A trend toward increased debt in general on the part of borrowers becoming eligible for reverse mortgages is something lenders that want to stay the course in this niche have to adapt to, and two veteran originators now entering the funding business believe the answer lies in careful underwriting.
“The newer baby boomers coming in have a lot more debt than 62-year-olds 10 years ago,” said Mario Martirano, who has been involved in the reverse mortgage business since the first deal in 1993, and recently for the first time began working directly for a nonbank lender entering the product niche.
“I think the burden is on the lenders to make sure things are being done right,” said Martirano’s longtime business partner Alex Farber. “Of course the consumer’s got to be accountable as well.”
Farber and Martirano’s previous company, Agency for Consumer Equity, recently merged with Residential Home Funding. They are currently senior vice presidents in Residential Home Funding’s reverse mortgage division and about to become lenders.
“We’re in the process now of getting our direct endorsement approval to underwrite,” Farber said.
“If a reverse mortgage doesn’t work for [borrowers], we’re not going to put it out there,” Farber added in an interview with NMN. “There’s not going to be upselling.”
“Besides the counseling we also have a secondary check, an internal compliance system where actually Mario or myself will call clients on loans and ask, ‘Just what are you trying to accomplish and is this something that may work for you, understanding at the end of the road you’re going to be eating away a little bit of the equity? Are you comfortable with that and not being able to give it to your children?’”
“That’s the biggest hang-up,” Farber said. “We really want to we encourage as much as possible bringing the children to the table.” Spouses, whose rights to the home recently have been an issue in pending litigation, are likewise encouraged to understand their rights upfront in regard to a reverse mortgage.
“We want borrowers to understand everything that’s going to happen” if they take out a reverse mortgage, Farber said. “If in the final analysis the benefits outweigh the costs it’s a good decision.”
The problem for today’s reverse mortgage borrower is that they are “a sandwich generation. They have children of their own, maybe going to college or school, and they may have to worry about an aging parent.
“It really is a difficult population to deal with,” he said.
“What’s great about the reverse is that it is tax free and they can use it for any purpose that they want and that really helps a lot of people.
“Unfortunately there are a lot of misconceptions about a reverse mortgage and that’s one of our jobs to try and educate.”
While fixed-rate product has been popular with the secondary market, for example, Farber said it might not be the best choice. A variable rate product that allows a borrower to withdraw funds as needed “kind of hedges your long term position a little bit better.”
But even with the most careful underwriting, reverse mortgages are a challenge, Farber said. Seniors who got their traditional mortgages 30 years ago may find it a challenge to understand closing costs, for example. The HECM Saver product, which gives borrowers a break on closing costs in exchange for less of an entitlement, has helped in some instances.
The HECM Saver “has legs,” he said. “But again, if you’re talking about [borrowers] with higher debt to equity and you have a lower LTV product, there’s a problem there.
“The market penetration’s still very minimal and it may not become as much as people think it could be because the baby boomers are coming in with more debt,” Farber said. “The product has to morph in some way to account for that.”
