After over two years of increasing and high interest rates, nearly every reverse mortgage originator found themselves with more potential borrowers who were ‘short-to-close’. In the years before the Federal Reserve’s war on inflation, potential HECM borrowers would typically be short to close due to a higher-than-expected mortgage payoff, a significant repair set aside, or a required LESA (Lifetime Expectancy Set Aside).
Today let’s examine strategies HECM pros may employ when homeowners cannot qualify without bringing cash to the closing table.
Your CRM is a Goldmine
You’ve heard it said, “There’s gold in them thar hills”. True, if you know where to dig.
Fortunately, mortgage professionals who have assiduously inputted every lead, loan details, and, conversation notes may be sitting on a goldmine. A goldmine of those who may qualify for a HECM if the loan’s key index, the 10-Year Constant Maturity Treasury Rate falls. The good news is that the 10-year CMT index may drop should the Federal Reserve reduce its benchmark Fed Funds rate. The chart below shows the relationship between the Fed Funds Rate and the 10-Year Constant Maturity Treasury Rate.
Even better, home values have remained stable in most markets, with few exceptions. This means any gains in the HECM’s principal limit are unlikely to be eroded with a lower home value.
Two HECM pros using Reverse Focus’ Sales Engine CRM reported they closed several loans in August by running an updated quote for short-to-close homeowners in the last two years.
When a short-to-close isn’t the end
If you believe that a short-to-close is a deal killer the homeowner will sense this and likely respond in kind. After all, you’re the trusted professional. However, such a mindset is not only counterproductive but could leave homeowners unnecessarily cash flow constrained.
Let’s say a couple is $30,000 short to close. They could get the funds from their money market account but are hesitant to part with such a tidy sum. A reverse mortgage originator who didn’t do some basic financial fact-finding wouldn’t know there was a potential source of funds to close the loan unless the homeowners volunteered the information. This is why fact-finding is essential to make an informed recommendation illustrating the power of a reverse mortgage.
In this case, the originator is a seasoned professional who knows what accounts could be used to close the gap between the available loan proceeds and the amount required to pay off the existing mortgage and all loan costs.
Knowing their mortgage balance, monthly payment, and the remaining number of years on the loan the originator could say, “We know that $30,000 is a chunk of money. However, did you know you would save that amount in the first 17 months of your reverse mortgage by simply not making your existing $1,800 mortgage payment?”.
That means the homeowners will have more cash flow for the first seventeen months and each month thereafter as long as the loan is in good standing. Is that sort of financial relief worth a one-time lump payment? It most likely is.
In some instances, a short-to-close is an opportunity to build value by showing how a reverse mortgage can have a positive impact on their cash flow. All things considered, that’s where dollars may make sense to come in with cash at closing.
Shannon Hicks
Editor in Chief: HECMWorld.com
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.
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