Single out most any neighborhood in America and even a casual drive around will feature foreclosure signs.
The scourge of foreclosures is rampant across the nation, yet some seniors can avoid losing their homes by taking out a reverse mortgage. Pursuing a "save the home" strategy with a reverse mortgage has its challenges, however. Some lenders have compared making such reverse loans to pro-bono work, considering all the time required. But that has not discouraged them from helping seniors in need. There are ways to smooth the process.
The first step is getting seniors to simply acknowledge their challenging financial circumstances.
Many seniors believe that it’s un-American to be foreclosed upon and that no one will ever take their home away from them, so they bury their heads in the sand. They ignore foreclosure notices and they think that it will all just go away.
Seniors sometimes live in denial about their dire financial state. You should pose pointed questions during initial conversations like, “How long have you lived in your home” and “Do you want to remain in your home?” to get seniors to open up about their finances. Ask the client whether they would like to have a trusted advisor present during the discussions so that they may talk more freely.
Once the senior decides to use a reverse mortgage to avoid foreclosure or bankruptcy, you should:
- Discuss the role of counseling and provide a list of counseling agencies they can contact;
- Execute the Home Equity Conversion Mortgage (HECM) package and submit it to FHA;
- Obtain conditional approval for the reverse mortgage; and
- Supply clients with a letter, which describes the “Good Faith” estimate and loan comparison, as well as request a short pay-off.
It’s the short pay-off that is the tough part. In order to shake a borrower from foreclosure, the reverse mortgage lender must free the property from the past-due forward-mortgage lien. The question is, how?
The negotiations between you and the forward lender invariably boils down to how much less than the full balance will the company accept to end the foreclosure proceedings – a discount known as a short pay-off.
Short pay-off negotiations are, by all accounts, time-consuming and frustrating, but there are strategies that increase the likelihood for success.
Even before negotiations start, you must find the right person to speak with. It’s not always an easy task, which is why you should understand the senior’s situation even before making that first call. For example, knowing from the conversations whether the senior believes he or she was the victim of an inappropriate mortgage in the past is crucial. A forward lender is more inclined to consider a reverse mortgage pay-off if the senior even hints at being a victim of overaggressive lending.
Once you finds the right person with which to discuss a pay-off, the negotiations begin. To help convince a forward lender to agree to a short pay-off, you, or someone acting on behalf of the senior, should call the forward lender every day, advocating the need for a mortgage discount. In part, these calls will need to educate the forward lender about reverse mortgages and short pay-offs.
A forward lender contemplating a short pay-off will request certain documentationr, such as two recent bank account statements, tax returns, a conditional reverse mortgage approval document, reverse mortgage benefit summary, a recent mortgage statement, and an FHA appraisal.
Much like the language barriers, the heavy dose of time required to negotiate a pay-off is another frustrating challenge. Closing such loans requires triple the time of a standard reverse loan origination. Having an attorney contact the lender may go a long way at getting something done, as opposed to having a reverse mortgage loan officer contact the lender.
By some estimates, there is a 30% chance of closing a reverse mortgage loan for a senior facing foreclosure or bankruptcy. Yet, the more forward lenders know about reverse mortgages, the higher the close rate on such reverse loans will go. In fact, the attorney general of the State of Illinois has a hotline for seniors to call (866-544-7151) to learn more about how reverse mortgages can be used to avoid foreclosure.
There are lots of ways to try to get the word out there, and it certainly paints an excellent picture of how and what the reverse mortgage industry is all about.