We’ve all seen the commercials starring actors like The Fonz (Henry Winkler) or Fred Thompson (actor and politician) that extoll the virtues of reverse mortgages for Americans over 62 who own a home and who need cash flow!
The commercials address concerns that both the homeowner and potentially the homeowners children may have about this product including the mistaken impression that the borrower can be thrown out of their home or that they are giving up ownership of what is likely their most valuable asset.
And, as is the case with any product that may be somewhat outside of the mainstream, there are many other misconceptions and general lack of consumer knowledge and awareness that has had the effect of keeping this market from growing to anywhere near the size that it likely could.
So what is an industry to do in order to better market a product that could potentially help change the lives of such a large segment of the American population who for one reason or another are not particularly motivated to learn more about it?
From personal experience I would say that the issue is not a lack of advertising as I am sure that most who read this article have seen the following commercial many more times than once or twice.
In an article by The Mortgage Professor, the author provides some ideas for the industry.
…4 market needs:
- A good information source on how the different HECM options can be used to meet one or more senior needs.
- A reliable and easy-to-use calculator enabling seniors to determine the specific amounts of any particular HECM option, or combination of options, that are available at their current age with their current home equity.
- Personalized guidance on HECM options, made available to seniors prior to their contacting a lender.
- An effective on-line market in which seniors could be confident they were not being ripped off.
Matching HECM Options to Senior Needs
One of the valuable features of the HECM reverse mortgage is that it offers multiple options for drawing funds, which can be used singly or in combination to meet a wide variety of senior needs. The bad news is that this is not well understood and exploited. The good news is that this deficiency has already been remedied.
Providing a State-of-the-Art Calculator
Understanding how the different HECM options can be used to meet different senior needs is one thing, knowing the amounts that can be drawn and whether they will be sufficient, is something else. The amounts available depend on the value of the home, the senior’s age, the interest rate, upfront fees, and any mandatory expenses of which the most important is repayment of existing mortgage debt on the senior’s house. In addition, the draw available on any one option depends on how much is drawn of other options.
Generating this information requires a calculator that incorporates many complex regulatory rules, and yet is easy to use. We checked the web sites of the more than 200 members of NRMLA, the trade group, and found none that fill the bill. The only calculator that tries to do it all is the one provided by NRMLA itself, which is available at www.reversemortgage.org.
The NRMLA calculator is good but incomplete in not showing the potential for term monthly payments, or projected results for future years. Furthermore, it has all the hallmarks of having been constructed for lenders, using terminology that few seniors will understand. Hence, my colleagues and I decided to construct our own with an eye to making it both complete and more senior-friendly. It is available at Professor’s HECM Calculator.
We will make the calculator available free of charge to any HECM lender to place on their web site. The only proviso is that the lender also posts its prices with us so that borrowers can compare the prices with those of other lenders.
Providing Pre-Lender Personalized Guidance
Many seniors will be frustrated by even the most user-friendly calculator it is possible to design. They need personalized guidance on their HECM options and whether or not they want to proceed, which is best provided by someone who is not trying to sell them a HECM.
Under current law, before executing a HECM contract, a senior must be counseled by an independent party unconnected to the lender. While seniors can seek such counsel before contacting a lender, in practice they almost always contact a lender first and the lender provides them with a list of counselors. In good part, this defeats the purpose of the rule.
A major reason why borrowers don’t get counseled before they see a lender is that counselors don’t provide guidance on specific HECM options, HUD rules discourage it, and in any case counselors don’t have the tools to assess specific options. To find out how much they can draw, which is the first question seniors generally ask, they go to a lender. (Source)
If you have any questions let us know at firstname.lastname@example.org and we can put anyone in touch with a reputable reverse mortgage specialist!