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   ARTICLE   |   From Scotsman Guide Residential Edition   |   November 2013

You’ve Got Choices in Reverse

Find the best way for you to originate reverse-mortgage loans

In the past few years, there have been many changes that influenced how mortgage brokers and originators work with reverse mortgages, aka Home Equity Conversion Mortgages.  For example, until 2009, loan correspondents — i.e., third-party originators (TPOs) who include mortgage brokers — had to be approved by the Federal Housing Administration (FHA) to work in reverse-mortgage loans. Since this approval requirement was removed, the door has been opened for brokers to add reverse-mortgage loans to their portfolios with varying degrees of responsibility.

To understand this change, it is important to take a look at the two ways that TPOs could originate FHA reverse mortgages previously. The first was to become an FHA-approved loan correspondent (mini-eagle), and the other way was to be a non-approved originator (mortgage adviser). In the mortgage-adviser program, the U.S. Department of Housing and Urban Development (HUD) would allow non-approved loan correspondents to work with an approved loan correspondent or with an approved lender (full eagle).

When HUD decided to open the reverse-mortgage program to any properly licensed TPO, the onus for approval of originators was shifted from HUD to approved lenders. With this change, the choice for TPOs has been either to become an approved FHA full-eagle lender or be approved by a wholesale reverse-mortgage lender and process loans fully through that lender. Of course, there is also the option of just referring the loan to someone else.

Reverse origination

How hard is it to originate reverse mortgages? As far as figuring out if someone can be approved for a loan, it’s pretty straightforward. Just plug the numbers and dates into a reverse-mortgage calculator and you’ll get the answer.

But in reality, it’s not as easy as it sounds. Experienced reverse-mortgage brokers may tell you that the difficult part lies in the requisite knowledge and experience, which makes a huge difference to borrowers, as well as their family members and trusted advisers (attorneys, certified public accountants, financial planners, etc.). The process of working through the details with these interested parties requires a great deal of patience and can be time-consuming.

Reverse-mortgage loans sometimes can move to closing quickly. In some instances, however, they can take months or even longer. That’s why going into the reverse-mortgage space doesn’t require only sales skills, but also requires a completely different approach to the origination process. It’s more of an educational sales approach in which knowledge is delivered to borrowers via numerous discussions.

A critical decision

It’s important to understand how critical this loan is to your clients. It is probably their last mortgage loan, and if you do your job right, the money that they get from the reverse mortgage will work for them over the span of their lifetime. That’s why you should make sure that they remain financially safe and secure for as long as possible.

Ask questions and learn as much as possible about your borrowers’ finances and how they’ll make ends meet today and in the future. Today’s seniors have a great deal to worry about. Rising costs for food, health care and utilities coupled with dwindling savings and longer life spans equal less money to cover their needs. With your knowledge and experience, you should be able to inform clients about the pros and cons of taking a reverse mortgage, but it’s also vital to let them make the final decision.

Responsibilities

Although some lenders provide guidance and processing services to help TPOs originate reverse mortgages, TPOs still have to talk with borrowers, their families and advisers. Even when you’re getting help from lenders, you still have to explain the product and know the benefits and different choices. These discussions also should delineate the application process and explain the required documents.

Additionally, TPOs should help their clients get their documents together, including their trusts (if they have one). Helping your clients close the loan and understand the closing documents is a key part of the overall loan process. The advantage of getting assistance from lenders is that you’ll have experienced people to help with the paperwork and provide you with advice along the way, should you need it.

There is one more option for adding reverse mortgages to your portfolio. This option requires a full broker approval, but nearly all of the work is done for you. In this case, you will work with an experienced expert who talks with your borrowers and others, helps get the applications completed, processes the loans, and closes them. You still get paid, however.

•  •  •

Which reverse-loan process is right for you? It depends on your business model and what you want to specialize in. If you have decided to make reverse mortgages a significant part of your business, try the full do-it-yourself program. If you have never done a reverse mortgage before, you might want to start with seeking assistance from lenders or experts until you get a couple of loans done and begin to learn the ropes.

For originators who have no intention of going after this market but still receive an occasional request for a reverse mortgage, seeking out the help of an expert is the way to go. You still get paid and remain focused on what you do best. The choice is yours and you should be thankful that you’ve got choices. 


 


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