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7 Questions We All Should Be Asking


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[vimeo id=”110591586″ width=”625″ height=”352″]

The Art of Fact Finding with Potential Reverse Mortgage Borrowers

reverse mortgage newsThe federally insured reverse mortgage has gone through several permutations as regulatory scrutiny increases. In fact just recently it was announced the CFPB or Consumer Financial Protection Bureau will be focusing more on reverse mortgage lending practices. In the interest of best serving the needs of the borrower and protecting ourselves against future legal claims, each of us should reexamine the questions should be asking each potential borrower.

Here are seven questions each of us should be asking every potential borrower. 

1- Financial fact finding. Despite the fact a formal Financial Assessment has not been released, every loan officer should know the particulars of their client’s finances. Sources of income, expenses, pension survivor benefits, life insurance and any needs-based assistance received. While no one can forecast the future knowing your client’s current financial situation will reveal potential pitfalls and problems that the HECM could address in the future.

2- Long term goals. How long do they plan to remain in their home? Would they ever relocate to move near their children or grandchildren? What financial goals do they have and how would the reverse mortgage help meet them? Only by first uncovering their goals can we propose an intelligent plan that incorporates the HECM loan. .

3- Non-borrowers in the home. Do they have a younger spouse? If so be certain to…

Download a transcript of this episode here.

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  1. The 7 Questions we should all be asking video is not running and neither is the download of the transcript. When we select to download it is for the What we do Quietly Matters post.

    Just wanting to get the correct segment.

    • Thank you for bringing that to our attention. The correct transcript is available and ready for download.

  2. Went to download transcript but it was last weeks-What we do quietly.

    • Thank you for bringing that to our attention. The correct transcript is available and ready for download.

  3. transcript did not download correctly

    • Thank you for bringing that to our attention. The correct transcript is available and ready for download.

  4. Video works well for me. When meeting with clients in their home or the loan officer’s office, one can build a relationship with the client, review retirement funding sources and all the other topics mentioned in the video. And fom that, structure the HECM to enhance their lives. This depth is virtually impossible when the loan officer is in a Call Center. There is pressure by management to force a sale and get the most commission. These loan officers, no matter how good their intentions, will not be able to serve the client in the way the video suggests. The best thing that could be done for our industry would be to NOT allow HECM loans to be originated over the phone or on-line. They should be only done in person, face to face. Let me know what you think.

  5. As to Item 1., I am not sold on this approach. While the wealthy will generally have financial planners, it is unclear if the mass affluent necessarily will. Relying on the work of a financial adviser or planner in which work the HECM originator has no reason to doubt, should present no problems legally, ethically, or even morally. It would seem the first thing to be done is to ask if they have a financial adviser/planner in place and if so, if you as the HECM originator 1) can obtain a copy of a) the plan and b) current financial statements and 2) can call and ask questions about them. Determine if there is a statement of cash flows and if there is any projections for future cash flows and for what future periods while asking the adviser/planner for copies for all relevant documents.

    If there is no financial planner/adviser, make it clear you are not one but explain why you need basically the same data as a financial planner in trying to improve cash flow through a reverse mortgage. If the customer does not have a financial adviser or planner, recommend that the mass affluent customer obtain the services of a financial planner and have a few names readily available for recommendation.

    If you are still bound and determined to analyze the financial position of your customer, make sure you do not only a current budget but also projected ones over the approximate number of years that the borrower believes he or she will keep the HECM in place. Things like expected inheritance, contingent commitments, and other issues will come into play and are important considerations as are health issues and the ideas covered in the counseling Financial Interview Tool. Risk tolerance and assessment is also crucial. Financial planning interview protocol and questionnaires can be very useful in this regard.

    Unlike even counseling which has at least the standard of a computer program (BCU, i.e., the NCOA Benefits Checkup) to follow, we as an industry either have no standards or insufficient standards to rely upon for purposes of cash flow analysis, planning, or advising. You may believe that forming a simple overview of cash flow, etc. is not financial advising but since that industry has absolutely no legal standards except in some areas of product sales, you are treading on thin ice in making recommendations of any kind.

    While good intentions matter, when it comes to providing what turns out to be poor advice and 20/20 hindsight, the good intentions excuse sounds rather flaky. Fortunately individual members of the mortgage industry have not been held criminally responsible or civilly liable for the really bad advice they gave about residential mortgages before the crash but one wonders under Dodd-Frank and the SAFE Acts how originators will be addressed in the future.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

  6. IMO, until reverse LO training and certification is expanded to include personal financial planning we should restrict our “advice” to our clients to the asking of questions to prompt client reflection and the suggestion, in those cases where it is warranted, that our clients seek professional financial advice.

    • Mr. Warns,

      The only adjective I would add to your comment is that only after a reverse mortgage originator receives “competent” personal financial planning training….

      Over the last decade, I have observed HECM originators who were former life insurance salespeople who believe they are competent at financial planning discuss curing the former non-borrowing spouse issue through life insurance. Yet they do not seem to understand that when both spouse commute all ownership from joint ownership to the borrowing spouse alone, there are underlying divorce, separation, and possibly inheritance issues that immediately surface to which life insurance has no answer. Then you ask these same alleged planners questions about the borrowing spouse either no longer being willing to contribute (following transfer of the home to the borrowing spouse alone) to the life insurance or if the borrowing spouse is the owner of the policy changing beneficiaries to someone other than the non-borrowing spouse, they just shrug their shoulders. Such alleged planners are not competent when it comes to personal financial planning; otherwise, they would never promote life insurance as a complete answer by itself.

      For example, as to estate tax planning, most of us found ILITs to be a satisfactory investment vehicle but not life insurance alone.

    • As with all opinions I express, they may not necessarily be those of RMS or its affiliates. This applies to the reply to Mr. Warns as well.

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