Archive for December, 2010

FIT for Reverse Mortgage Lenders, part 9

Tuesday, December 21st, 2010

Medical Mobility Risk

Hospital or nursing home re-admissions are serious financial risks for older Americans, especially those without strong family or social support.

So what do reverse mortgages and hospital and nursing home re-admissions have in common? Three words: Medical Mobility Risk. And what is medical mobility risk in reverse mortgage lending?

It is the chance that a chronic illness or poor post-discharge planning could compel seniors to shuttle between their homes and the hospital or nursing home, hurting their ability to stay at home long enough to benefit from their loan funds and limiting their capacity (in case of heavy out-of-pocket health expenses) to meet critical borrower obligations, such as residing in the home, paying taxes and homeowner’s insurance, and maintaining the home.

In gauging a senior’s ability to stay at home and profit from a reverse mortgage over time, why is it important for lenders and counselors to pay attention to medical mobility risk?

Hospital and nursing home re-admissions is a major headache in our acute-care, hospital-dependent healthcare delivery system. Re-admissions costs Medicare about $12 billion annually. MedPAC, the research arm of Medicare, says 17.6 percent of all hospital admissions in America are actually re-admissions. One in five Medicare beneficiaries who is discharged from a hospital re-enters a hospital within a month. As boomers age in droves in the years ahead, we can expect these numbers to climb if current trends hold.

This is the socio-medical context for “yellow flag” seven in the FIT process. As thoughtful and prudent reverse-mortgage lending professionals, you should find ways to discuss this risk if it comes up in the FIT summary.

Although how you bring it up and how you discuss it will depend on the dynamics of the loan interview and your skill in framing questions, it is important that you discuss it during the loan-application interview. For illustration, let’s try this question:

Mr. Jones, at FreeFloat Bank, we pride ourselves on helping our customers think-through complex financial decisions for two reasons: Our customers deserve our best thinking, and it is good business practice. During counseling, you mentioned health issues that required hospitalization and re-hospitalization. I believe we should talk about what it may mean for you down the road, shall we?”*

It may not be an easy conversation. While some seniors consider a reverse mortgage to pay for health expenses, others may be reluctant to talk about such personal issues. For this reason, some fine commentators in reverse-mortgage blogosphere have suggested that the FIT questions and process are too invasive and too time-consuming.

Like surgery, prudent mortgage lending is inherently invasive. That is why in forward-mortgage lending we ask for divorce decrees, bankruptcy papers, child-support papers, financial statements, and other very personal documents that could have bearing on the mortgage lending decision. Only fools lend other people’s money without asking relevant personal questions. In the wake of our recent mortgage-lending-led national and global financial meltdown, normal invasiveness in service of sound lending for all parties is a good thing.

On the time-consuming assertion, an extra 20 or 30 minutes conversation to get it right at the critical primary-market level is a bargain if it helps senior and lender make a better decision for all parties in the reverse-mortgage asset-chain. To paraphrase the great Indian Independence leader Mahatma Gandhi, there is more to reverse mortgage lending than speed.

*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: Thanks,  Atare

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