Saying no is seldom easy, even if a situation warrants it. In the mortgage sector, that scenario plays out when lenders advise seniors who are banking on reverse mortgages to solve their financial problems that they should pass on a deal or say that it can’t be done at all.
“This is a fragile demographic we serve,” says David Levitt, president and chief executive of Circle Mortgage Corp. in Hollywood, Fla. “When we sit before seniors, we realize how important the reverse mortgage product has become to them. But all of us have been entrusted to protect them.”
Despite the difficulty, suggesting that the costs of a deal outweigh the benefits comes with the territory. “Saying no is never easy, but it’s our job,” says Sarah Cavanaugh, 1st Reverse Mortgage USA, in Maple Valley, WA.
Mortgage lenders must explain all the important aspects of a proposed transaction, including details that a customer would rather not hear.
“Our responsibility is to put all the cards on the table and explain the rewards and benefits of a particular transaction, as well as explain the downside,” Levitt says. Before responding to a potential customer’s request for a reverse mortgage, one of the most important questions a loan officer should ask is: “If this were me or if this were my mother, would I want to proceed with this transaction?” says Cavanaugh.
Do No Harm
Lenders should adhere to a creed espoused by many other professionals: “Do no harm,” says John Lucas, a reverse mortgage professional with Open Mortgage Corporation in Fresno, CA. “We’re here to serve the senior and to help them understand the product and how it will affect them. We have to make sure that the product is right for them.”
In some cases, there is little alternative but to turn down the deal. Lucas tells of a woman, referred to him by an elder law attorney, who was maxed out on two or three credit cards and whose creditors were preparing to file judgment. “She was in dire straits,” says Lucas.
The problem was not simple. Upon investigation, Lucas found the reason the woman owed so much on her credit cards was that she had allowed her son to use the cards to finance the buying of drugs.
Even if Lucas helped her obtain a reverse mortgage to pay off the card debt, he was concerned she would allow her son to ring up more debt.
“She needed to understand that she could no longer let her son take advantage of her,” he says. “But we could tell by talking to her that we were not getting through to her. She kept saying how she had to help her son.”
It became clear to Lucas that he would not be helping the woman use equity in her home to pay off her credit card debt. “Unless she stopped allowing this abuse, she’d be right back to the situation that created this problem,” says Lucas. In the end, the elder law professional notified senior protective services about the problem.
When Not to Say “No”
Other times, however, the answer is less clear-cut. Rather than saying “no” outright, the loan officer should explain the ramifications and let the customer make the final decision.
“It’s our job to lay out the various products and help them identify the best choices based on their short-term and long-term needs,” says Cavanaugh. “We have to give them the tools to choose the right product. The keys to long-term success in this business are not in dropping the largest direct-mail campaign or in taking out the most TV or print ads or in sending out CDs. You gain success by doing what is right by your customer, so that you have a happy customer who will refer business to you.”
Mortgage lenders should always advise potential clients of a deal’s downside. “In many cases, it is not a matter of saying, ‘Don’t do it,’ but rather saying, ‘Here is what you will owe in 12 months and in five years or 10 years,” says Levitt. “‘Do you still think that this transaction makes sense?’”
Client opinions don’t have to match lenders’ views, as long as all the facts have been presented. Lucas tells of a client in his 90s who had a $500,000 home and had used up his line of credit. He was looking at a transaction that would generate about $30,000 in cash, but would incur about $12,000 in closing costs. On the surface, it looked like a bad deal for his client.
“I told him the costs of the deal were too much for the money he would get,” Lucas says. “But he points to his missing teeth and says, ‘I need teeth. An implant is going to cost $22,000, and I don’t have dental insurance. I don’t care what it costs. I need teeth.’ My job was to tell him all the facts, but to this man, the transaction was not too expensive. Expensive is in the eye of the beholder.”