Our Name & Terminology May Be Turning Away Potential Borrowers
“Words have meaning and names have power”, said Spanish author Miguel de Cervantes. Perhaps this is something the reverse mortgage industry should strongly consider. The 27-year-old Home Equity Conversion Mortgage program is struggling to expand its reach in an ever-growing marketplace. Is our reverse mortgage terminology confusing older homeowners? Does our name need to be rebranded?
For many years I have chafed at the term ‘reverse mortgage’ opting instead for Home Equity Conversion Mortgage, considering widespread product confusion and lingering misgivings born from negative media stories. Even better perhaps we should adopt “Equity Release Mortgage” as our new flagship name as our counterparts in the U.K. and Australia have branded a similar offering. During the NRMLA annual meeting in Chicago, some members argued that the name “reverse mortgage” carries a negative connotation, in the sense that a person is moving “backward”. Create your own user feedback survey
Beyond the argument that our product needs a new name, is the confusing and often contradictory terminology in the HECM itself. The principal limit, while known within our industry, is completely foreign and alien term for older homeowners who have only been exposed to standard mortgage terminology in their working years. Some industry members argue that ‘available proceeds’ is more descriptive. Maximum Claim Amount, or MCA, is another example of industry jargon thrust upon HECM borrowers. Instead, some suggest renaming this to the ‘FHA Lending Limit’. The fact is that mortgage applications are loaded with an alphabet soup of acronyms. With HECM loans layering another set of loan terms, confusion is sure to follow, not to mention increased consumer uncertainty…
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7 Comments
Right on with this video. Could not agree more, regarding change of name, language, bogged down repetitive application.
I agree, the term (Reverse Mortgage , has reached a terminology limit, This has steered many potential borrowers from seeking our utilizing the financial assets right under there feet. 15,20 or 30 years of making that monthly payment, Should a couple in there 70’s or 80’s have a remaining balance on their current mortgage. When 1 passes , is the other capable of continuing the mortgage payment? Should it be presented as a financial tool, the limitations are endless.
Mr. Matunis,
What if the couple feels that if one passes, the house is too much for the other to maintain. For many this is the case.
A HECM is an answer to an existing or potential financial problem. To suggest a use of the product when the couple have a different objective, proves we are not there to suggest answers to real or perceived problems but rather to assume what their problems are and solve that non-existent problem.
If we are educating we should be speaking. If we are solving or even selling, most of our time should be spent listening.
Some talk about HECM being a legal term (which it is!) but so is “reverse mortgage.” See 15 USC 1602(bb). See
http://law.justia.com/codes/us/2001/title15/chap41/subchapi/parta/sec1602
Here is what it says: “(bb) The term “reverse mortgage transaction” means a nonrecourse transaction in which a mortgage, deed of trust, or equivalent consensual security interest is created against the consumer’s principal dwelling—
(1) securing one or more advances; and
(2) with respect to which the payment of any principal, interest, and shared appreciation or equity is due and payable (other than in the case of default) only after—
(A) the transfer of the dwelling;
(B) the consumer ceases to occupy the dwelling as a principal dwelling; or
(C) the death of the consumer.
That per the federal government is a reverse mortgage transaction, period. So please do not get confused that HECMs are a legal term but reverse mortgage is not.
If a reverse mortgage is an equity release product (which it is not!), it is partial at best. So if it is agreed it can be classified as an equity release product then it must be preceded by the adjective, “partial” and end in the word “mortgage.”
All the terminology in the vlog except the term “reverse mortgage” are solely HECM language. Yet that is where we potentially need the approval of HUD. Our amortization schedule, loan comparison schedule, TALC schedule, and HECM model (FHA approved and issued) loan documents all use this terminology.
I fully disagree with using less technical terms in our presentations and FHA technical terms in our docs. You really want to confuse and chase off borrowers, try that one.
Let us not get too carried away unless we have the approval and full support of senior HUD/FHA/GNMA management approval, in advance.
We also have a willingness test, a capacity test, expected rates, initial disbursement limits, mandatory obligations, and more which are unique to the HECM. Other countries have “non-recourse” features, but refer to it as a “no-negative-equity guarantee.” Is that an improvement? Maybe. But it still must be explained.
But as much as I’d love to simplify the product with alternate terminology, there are other reasons why the public is confused – the process, features, usage, and concepts are unfamiliar.
We must be careful how we explain the Max Claim Amount (MCA). The MCA is not an “FHA lending limit” or “HECM loan limit.”
The MCA is the LESSER of [the home’s appraised value] or [the HECM loan limit of $636,150] or [sales price if a purchase].
There’s actually no reason to mention “FHA lending limit” or “HECM loan limit” when speaking with a borrower. It will confuse them, and ultimately the HECM lending capacity is not limited to $636,150. Only the MCA is limited.
AGREED! Change the wording. The words used make no sense to the borrower. Maximum Claim Amount, Principal Limit, etc. A revamp would be welcome, in my book!
And, I truly agree that “reverse mortgage” has a negative connotation. I like using Home Equity Conversion Mortgage when I speak to my clients either verbally or in writing.
While at it, why not simplify the illustration too?