Loan Origination: Preparing for The What Ifs ?

Loan Origination

IT'S 5:00 AM, MY CAR IS STOCKED WITH CONSUMER guides, materials for professionals, a variety of technology and needed chargers to keep me plugged-in throughout the day, plenty of coffee and, last, a loan application.

It's been nearly five years since my first contact with Debbie Young. Back then, her local banker called me to consider reverse mortgage benefits for her and her husband Mick. Like many retirees, Debbie and Mick had been doing fine. They had saved, budgeted and planned for their retirement. They owned a beautiful home on one of our pristine Minnesota lakes where they lived a life full of hobbies, family and philanthropy. But health issues and the associated (mounting) bills had changed their financial situation. At the time, eliminating their monthly mortgage payment would have given them the wiggle room they needed, plus a stand-by credit line ready for future shock events.

Mick had been an engineer during most of his working years, trained to anticipate (and hopefully avoid) any possible pitfall or defect by ensuring he had an understanding of every moving part. As you can imagine, he analyzed the workings of a HECM with the same critical view as he had examined schematics of jet engines for Boeing years ago. Mick needed to understand the details: “Show me where I can find information on the LIBOR rate and how it has performed historically.” “Explain how the principal limit and expected rate are calculated.” “What are the average property appreciation values (historically and currently) nationally and in my community?”

I was able to give Mick access to the technical details and supplemental literature to educate and satisfy his thirst for knowledge. He thanked me profusely for taking the time needed for him to feel comfortable and confident in his decision to proceed toward application.

Debbie, on the other hand, is a creative and social being, uninterested in the minute details. She was most curious about how the reverse mortgage could affect their future and ownership. She asked the more common questions we hear from our clients: “What happens if one of us dies?” “What if we’re no longer able to live here or need to move to convalescent care?” “Are we giving up ownership to our home?” And, “What the heck is a HECM?”

I showed Debbie how a reverse mortgage is similar to, and how it differs from, the traditional mortgage they have now. I ran several financial scenarios to show her the flexibility of payout options and how the product was designed to conform to their needs as they change over time (providing we have equity to work with). She was very pleased that she would have the option to supplement income and remain in the home for a while if Mick should pass away. “I can’t imagine what widows go through trying to handle all the bills and ongoing maintenance with less income while they’re also grieving the loss of their partner,” she said. I had no idea at the time how essential this statement of under- standing would be for Debbie’s future. After educating and speaking with the couple, their attorney, their banker and their children, the Young's scheduled their mandatory third- party counseling session with a HUD-approved and tested counselor as well as a time to meet with me to sign a loan application.

But just before our application appointment, their daughter and her husband decided to “rescue” their parents. They offered their own type of reverse mortgage for Mom and Dad: The family deeded the property to the kids, Mick and Debbie continued to live there, but now as tenants. The kids paid the mortgage payment and associated costs for the home, offering Mom and Dad the life they were accustomed to, no more monthly mortgage obligations, and instant liquidity. What a great family.

Four years later, I received a phone call out of the blue: "Well, Miss Passarelli, you won't believe who this is."

“Debbie?” I said. Who could forget her smooth, sultry voice fit for a stage in a jazz club?

Debbie spent an hour briefing me on how her life had changed since we last spoke. She had suffered a brain aneurism and her beloved Mick had passed away. Her daughter and son-in-law had begun divorce proceedings. Debbie had endured long months in physical and occupational therapy and many tearful days grieving Mick’s death. She’d recovered and decided she loved her life at the lake and wanted to age in place if she could. But things were “a little messy” now with her daughter’s marriage dissolving. Their family plan was no longer viable.

“I didn’t call you to depress you about my woes,” she said. “I wanted to see if there’s still hope for a reverse mortgage to continue my life as I know and love it here at the lake. I remember when you and I discussed that this might be a safe way for me to potentially stay where I am for a while if Mick should pass away.”

I’ve learned that the cycle of loans we originate can be years in the making. If Debbie hadn’t known about reverse mortgage as an option, she’d have been scampering to sell her home under duress unnecessarily, or feeling the pressure of possible foreclosure. I’ve seen prideful clients struggle for months and wait for a foreclosure notice before finding their way to me from a foreclosure prevention counselor. For homeowners who have a firm handle on their finances, this is an indignant survival approach to maintain stable housing. But when we have the opportunity to educate borrowers on their options, a reverse mortgage becomes a choice, rather than a last resort to “save” their home.

