Home Savers: How to Help Seniors Sidestep Foreclosure With a Reverse Mortgage
Single out most any neighborhood in America and even a casual drive around will feature foreclosure signs.
The scrooge of foreclosure is rampant across the nation today, 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.
"Most seniors believe that it's un-American to be foreclosed upon and that no one will ever take their house 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," said Pamela Kirkpatrick, senior vice president at Allied Mortgage Group Reverse Ultra in Dania Beach, Fla., during a recent NRMLA webinar.
Because these seniors usually live in denial about their dire financial state, Kirkpatrick suggested that loan officers pose pointed questions in initial conversations like, "How long have you lived in your home" and "Do you want to remain living in your home?" to get seniors to open up about their finances. She also advised that lenders ask seniors whether they would like to include a trusted advisor in these financial discussions as a way to get the senior to talk more freely.
Once the senior decides to use a reverse loan to avoid foreclosure or bankruptcy, a loan officer should:
- Explain to the senior about the reverse mortgage counseling requirement and provide the senior with a list of counseling agencies to receive the education;
- 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 from their lenders.
It's the "short pay-off from the senior's lender" 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 negotiation between the reverse mortgage officer and the senior's existing forward lender invariably boils down to how much less than the full balance will the forward lender 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 for increasing the likelihood of a deal with forward lenders.
Even before negotiations start, the reverse mortgage loan officer must find the right person to talk with at the senior's forward loan provider. And that's not always an easy task, which is why Kirkpatrick suggested lenders secure a better understanding of the senior's situation even before making that first call. For example, knowing from those conversations whether the senior believes he or she was the victim of an inappropriate mortgage in the past is crucial, Kirkpatrick said. She said a forward lender is more inclined to consider a reverse mortgage pay-off if that senior even hints at being a victim of overaggressive lending at the hand of the forward mortgage provider.
Once the reverse officer 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, Kirkpatrick recommended that the reverse officer, or someone on behalf of the senior, call the forward lender everyday, advocating a senior's needs for a mortgage discount. In part, these calls will need to educate the forward lender about reverse mortgages and short pay-offs.
The forward lenders "are speaking in their language and not reverse mortgage discount language," Kirkpatrick said.
A forward lender contemplating a short pay-off will request certain documentation from the senior, 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 for reverse loan officers. Kirkpatrick estimated that closing such reverse loans requires triple the time of a standard reverse loan origination. Both Kevin McNichol at Largo, Fla.-based mortgage broker Freedom Retirement Trust, and Kirkpatrick equated negotiating short pay-offs to pro-bono work and even advised reverse officers to find pro-bono attorneys to handle negotiations with forward lenders.
"I have to think that having an attorney contact the lender is going to probably go a long way at getting something done, as opposed to having a reverse mortgage loan officer contact the lender," said McNichol during the webinar.
The pro-bono analogy is literal; McNichol and Kirkpatrick said there is little money to be made on foreclosure-saving reverse mortgages.
Kirkpatrick estimated 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 now 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," said McNichol.