Husband-and-wife duo Mark Hairston and Shara Parker of Texas Mortgage Source LLC have been originating loans for decades, but a more recent encounter sparked their interest in the reverse mortgage business.
In May, Hairston attended the inaugural Reverse Mastermind Summit in Knoxville, Tennessee, where he connected with event leader Loren Riddick of NEXA Lending. “He had fantastic speakers and three days on reverse mortgages. I fell in love with the opportunity and the product, and we’ve been doing quite a few of those lately,” Hairston told attendees at last week’s Association of Independent Mortgage Experts (AIME) Fuse event in Austin.
Hairston, who is a Certified Divorce Lending Professional, and Parker, who spent 20 years as a Realtor before transitioning into mortgage lending, offered the audience insights for grassroots growth in reverse mortgages. Hairston said that the nearly $15 trillion in equity held by U.S. senior homeowners makes the reverse channel “the largest underserved market in the business right now.”
High-level overview
Many of the audience members at the Texas Mortgage Source breakout session had never originated a reverse mortgage before, so Hairston and Parker laid out some of the basics. They covered high-level details of Home Equity Conversion Mortgages (HECMs) and proprietary products — the latter of which have exploded in popularity over the past two years.
They also discussed reverse-for-purchase opportunities, which have flown largely under the radar of loan officers and real estate agents since their introduction in 2009.
“I’ve been doing forward (loans) for 40 years, and my mindset around reverse was not necessarily negative. I just didn’t understand it several years ago. I thought it was just for people who had no money,” Hairston admitted.
Their presentation covered many of the common use cases for reverse mortgage proceeds — from covering healthcare costs and aging-in-place modifications to supplementing Social Security income and paying off high-interest debt.
Parker emphasized that reverse mortgage transactions require patient, empathetic professionals and often involve multiple parties — including financial planners, real estate agents and family members.
“My parents got a reverse mortgage in 2013. At the time, none of us children thought it was a good idea. But today, my father is 87 years old … and they still have about $200,000 left in equity,” Parker said.
Examples of needs-based borrowers
Hairston and Parker went in depth on some of the borrowers they’ve been able to help recently.
The first example involved a 71-year-old man who owns a duplex with a monthly mortgage payment of $1,350. While the homeowner wasn’t in dire straits, he was looking for additional liquidity to travel and pay other expenses. He was able to obtain a HECM line of credit, which paid off his forward mortgage while leaving him with $100,000 to tap as needed — an amount that will likely grow over time alongside home prices.
“Many people in their 70s and their 80s still have a mortgage,” Parker explained. “Could you imagine if you’re on a fixed income at $2,500 a month or $3,000 a month, and your mortgage payment is $2,000 a month? What do you have to eat on?”
A second example centered on a 78-year-old woman facing foreclosure. Her home was valued at about $300,000 and she owed about $70,000 in mortgage debt. An empathetic real estate investor who had planned to buy the home listened to her story and helped by temporarily covering the mortgage payments.
She was eventually able to close on a HECM, which paid off the existing loan and set up a life expectancy set-aside (LESA) to cover property tax and insurance payments for the next 10 years. “She is spry and looking for a part-time job to stay busy, stay fit and be around people. If rates fall or the market improves, she could refinance,” Hairston and Parker explained.
A third example involved an amicable “silver divorce” where the couple was looking to divide the value of the $500,000 property they owned free and clear. The reverse mortgage proceeds were paid out in a one-time, lump sum. The younger borrower’s age limited the amount that could be obtained, but even at less than half the home’s value, the couple were able combine those funds with other assets to cover their agreed-upon buyout.
Handling objections, acknowledging risk
Hairston and Parker urged audience members who are considering reverse mortgages as an additional tool in their arsenal to “never oversell” the product to clients who aren’t a good fit, adding that “the professionals who show both sides earn trust and referrals.”
Among the “honest risks” of the product, they noted that interest accrues and causes the loan balance to grow over time, that less equity may be available to heirs, that property charges must be paid, and that the upfront mortgage insurance premium and other closing costs associated with a HECM are real expenses that must be considered.
But they stressed that many common objections are not rooted in reality. The general notion that “reverse mortgages are risky” can be debunked by discussing the built-in protections — particularly with the HECM product, which is insured by the Federal Housing Administration and requires the borrower to complete a financial assessment and counseling prior to closing.
There are other misconceptions that may arise. Clients who say “the bank will own our home” should know that they keep possession of the title, with the lender holding a lien on the property like any other mortgage. Heirs are not “stuck” with any debt due to the non-recourse nature of the loan. Heirs can refinance or sell, and if the home sells for more than what’s owed, they keep the difference.
Additionally, while the initial mortgage insurance premium of 2% of the home’s value (equating to $9,000 on a $450,000 home) can be a deterrent for some borrowers, that amount can be rolled into the loan. Originators should clearly lay out the full upfront cost of a reverse mortgage and compare it to the client’s other options.
Because family members are commonly involved in the process, Parker said originators must welcome them to the table. “There are so many simple little things that we can do to keep someone safe in their home … a whole plethora of options that can really make their home accessible,” she said.
“This is not a sales process. It is an educational process, and more often than not, they’re going to be talking to multiple generations of the family. … It is not a taboo conversation. It is a generational conversation, if it’s done properly.”