As an industry, our intent is to make sure that senior homeowners know a reverse mortgage is a viable financial tool that will prepare them for the “what ifs” life throws their way. Although we can offer an effective product of “last resort,” it works better if it’s already in place and available “on demand” when life throws a curve ball. Debbie would’ve been best served with this financing already in place. But just the fact that she knew it was an option gave her the comfort of knowing there was an available alternative to selling “quickly and desperately.”

I reacquainted Debbie with the mechanics of reverse mortgages and surprisingly, she had absorbed and retained most of the information we covered years before. “Tell me again what I do when I decide moving is the right choice for me. How exactly do I do that with a reverse mortgage?”

I showed her how her payoff would be calculated, that her home could be sold with the same steps involved as if there were any other type of mortgage on her home, and how her proceeds from the sale could be used as a down payment on the next chapter of her life. I also explained how a reverse mortgage could help her finance that purchase. She was thinking she may want to purchase a condo in Florida near her closest friend from college.

“That sounds like a great plan!” I told her. “Ocean view, no more hard winters and an association to handle the maintenance. Sounds lovely!”

After reviewing her income, mortgage balance, estimated property value and current budget, it appeared that a reverse mortgage could supplement her lifestyle for an additional eight years or more. “Eight years! That’s a blessing,” she said.

“And the equity you’ve retained can be used to help you buy that condo in Florida,” I explained.

“You’ve given me the peace of mind I needed and I’m thankful I don’t have to sell my lake home today. What do we do next?”

First step: Unravel the family plan and put Ms. Young back in the driver’s seat.

After months of work on her part, Debbie is once again an owner and trustee, as opposed to a tenant. The property she has enjoyed for 20 years as a mother, grandmother, wife and now a widow, is in her name again. She has been counseled and is excited to be moving forward. For a woman who "never handled the finances," I'm proud of all she has accomplished in just a few short months to make a reverse mortgage possible.

On the day I plan to reconnect in person with Debbie, I spend my morning, training the staff of a small community bank in reverse mortgages, scamper to a kitchen table meeting with another couple referred to me by a financial planner to review their reverse mortgage benefit summary and discuss options for their family, then lunch with the referring financial planner to update him on his client and our industry.

At 2 pm, I pull into Debbie Young's driveway for her application appointment. Before I can open my car door, Debbie and Buster, a 100 lb. Burmese Mountain dog, are charging towards me from the house. She greets me with the kind of hug you get from a grandmother—too tight, too long, but full of genuine hospitality. As we walk through the door the hot dish she made to take to church tonight smells amazing. Her beautiful home looks exactly as I remember: a modern cabin built to exploit every possible lake view and brimming with memories of vacations, family and hobbies. However, her master bedroom has transformed to accommodate her latest form of philanthropy — gift cards for those in the hospital or convalescent care to give to others.

“I’ve found when I’m down and out, what makes me feel best is giving. For the folks who are in facilities for a short stint or indefinitely, life outside is still happening! They feel empowered and connected when they can send a congratulations card to a niece who had her first baby, or to a friend who’s grieving,” says Debbie.

I think Debbie Young is remarkable. I’ll pen a letter of explanation for the underwriter who’s sure to question why the master bedroom looks more like a Hallmark store than a place for slumber. I’m guessing sleeping in the guest room is where she’s most comfortable for a while. She shows me to Mick’s office above the garage, where he ran his golf club exchange business for years. She hasn’t been up there since his death and shouts from the bottom of the staircase, “I hope it’s presentable for the appraisal, I’m really not ready to re-purpose that room yet.” I reassure her it looks great.

We eventually settle in at her kitchen table overlooking the lake to sign her loan application. She tells me about her fun group of friends who’ve gathered at that very table for dinner every month for 15 years. She points out the nest where a pair of loons raise a family every summer. She shows me which chair she sits in for the best vantage point to watch the sun rise. In her buttery voice Debbie says, “Is it hard to see why eight more years here would be a blessing?”

“Not at all,” I reply.