It’s a fact every salesperson and reverse mortgage professional must embrace- the vast majority of consumers inherently distrust sales people. Will recent HECM changes help bolster the product’s legitimacy in the public eye?
The irony is that every major purchase from buying a home, a car or investing in your retirement entails working with a sales professional. The same applies to reverse mortgage professionals who approach a distrustful public. Further compounding this general skepticism are products whose unique features are highly advantageous leading many to say ‘if it sounds too good to be true, it probably is’. The good news is that recent changes to the federally-insured reverse mortgage may have helped us close the credibility gap.
The credibility gap is rooted in the consumer’s distrust of a salesperson’s motives, education, and product knowledge. However some products, regardless of how legitimate lend themselves to skepticism. While much of the early reverse mortgage loan volume could be attributed to the needs-based-borrower who lacked assets outside their home equity, many chose to postpone or forego getting the loan altogether. How many declined getting a HECM fearing the benefits sounded just too good to be true? Before the Financial Assessment, lending guidelines were very generous only considering the borrower’s age, equity, and property condition. The old guidelines would be akin to someone getting a car lease that added more free miles each year of the lease- all without having to prove your income or credit worthiness or even making a monthly payment. Would you be skeptical?
It can be argued that recent changes to the Home Equity Conversion mortgage, while challenging for lenders, may actually help improve the loan’s reception and close the credibility gap. The Financial Assessment raised the bar of entry excluding homeowners with a questionable credit history and late tax and insurance payments. While the process can be burdensome for applicants it’s unintended effect is that while often unspoken, homeowners often see increased legitimacy in a product that has standards to qualify. Case and point, homeowners with documented income and a respectable credit score instinctively avoided the questionable ‘no-doc’ subprime loans though they may have been easier to obtain.
The fastest round of HECM changes considerably slowed how quickly the line of credit grows over time. The benefit remains, yet it’s much easier to believe with more moderate projections of the homeowner’s future borrowing power. In addition the HECM’s credibility was further boosted by the removal of the once punitive 1.25% ongoing FHA insurance being reduced to a more reasonable .5% rate which is less than the premiums paid by most traditional FHA mortgage borrowers today.
Recent reverse mortgage changes do reduce the number qualified borrowers but also may increase the likelihood of skeptical homeowners taking the loan who may have previously questioned previous liberal underwriting standards, generous benefits and ultimate access to future funds.