit “professionals.” They have a judgement about reverse mortgages, but they often have not known many people who have taken them out. They sort of clump everybody into one big group as having the same needs and needing the same solution to a problem.

And so, we get input from various levels of professionals who are not in the industry and don’t have a working knowledge of how the product has been used. The overriding issue is the cost. It is funny to hear this because from the many clients who have taken out a reverse mortgage from me over the past 4 years have never come back and said that it was too expensive. The overwhelming majority is that it changed their life. You see, the value of the benefit far exceeded the cost. The cost was a non-issue after they realized the overwhelming benefits.

Lastly, in dealing with the cost, one needs to look at what the costs are for. In this case, a huge part of the cost is what is the driving force behind the program, the FHA Insurance Premium (2% of the appraised value). This protects the lender as well as the borrower from any future liability in the event the balance exceeds the value at the time of sale of the home. This is called “Peace of Mind”. Peace-of-mind is a beautiful thing! What is it worth? You might just want to ask an independent senior who no longer needs to rely on others to make ends meet. It really is a beautiful thing!

So, for everybody who falls into the mode of “Reverse Mortgages are just too expensive,” my suggestion is to ask around to seniors who have benefited from a reverse mortgage. I think you’ll find that most will tell you that the benefits far outweigh the cost.

For another perspective on Reverse Mortgage costs, visit this link.

Transfer of Equity with Reverse Mortgages

May 7, 2009

RetiredOver the years reverse mortgages have been used for a variety of reasons. It simply may be to help with the shortfall in cash flow from month to month, or to pay for future medical expenses, such as long term care, or to simply have an emergency fund to assist with potential home repairs in the future. There are unlimited reasons that a reverse mortgage can be beneficial.

One often overlooked reason to do a reverse mortgage may be what I call a Transfer of Equity. Many people who are retired may look at their home as a form of inheritance for their children. They may not have a lot to pass down in the form of assets, but they do have real estate, something that will grow in value over time, and will provide an inheritance to heirs.

In talking with people in their retirement years, one of their desires during this time of their lives is to travel. Some would enjoy a beach house, or a mountain cabin that they can spend short or longer periods of time away from their home and further enjoy this period of their life. Real estate is deeded property and can be passed on to their heirs just like their home. Many, though they would like this, also realize that they don’t necessarily have the funds to make monthly payments on such investments.

Today, with lending limits at $625,500 across the country for HECM loans, coupled with the fact that real estate values are at all time lows, it is a great opportunity to take advantage of living out those dreams. The reality is that owning another property would allow for appreciated growth in not one property, but two, and not be required to make any monthly payments . . . ever. Deeded properties may include properties such as condominiums or even fractional ownership properties located typically in resorts around the world. For those who like to travel once a year for a nice get-a-way, you can “own” property for a period of time each year. The property appreciates over time, and it can be an opportunity to share with loved ones, and thus passed on from one generation to another, just like any other type of deeded proprty. It can provide the opportunity to build memories and continue to give in a way that the whole family can enjoy!