Choose a Reverse Mortgage Pro. Two Great articles
When a mortgage borrower selects a lender with whom to deal, the identity of the firm is much less important to the borrower than the identity of the individual loan officer (LO).
Realtors have always understood this. In looking for the smoothest possible financing process, they refer home purchasers to an individual LO, not to a firm. If one of the LOs they use moves to another firm, the Realtor usually will follow.
This suggests that an easy way for a home purchaser to select an LO is to follow the recommendation of their Realtor, and without doubt you could do worse than following that rule. But you might also do a lot better because the Realtor’s criteria for selecting LOs are not the same as yours. The Realtor wants an LO who will get the loan processed in time for the loan to be available on the settlement date, and you want that as well. But you also are very much concerned with the price of the loan, and with the quality of decision support you receive: what type of loan and what combination of interest rate and upfront fees best meets your needs. These issues are of little interest to the Realtor.
The problem is that the typical borrower has no reliable way of determining which LOs do well in providing these services, and which don’t. I have long tinkered with the idea of providing a certification process for LOs, and finally have one in development that should become available early in 2014. In the meantime, it occurred to me that it might be helpful to prospective borrowers if I explained what will go into the certification process. Astute borrowers can do their own certification.
Certified LOs will offer price integrity and quality decision support, which are discussed in turn.
Price Integrity Price Completeness: For prices to have integrity, they must include interest rate, upfront charges expressed as a percent of the loan, called “points”, and upfront charges expressed in dollars. On adjustable rate mortgages (ARMs), they must include the margin, index value, maximum and minimum rates, and rate change caps. It is not unusual for LOs quoting prices to omit fees expressed in dollars, and omitting important ARM features is more the rule than the exception.
Posted Prices: Mortgage prices have integrity only if they are the lender’s “posted prices” — those at which the lender is actually prepared to lend at the indicated point in time. Lenders distribute their posted prices every day to all LO employees through a variety of electronic systems. Borrowers seldom have access to these systems.
Actual prices may differ from posted prices at two critical points in the loan origination process: the point where a price is quoted to a shopping borrower, and the point where the price is finalized or “locked.”
Price Quotes to Shoppers: The prices quoted to shopping borrowers are often used to select an LO. In many such cases, the shopper selects not the LO with the best posted price but the LO who is the biggest liar. The temptation to “low-ball” quoted prices is difficult for many LOs to resist.
- They can’t be held to the price quote because prices are not final until they are locked, by which time the market will have changed. Lenders post new prices every day, and sometimes within the day.
- Prices depend on numerous features of the loan transaction, including credit score, ratio of loan balance to property value, type of dwelling, and type of occupancy. The LO looking to land a client, who is asked for a price quote by an impatient shopper who doesn’t volunteer this information, will often assume the best: that all the loan features are such as to justify the lowest possible price quote. If this assumption turns out to be wrong, which is more often the case than not, the quoted price is too low and will have to be revised. By the time that happens, however, posted prices will change, wiping out evidence of the deception while providing the LO with a way to explain the price change.
- Some borrowers opt for 30-year fixed-rate mortgages (FRMs) for no other reason than its popularity, without considering the possibility that an adjustable-rate mortgage (ARM) would reduce their interest cost over the period they are likely to have it.
- Some borrowers opt for ARMs for no other reason than their relatively low initial monthly payment, without considering the risk of future payment increases
- Some borrowers select the rate/fee combination that involves the lowest upfront fee without considering what this will cost them in higher interest payments down the road.
- Some borrowers fail to take advantage of their transaction being close to a pricing “notch point”, where a small reduction in the loan amount or increase in fees will reduce their interest rate.
- Strangest of all, some borrowers select an FHA over a comparable conventional mortgage, disregarding that the FHA is more costly.
We have confronted the challenge by developing a unique decision-support program with the following features:
- It calculates the total cost to the borrower of each type of mortgage, and each combination of interest rate and upfront fees, over the period the borrower expects to have the mortgage.
- Costs incurred at different times are adjusted for the time value of money.
- Tax savings and amortization are deducted from total costs.
- On ARMs, costs and payments are shown for both “no-change” and “worst case” scenarios.
- Because comparative results in many cases depend on how long the borrower has the mortgage, which few borrowers know for sure, the program makes it easy to see how changes in the period affect the results.
To be certified by us, LOs must master the program, must inform borrowers that the program is available, and must offer to guide them through it. Some borrowers will refuse, but those who want expert help will be assured of receiving it.
While the certification process has not yet begun, the program is freely available on my web site to anyone. Resourceful borrowers can access it on their own, and those who want to work with an LO don’t have to wait for my certification. They can ask any LO they approach to work through the program with them. If the LO says no, that should tell you something about the LO.
You’re retired, have solid equity in your home, and have been seeing ads for reverse mortgage, or HECM (home equity conversion mortgage). You’re thinking this might be beneficial for you now. How do you go about choosing the right professional to assist you?
Here are six guidelines for selecting a reverse mortgage originator (also known as a loan officer):
#1: Experience. In any field, experience is primary, and nowhere is this more crucial than when it comes to your home and financial security. Ask how long the reverse mortgage professional has been doing this type of work, and note from their response whether he or she seems to enjoy it.
A corollary to the above: is reverse mortgage lending all this person does? You want someone who has a passion for serving seniors, and who will be focused on you — not someone who’s dividing their time and attention between other types of loan activity. Because reverse mortgage is unique, it requires a dedicated specialist. After all, you wouldn’t consult a foot specialist for a hearing problem, right?
#2: Education. Like other professions, the reverse mortgage field has licensing standards. An NMLS (Nationwide Mortgage Licensing System) number tells the consumer a reverse mortgage originator has “passed a background check,” so to speak, and is generally competent to handle loan transactions. Another measure of education is how well the professional knows the history of the reverse mortgage industry, and can explain how this impacts you as a potential borrower today.
You’ll also want to ask about continuing education. Someone who has earned their CRMP designation — Certified Reverse Mortgage Professional (NRMLA) — has demonstrated superior knowledge and competency in the reverse mortgage field, and is dedicated to upholding the highest ethical and professional standards.
#3: Reputation. Business, like life, turns on relationships. Ask your prospective reverse mortgage originator which professionals in the community can recommend them. Financial planners, elder law attorneys, CPAs and senior care providers are all good sources who can potentially speak to a loan officer’s reputation.
#4: Resources. You want to be sure the company you choose can meet your needs. Ask whether they offer a variety of reverse mortgage products, such as both the Traditional (Standard) and “Saver” HECM, as well as fixed and adjustable loan rates. A full portfolio of products gives you more options for making the best choice for your specific situation.By the same token, ask, “How large is your organization?” While you don’t need to deal with a huge company, you do want the group you select to have a consistent track record of closing loans and handling consumer needs.
#5: Service after the sale. A reverse mortgage, by its very nature, implies an ongoing relationship. Ask, “What’s your policy after the sale is complete? Will you be available to answer any questions I may have, and later for my children if they need help selling the house?” Ideally, the company you choose will have been around long enough to have assisted the families of those who’ve purchased a reverse mortgage, once it’s time to pay back the loan.
#6: Planner vs. Product Promoter. As noted above, you’ll do best with a loan officer who cares deeply about seniors and is focused on the big picture: your income, your expenses, your health, how long you plan to remain in your home, etc. — all of which helps to shape the type of product you choose. A reverse mortgage professional whose first concern is senior service will be your partner in making a wise financial decision.
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