NRMLA's president says the product is easier to add than most brokers expect, and the demand is already there
Experienced mortgage brokers know that it takes a wide range of product offerings to cover all the possible scenarios their clients might bring through the door.
One product that doesn’t get the same level of adoption as others is a reverse mortgage, also known as a home equity conversion mortgage (HECM).
For those who don’t use the product or have been told that the product isn’t the best option for seniors, they could be missing a solution that may be the only path forward for older customers on fixed incomes. Some have been told the product is too complicated, too niche, or only suited to a very specific type of borrower.
The reverse mortgage market is growing, and the borrower pool is expanding. For brokers who work with older clients and have not yet looked at reverse mortgages, the president of the National Reverse Mortgage Lenders Association (NRMLA) said this may be the perfect time for brokers to take a second look.
Steve Irwin (pictured top), president of NRMLA, said the most common thing brokers discover when they finally look into reverse mortgages is that the product is more approachable than they expected.
"It's actually an easy loan product," Irwin told Mortgage Professional America. "There's no additional licensing required. When added to your product suite, it actually helps you capture your customer for life. There are borrowers who are aging into these products. And to be able to offer them a product which may provide their own current customers comfort and financial comfort in their retirement is a key consideration. It's an additional source of revenue for loan officers and for branches."
Reverse mortgage misconceptions
Irwin said several misconceptions come up repeatedly when he talks to brokers who have not yet added the product.
He said one of the most common is that reverse mortgages are only for borrowers who have exhausted other options, a framing that misses how the product is increasingly being used.
"One common one is that reverse mortgages are only for needs-based borrowers," he said. "That is not the case at all. It can be part of a strategic retirement financial plan and can be easily utilized that way."
Irwin said another misconception is that borrowers must own their home free and clear to qualify. The reverse mortgage does need to be in a first lien position, he said, but borrowers can and do use reverse mortgages to pay off existing first mortgages as part of the transaction.
The third misconception, according to Irwin, is that the product is only for homeowners who want to stay in their current home, when reverse mortgage products can be used to purchase a new home.
He said a fourth misconception matters most from a client conversation standpoint. Because reverse mortgages are negatively amortizing, the balance can grow over time.
"Brokers need to understand that reverse mortgages are non-recourse loans," he said. "If at some point the balance owed exceeds the home value at time of payoff, it's only the value of that property that's going to pay off the loan. The heirs of the estate are not going to owe any additional money other than the value of that property at the time of death."
How the product works
Irwin said brokers also need to be comfortable with the basic product mechanics before they can present the option confidently to a client.
Reverse mortgages do not require monthly payments and carry the same Federal Housing Administration (FHA) appraisal requirements as traditional loans, with the loan-to-value determined by the interest rate, the home value, and the age of the youngest borrower, meaning the older the applicant, the higher the percentage of value that can be accessed. Private-label products now extend eligibility to age 55, and the unused portion of a HECM line of credit grows over time.
"That unused line of credit increases over time," he said. "As the borrowers age, that unused portion of the line of credit will increase. It's just more borrowing power if needed over time."
Irwin said the adoption picture is improving as originators understand the product better. More than 1.3 million households have used an FHA-insured reverse mortgage to date, according to NRMLA, and FHA-insured production has been relatively flat in recent quarters while interest in proprietary products has grown steadily as more non-bank options enter the market.
"A lot of brokers think these are complicated products or that they're expensive products," he said. "As they learn more about them and start offering some of these additional products, they come to understand that they're an easy loan to add to their suite of products."
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This article is part of our Monthly Spotlight series, which in July focuses on reverse mortgages and refinances. Full coverage can be found here.
