[vimeo id=”127736493″ width=”625″ height=”352″]
Cooling-Off Periods Are Gaining Popularity
Coming to a state near you. California, Illinois, Utah and Minnesota. What do these states have in common? Mandatory cooling off periods for reverse mortgage loans.
Despite numerous consumer safeguards, mandatory counseling and countless disclosures the enactment of cooling off periods seems to be the rage in state legislatures across the country. What is a cooling off period? Simply put it is the time during which a borrower is not legally bound to proceed with the loan transaction.
In fact the present national standard is a three business day cancellation period in which the borrower may cancel after signing closing documents. Today let’s examine the true impact of waiting or cooling off periods for Home Equity Conversion Mortgage Borrowers. First their is the rapidly changing demographic of reverse mortgage borrowers. The average age HECM borrower has fallen from…
Download a transcript of this episode here.
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8 Comments
To look at this issue, you must break it down into 1) Traditional and Refinancings, both having 3 day rescission period and 2) Purchase with no rescission period. While it is very understandable that there would be worry about no rescission period with a HECM for Purchase and thus the need for a cooling off period, it is not clear why it is needed with a Traditional HECM and even far less clear with a HECM Refinance (the old HECM to HECM refinance) where the prospect already has a HECM!
In making the cooling off period proposals which have become law, the senior advocates show how little the alleged education they have received on HECMs has taken root. Most have no training in real estate or finance. They are not bound by logic, reason, or rationality. One highly esteemed industry leader who was called Doctor had an excellent set of degrees but they were ALL centered in anthropology. Rather than using stats in a meaningful holistic manner, the senior advocates take them to their most expedient exaggerated ends that “prove their points.”
Let us look at one of the reasonings given in the video: the worry that the average age of the senior is getting younger; hence more younger seniors are getting HECMs than older seniors. Yet the downward age trend is nothing new and has been fairly consistent over the last 15 years. Younger seniors are far less likely to be senile than their older counterparts. Finally some of the most fundamental assumptions under which the legislation has been seen as needed is based on HECM products before September 29, 2013 than those available today.
The trend for younger seniors getting HECMs is nothing to worry about. It is not out of line over the trend for the last 15 years; in fact last year it ticked back up a little. There has been no major drops in age but even if there was, what is the perception of someone at 76 year old widow making a financial decision versus a married couple where the youngest partner is 71 and 1/2 years old? In part the drop in age shows the maturing of the HECM market. But why is this such a worry?
The senior advocates say that the younger a senior is in making the HECM decision, the more likely they are to run out of money in retirement at a younger age than a senior who closes at an older age. Perhaps that is true when all other things are equal. BUT our product has changed and the likelihood of the needs based senior (the most likely senior to run out of money) getting a HECM or a HECM without a LESA safeguard against property charge payment defaults has greatly diminished.
Then there is the issue of senility and borrower demographic. Back in FY 2000, the youngest borrower was most likely to be a 76 year old widow. Today the youngest borrower is most likely a 71 and 1/2 year old wife who is getting the HECM with her husband. Although senility can be an issue in either case, I personally like the image of being the originator for a couple where the youngest borrower is 71 and 1/2 years old than an originator for a widow who is 76 years old. In the later case there is a far greater possibility that the widow is senile than both partners being senile in the former situation.
I am in California and hate the seven day cooling off period. It makes HECMs for Purchase even less viable since they take longer now than in 2012 and that is without considering financial assessment. The talk about HECMs for Purchase being the sleeping giant of the industry is about dead in California with a 7 day cooling off period and the time cost of financial assessment.
Hopefully, these fine States have also included a “cooling off period” for getting a marriage license, for voting, and for their very own lawmaking decisions. ha ha
This cooling off period is ridiculous. I would like to see NRMLA leadership spend more time educating politicians and senior advocates on the HECM and less time at conventions preaching to the choir.
Alex,
Let us look at the situation.
This is not national legislation. Trips to dispute new proposals should not be junkets or paid consultant trips for NRMLA executives by the top lenders; that is ineffective because it is far too late. The NRMLA tact is reactive, not proactive. It is fundamentally flawed to think that one or two people who work within blocks of the White House can go around the country heading off the latest Democratic proposal.
At the grass roots level, we need continuous dialogue between NRMLA originators and their state legislators especially in the largest trend setting states such as California; NRMLA needs to take a proactive stance even to promote legislation turning the tables on laws already on the books. The ideal situation would be to place the NRMLA executives in charge of delegates of a few states from each of the biggest lenders and let them in turn choose a few key spokespeople to represent us to committees and committee members in the key state legislatures. If you do not have a grass roots system AND a high level proactive group in the capitols of key states, it is difficult to keep our naysayers at bay.
While the old ways may be effective for now in places like Wyoming, Rhode Island, North Dakota, South Dakota, Delaware, Montana, Hawaii, Alaska, Maine, West Virginia, and Nebraska, they are far less effective in places like California or Minnesota. Not long ago a very negative bill passed the Democratic controlled Minnesota legislative bodies only to be vetoed by a Republican Governor. The bill was handled in the old familiar way.
What I am proposing is a system of proactive representation at the largest, key, and most concentrated HECM states. Rain on these states and sprinkle on the others.
Then have the conventions and preach to the choir.
I am a reverse mortgage professional for twelve years. Beyond that, I’m a senior soon to be 69 yrs. old. I don’t need the legislators telling me how to handle my business. They need to spend their time with more pressing issues. I don’t know where they get the idea that these seniors have no idea what is going on. We all know about the noise makers, which is true with anything. I never have a closing where I think my borrowers are feeling like they aren’t sure about what they are doing or why.
Our customers are better informed and educated about their loans than other younger people. Their children are often consulted along with their priest and/or financial advisor. They are made to face death and take measures to protect both their younger spouses and families .no other group faces harsh reality in the way our customers must. Let’s have a cooling off period for any mortgage where the person is over 45- lets get their kids permission- their priest, their financial advisor. Lets make them prove they can pay their taxes and their insurance. Lets document everything. How many people would put up with all that? Our people do it because they know that they are going to die and they want what’s best for them and their families.
This is a great comment of Alex’s
NRMLA is doing what it does best, conventions for everyone that is not earning a living by commission only. I have attended a couple of conventions way back in the day, when they were maybe 100 people at most in Denver and San Diego. What exactly are they doing lately? do not know but the convene regularly in New York City, and New Orleans a lot. How do they afford? while the originators are still at home base trying to pay the bill for those larks.
This cooling off period is ridiculous. I would like to see NRMLA leadership spend more time educating politicians and senior advocates on the HECM and less time at conventions preaching to the choir.
NRMLA is a lender association, we need a NRMLO a loan originator association.