Taking the Complexities Out of Reverse Mortgages

The art of explaining challenging reverse mortgage concepts to seniors starts without explanation….

It begins with patience, with a good ear, and with good questions.

Comfort, Trust, and Confidence before Understanding
Your average reverse mortgage customer is a female in her early 70s. For most of her life she may not have had to deal with financial matters because, as is common with her generation, her late husband handled those issues. She’s worried about reverse mortgage unknowns. She has questions, concerns, troubles, and struggles. She’s afraid. And she’s scared of being scammed by scam-artists who traditionally target elders. As a reverse mortgage loan originator, your first job is to calm the borrower’s fears and make her comfortable with the idea of a reverse mortgage. How do you calm her fears, gain her trust, and build her confidence in you? Consider the following measures:

  • Be extremely patient
  • Listen closely to what her concerns may be
  • Ask good questions
  • Don’t do all the talking
  • Have a conversation with your borrower
  • Involve her children or other trusted advisors (with her consent)
  • Offer solutions and reassurance
  • Emphasize the government’s relationship with the HECM

Only after you have calmed her fears and earned her trust and confidence should you even begin explaining program concepts and terminology. Otherwise, you can forget it. If the borrower is confused, if she doesn’t have trust and confidence in you, she won’t do it.

Know Your Stuff
To explain reverse mortgage terminology and concepts, you must know your subject.  You can’t explain what you don’t understand.

Since the consequences of failing to answer a borrower’s questions could include losing the deal, dissuading a prospect from ever considering a reverse mortgage, and impairing the program’s reputation, loan originators need to be prepared before meeting with seniors and their advisors. Seniors will ask questions that require a deeper understanding of reverse mortgages. Originators should study HECM credit and security instruments to gain a better understanding of the program. For example, a senior may want to know why there are two HECM notes, two mortgages (or deeds of trust), and one loan agreement. They may ask about the servicing fee set-aside (SFSA), the creditline growth feature, how the principal limit is calculated, and other unique aspects. You just have to know your stuff. Your program knowledge, coupled with your emotional skills, will work together to build trust and inspire confidence in you.

Pace Your Delivery, Use Metaphors
You have gained your customer’s confidence and trust. You have done your homework on the technical side. Now you are ready to present program information and answer questions. Stop. Take a deep breath. Presenting too much information too soon can backfire. Don’t dump all your information in 15 minutes; you will lose them. You should plan on sharing information over several meetings, in person or by telephone. And your method should be informal and conversational. Conversation makes them comfortable and able to relax. Besides a conversational approach, don’t be afraid to use metaphors to explain terms and concepts. Below are some examples:

  • FHA lending limit is a number set by HUD each year which limits the amount of home value that can be used to calculate loan advances from a reverse mortgage. The present limit is $625,500. If a home’s value exceeds the lending limit, then the computer calculates “as if” the home’s value is the limit rather than its true market value.
  • Net principal limit is a number calculated by the computer that is equal to the amount of available loan proceeds after closing costs have been deducted.
  • Total Annual Loan Cost (or TALC) is the government’s way of telling a borrower that if you plan on staying in your home for a short period of time (2-3 years or less), then a reverse mortgage can be expensive, because the closing costs are being spread over a shorter period of time. In essence, the longer you live in your home, the cheaper a reverse mortgage becomes because the costs are being spread over a longer period.
  • Service Fee Set Aside. Most lenders no longer charge a service fee set-aside, but it’s still important to understand what it is. Under the law, HUD allows servicers to charge a monthly servicing fee that ranges from $30-$35 to manage the borrower’s account once a loan closes. The SFSA is an estimate of what the total servicing fees will be over the life of the loan, by multiplying the borrower’s life expectancy (converted from years into months) multiplied by either $30 or $35. Although it’s not considered a closing cost, the SFSA can equal several thousand dollars, which is deducted from the available loan proceeds. A borrower does not have access to the funds, nor is interest earned.
  • Credit Line Growth. The unused balance in the line of credit grows. However, a borrower is not earning interest. The growth factor is taking into consideration that a home has appreciated in value over the past 12 months (even if it hasn’t) and that a borrower is one year older.

In essence, you need to explain to your clients that the government makes rules and controls events. Home values increase. Computers do magical calculations people don’t “understand.” Use what your clients already know as a reference point.

Three Key Questions
The art of explaining complex reverse mortgage concepts to seniors is actually the art of solving their problems. There are three questions originators should begin a meeting with: What would you like the program to do for you? What’s your problem? How can I help you?

Remember. We are in the business of solving people’s problems and changing lives.”