Reverse Mortgage Program for Credit Unions: Top 3 Misconceptions

by Ken McGraw, Director Reverse Mortgage Services, AnyHour Solutions

A reverse mortgage can be the perfect answer to financial and home ownership issues for people over the age of 62.  The biggest hurdle to obtaining a reverse mortgage however, is the MISINFORMATION in the public domain.  The average person’s opinion of a reverse mortgage is not based on factual information, or even personal experience.  Sadly, public opinion is most often based only on hearsay and rumor.

Misconception #1: “I’m giving my house to the bank, and I just live here until I die”.

This is absolutely false.  A reverse mortgage is no different from a traditional mortgage in most aspects.  There is a lender.  There is borrower.  A mortgage is placed upon the property owned by the borrower.  The primary difference between a traditional mortgage and a reverse mortgage is the borrower is not required to make monthly payments.

Whether the borrower makes monthly payments or not, the mortgage balance on the home needs to be paid off, or refinanced, in order for title to be taken by the heirs to the estate. No different from a forward or “traditional” mortgage balance due on a property.

Monthly payments will be accepted by the bank on a reverse mortgage, if the borrower chooses to do so.  Many borrowers choose to use a reverse mortgage as a vehicle to refinance or even purchase a home, just like a forward mortgage.  Only in the case of the reverse mortgage, there are no income or credit requirements that would prevent many applications from garnering an approval.  A reverse mortgage simply eliminates the 2 biggest hurdles in the loan approval process:  Personal Credit, and Personal Income.

Misconception #2: “If the home depreciates and the reverse mortgage is “underwater,” my kids are liable for the difference”

This is also false.  Reverse mortgages are non-recourse loans.  This means the lender is not due any additional money if your home value drops below the mortgage balance.  The lender is unable to seek and obtain a deficiency judgment against your estate, no matter what may transpire in the real estate market.

Misconception #3:“I don’t have a mortgage; I do not qualify for a reverse”

Many people view a reverse mortgage only as a means to refinance an existing mortgage balance.  This is not the case.  If you own your home free and clear, this simply affords you a greater lump sum payment from the proceeds of the transaction.  The average size of a reverse mortgage is equal to about 70% of the value of the property.  This means you may qualify to receive a lump sum payment, up to 70% of your home’s value after the closing of your reverse mortgage.  If there was a mortgage balance to be paid, it would come out of the same 70%, and you would receive the difference back in full.

A reverse mortgage applicant is best served by getting all the facts concerning a reverse mortgage, prior to applying for a loan.  Education is our best closing tool.  Our job is to stick with the facts of the reverse mortgage program, and let the customer make the educated decision about what is best for their interests.

The entire family may want to be involved in the decision to get a reverse mortgage.  The heirs to the estate have to bear any responsibility for the property after the death of the borrowers, so their input will be crucial to your customer feeling comfortable in taking the final step in actually closing on the transaction.

Reverse mortgage professionals educate, not negotiate.

There are many other financial and estate planning services that will be necessary for the family who proceeds with a reverse mortgage.  This product can serve as a vehicle to fund other retirement and investment arrangements made or planned by the borrower and/or their financial counselors.

We are not financial planners.  We only know the reverse mortgage product.  Leave the financial planning to the professionals.  But it is good to know all the facts about the product.

The income gained from a reverse mortgage is indeed tax free.  The IRS has no income obligations due it from the proceeds of a reverse mortgage closing.  This is a big benefit of the program.

About AnyHour Solutions
AnyHour Solutions (www.anyhoursolutions.com) is a highly flexible provider of comprehensive, 24/7 call/contact center services for financial institutions. Highlighted by the most experienced staff of agents and a turnover rate under 10%, its contact center goal is to provide “Service They Will Remember.” In addition, AnyHour provides online loan application capability as well as a full suite of mortgage and reverse mortgage processing services. For nearly 20 years, the company has helped its clients to enhance member service, increase loan volume and reduce operating expenses. For additional information contact Steven Holmes, VP Strategic Development, at 888.622.8696 or sholmes@anyhoursolutions.com.