If you’ve heard this once, you’ve heard it a thousand times: reverse mortgages – whether you’re discussing FHA-sponsored Home Equity Conversion Mortgages (HECM) or the growing array of proprietary options available – sophisticated financial instruments. It is because of this complexity that it can be difficult to properly communicate to borrowers not only certain rules and regulations, but also their own responsibilities for maintaining the good reputation of the loan.
This was the focus of a sales-focused presentation during the National Reverse Mortgage Lenders Association (NRMLA) Virtual Summer Meeting earlier in the summer, in which three reverse mortgage lending industry educators from two major lenders discussed how to properly educate borrowers about specific details they should know as they are more active in reverse mortgages.
The first part of the presentation – on the responsibilities of the borrower – was aimed at ensuring that reverse mortgage lending professionals convey both concreteness and clarity when it comes to maintaining a loan in good condition.
Responsibilities of the borrower: placement and maintenance of the house in good condition.
Most reverse mortgage professionals do not need to be reminded of the placement requirements that come with a HECM loan: in order to keep the loan in good condition, the borrower must occupy the house as their primary residence for most of the calendar year. …
However, some borrowers may feel that this means that their movement will be restricted to their home without the opportunity to take long vacations, which in some cases can last for months. This is not the case, according to Barbara Cripple, a sales coach at Finance of America Reverse (FAR) based in New Franklin, Ohio.
“Now, if a borrower has the chance to take a nine-month, once-in-a-lifetime cruise around the world, that doesn’t mean he can’t go,” she says. “But they would like to contact their loan agent to inform them of their absence from home.”
Communicating any potential disruptions in length of residence, or how the borrower’s movement towards service personnel may affect the annual employment check, is a very important detail that reverse mortgage lending professionals should strive to clearly communicate to the borrower, especially if the senior is active. which reaches the author in conversation. A proactive approach to communicating these requirements can go a long way when talking to a borrower early on.
Maintaining a property in good condition is also a key component of a reverse mortgage during the disbursement and closing phases, but borrowers may naturally have questions in terms of the day-to-day responsibilities they will have on these issues.
“When a loan is issued, an appraisal is made and any repairs necessary to bring the home to minimum ownership standards are decided either at closure or prior to closure. What about ongoing maintenance? The lender does not have the opportunity to drive by every house in his portfolio once a year just to make sure it is maintained. ”
Here, the borrower should be informed that the local government may participate in the program, which may include organizations such as the local health department. If such a body is to recognize a violation in relation to property on a specific issue, then the holder of the mortgage is notified of the violation, and in a reverse mortgage situation, the lender notifies the borrower.
“Since the lender has a real estate mortgage, if the health department issued the link, they would notify the mortgage holder,” explains Cripple. “This is how the lender finds out about the problem. In nine cases out of 10, these are minor violations, for example, the grass is too tall or taller than permitted by the local code. The borrower gets a haircut and everything is fine. However, if there is a hole in the roof and every time it rains outside, it also rains inside the house, that is a problem. ”
Property fees, fixed and adjustable flexibility
Associated property fees that the borrower must pay, including property taxes, homeowners insurance and in some cases Homeowners Association (HOA) fees, constitute a major component of what the borrower must maintain in order to keep the loan in good condition. … However, sometimes these more “typical” recurring payments may not be the only ones a borrower should be concerned about, Cripple explains.
“Now that we often talk about property taxes, we automatically think about property taxes and accident insurance,” she says. “But that is not all. They may have an association of homeowners with payment of HOA fees, condominiums, land rents, or land leases. They will need to keep them up to date as required by the loan. And don’t forget about other types of insurance that may be required, such as flood insurance, if they are located in the area where it is required. “
A reverse mortgage product has many options available to borrowers that offer different rates and repayment options that need to be adequately explained so that the borrower has a good understanding of all the options they can take.
She explains that a fixed rate option that is closed with a lump sum may be suitable for certain borrowers in some situations, but is quite restrictive compared to other adjustable rate options.
“This loan program has a lot more flexibility for your borrowers,” says Cripple of adjustable rate variations. “With a forward mortgage, the borrower may hesitate to take the adjustable rate, because if the rate went up, their monthly payment would of course be higher. However, if the interest rate on the HECM adjustable rate rises, you still have no payment to repay the HECM loan. ”
Instead, it affects the amount of interest charged on the loan and what will be paid back when the loan accelerates at maturity, she says.
“So, if the interest rate on the HECM loan rises, [the borrower’s] the payback at the end of the loan may be higher, but this will not affect their monthly budget. ”