Archive for September, 2010

FIT for Reverse Mortgage Lenders, part 6

Wednesday, September 15th, 2010

  

Marital Transitions

 

Among the Urhobos of Nigeria’s turbulent Niger Delta, “How are you?” is often followed by a peculiar question-cum-greeting: “Is it well at home?”

The home, in Urhobo understanding, is the center of the family and the person. Harmony at home is well-being, disharmony the reverse. If you care about a person, the thinking goes, you inquire about the state of their home.

In assessing whether a senior can stay at home long enough to reap the benefits of a reverse mortgage, “Is it well at home?” is a good question for originators to keep in mind. Marital transitions — widowhood or widower-hood, divorce, separation – are pregnant with risks for seniors and lenders. Let’s go back to Lake Matata, Minnesota and to Paul Pumata.*

Pumata, 76, lost his wife of 54 years six months ago. Ever warm, always kind and gracious, Sandy Pumata was Paul’s center, the rock of their home for 54 years.

Two months after Sandy Pumata’s death, their financial advisor, Peter Puta, delivered another blow: Monthly income from his bond portfolio will have to be cut by 50 percent to preserve capital. Puta suggested looking into reverse mortgages for cash to cover the shortfall until the portfolio rebounds.

Meanwhile, Pumata’s only daughter in Tempe, Arizona, Jennifer Zama, has been asking her dad to relocate to warm Tempe so that she could look after him now that her mom was gone. The relocation idea is persuasive because Pumata is very fond of his three grandchildren. His immediate need though is cash, and reverse mortgage is the best option, but he is uncertain about his residency in Lake Matata.

During counseling, the counselor spotted his residential uncertainty, they discussed it briefly, and the FIT summary reflected it as “yellow flag” number three. How should Pumata’s loan officer bring up the issue for discussion at the loan interview? Here is a suggestion:

“Because reverse mortgages are cheaper the longer you stay in your home, for me to know the best product to recommend for you, how long do you plan on staying in your home, Mr. Pumata?”**

This question could help Pumata and his loan officer, Randy Zeros, discuss his residency and its implications for the loan. It could help Zeros recommend the new HECM Saver, a perfect product for seniors in transitions, uncertain of their residency. But without the FIT signal and the discussion, Zeros and Pumata could have decided on HECM Standard, a decision that Pumata could come to regret, a decision that may even bring the thought of litigation to Pumata and his daughter when they learn later that there was a cheaper reverse mortgage for short term use.

Other marital transitional situations involve divorce and separation. Besides living-aloneness, the absence of a spouse or partner through divorce or separation could bring isolation and trigger depression in some seniors. Without support for daily living activities, isolation and depression could impair their health, calling into question their ability to benefit from the loan over time.

As you go about putting seniors into the right reverse mortgage, keep the Urhobo greeting-cum-question in mind: “Is it well at home?”                                                                    

*Names of people and places are fictional.

**Please give me your feedback on the strengths and weaknesses of this question as well as your suggestions for improvement. You may post your comments or send me an email: atare@thinkreverse.com. Thanks,  Atare 

Copyright © 2010, ThinkReverse LLC.  All Rights Reserved.

 

 

FIT for Reverse Mortgage Lenders, part 5

Wednesday, September 1st, 2010

 

Holes in the Safety Net

 

Senator Fred Thompson’s commercial touting the benefits of government-insured reverse mortgages did it for Tom and Bertha Akuna of Lake Matata, Minnesota.*

Tom Akuna, 69, retired two years ago because of chronic back problems from decades of back-breaking odd jobs. Bertha Akuna, 63, is a dedicated home-maker from the old school. The couple has no children and no pets.

During pre-lending counseling, the counselor, Sonia Hudloom, uncovered two gaping holes in the Akunas’ safety net: no life insurance policy and no pension benefits for a surviving spouse.

Although Tom Akuna gets about $900 from Social Security (which covers their basic monthly living expenses) and their home is paid for, the absence of life insurance policies (which the Akunas’ religion forbids) and pension benefits for a surviving spouse means the Akunas need to manage their home equity wisely to support the surviving spouse.

The new FIT process classifies “no life insurance policy and no pension benefits for a surviving spouse” as the second risk factor. Along with other risk factors discovered in counseling, it will appear on the FIT summary the Akunas will take to their loan application interview, and their loan officer should find a way to bring up the issue. For illustration, let’s try this question:

“Mr. and Mrs. Akuna, the paper from your loan counselor says your home equity is the largest support you both have for retirement, how would you keep it for whoever survives the other?”**  

This question should achieve the FIT objective of getting the Akunas and their loan officer to think and to talk about the Akunas’ long-run financial survival. It may help them and their loan officer to come up with the right mix of loan-advance options (a.k.a. payment plans) to conserve their equity while giving them the means to meet any monthly budgetary shortfall they may have, a need that resonated when they watched the Law & Order actor and former U.S. Senator pitching reverse mortgages on TV.

Suppose the Akunas had come to the loan interview with the intention of requesting a lump sum, thinking they can “invest” it for maximum return or use it to buy some insurance product they had some vague notion of. The above question and the ensuing conversation should give the loan officer an opportunity to ask a number of follow-up reality-testing questions with the aim of getting the Akunas to be more careful with their home equity usage.

It bears repeating that one or two FIT risk factors or “yellow flags” may not be a problem, but a number of them could be a red flag.

A Fred Thompson commercial may have motivated the Akunas to consider reverse mortgage, but a FIT question could help them and their loan officer think and talk about the holes in their retirement safety net.

*Tom and Bertha Akuna, as well as Lake Matata, Minnesota, are fictional.

**Please give me your feedback on the strengths and weaknesses of this question as well as your suggestions for improvement. You may post your comments or send me an email: atare@thinkreverse.com. Thanks,  Atare

Copyright © 2010, ThinkReverse LLC.  All Rights Reserved.