Do we have it all wrong?

reverse mortgage news



It’s time to get past ‘eliminate mortgage payments’

Tax-free- no required payments, increased monthly cash flow- eliminate mortgage payment. These are just a few of the most-touted benefits of reverse mortgages. Just google any of the phrases and your likely result will be a reverse mortgage. But are these catchphrases the most effective way to attract potential borrowers who may be facing one of the biggest economic upheavals in a generation?

 

1 comment

The Positive Realist June 8, 2020 at 8:04 am

There needs to be a different approach to explaining reverse mortgages. A few years after coming into the industry I tried to follow along with those who drew houses and then went about drawing straight lines to trying to depict how home equity was divided into some odd idea about how home equity was divided up after getting a HECM. You can still find some of those on YouTube to this very day. It was so strange how these presenters would get so caught up in their drawing that they fumbled with the idea of a growing line of credit and a growing unpaid principal balance.

Where do we find how a HECM that was closed seven years ago works? Many originators would not even think that ongoing MIP was not 0.5% back then but rather 1.25% back then. There were no LESAs back then. Yet all of that is found in the loan documents. In fact, home equity has nothing to do with the monthly increase in the available line of credit; it is the loan documents that govern the increase. ”

So what is the best way to present a HECM? Today, it is best if we plainly say what a HECM is. One friend says it something like this: “Friends, a reverse mortgage is a mortgage where you can pay fully amortized payments, interest only, a number you decide you can afford, or nothing at all. The reason is that NO ONE cares if you make any monthly payments. That is right NO ONE cares..No one is going to report you to a credit agency for not making a timiely monthly payment as well. But at the end of the loan whatever has not been previously paid must be paid at the end of the loan with interest and MIP.” Then he explains nonrecourse on a HECM and he does not even bother to mention MIP since as to the borrower, nonrecourse has nothing to do with the payment of initial or ongoing MIP. It is no different with proprietary reverse mortgages. What makes any reverse mortgage nonrecourse. First they are nonrecourse under federal law [15 USC 1602(cc)] and the loan documents themselves. The documents declare the related mortgage to be nonrecourse as that term is defined in those very same docments.

One thing that I did not like in the presentation was when the tern “lifetime annuity” appeared on the screen. No reverse mortgage other than an adjustabale rate HECM offers tenure payments which cease upon ternination of the HECM.

Yet I fully agree with Shannon, we have it all wrong.

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