A practical method to approach financial fact-finding with potential HECM borrowers.
What is the FORM approach to financial fact-finding? To answer that question we interviewed wealth planner Ryan Ponsford of Equity Wealth Strategies.
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.
1 Comment
Fact finding is not novel or new but its emphasis is. One could refer to it as a form of due diligence. Fact finding in and of itself may not be useful at all, if one ends up with incomplete facts. Even if one has complete facts, the question becomes does the gatherer understand the facts and how they fit in the overall financial plan and picture of the prospect, applicant, or counselee.
In one case a very competent reverse mortgage originator tried to explain why he saw no point in bringing in financial, tax, or other advisers. His first reaction to doing just that was that most such advisers are well known deal breakers. Then he stated that he did not need them since he reviews the last income tax returns that the prospect filed.
Since this has been in my wheelhouse for years, I began expressing my doubts about such a review meeting any degree of “due diligence.” The questions were overwhelming but the originator had too many deals fall apart but an adviser who came to the meeting to “kill the decision to mover forward.” So what is wrong with relying on a review of the prior year’s income tax returns.
First a Form 1040 does not provide the current value of assets held at the 11:59 plus on December 31 of the related tax year. It does not provide the adjusted basis for those assets. Many stocks simply do not show up on a Form 1040 to the extent they do not have a reportabe transaction for income tax purposes. While you may get tax information about some partnerships, S corporations, trusts, estates, real estate, assets producing taxable royalty income, only in a taxable disposition or an acquistition of a business (where basis must be allocated between assets) will you generally find information about the value of these assets or their income tax adjusted basis. Rather than continuing, I will stop here.
So even if you had all of this data, what are you going to do with it? Most of the time we merely use it to get past financial assessment or to avoid a LESA; so why do we need a lot more than minimally required? This is where originator training breaks down. Most in the industry have never been formally trained on what to do with such data. Then there are liabilities and cash inflows and cash outflows, all important information but we will stop there.
While I agree with fact finding, I also believe that there needs to be training in how to use such data “to get to the bottom of things” (probably not the job of the originator) or to make a better case for an applicant. I firmly believe that Ryan has what it takes to make a difference.