In working with the senior population, specific attention to the needs of borrowers who may require the assistance of family members or powers of attorney in making the decision to take a reverse mortgage loan is not something lenders take lightly. Many have specific protocols when it comes to borrowers who may not be in the position to make the decision on their own, and some say the process has become even more stringent in recent years.
The onus is on the lender when a borrower’s understanding of the loan is concerned, regardless of a counseling certificate. Following a New York Supreme Court ruling in early 2010, it became clear that the “mortgagee is entrusted with the responsibility of conducting an inquiry of the applicant’s understanding of the mortgage agreement.”
Usually, if there is an issue with competence on the borrower’s part, it has already been identified by the time the borrower reaches the counseling session, explains Daniel Fenton, housing director for counseling agency Money Management International.
“I think [the Department of Housing and Urban Development] has steered very well away from counseling agencies makeing the determination,” he says. “Counselors should be conscious of problems of comprehension and should be alerted.”
If problems with comprehension are not identified in the counseling session, then they must be outlined earlier in the process. It presents a large responsibility on the originators’ part, and when a power of attorney comes into play, lenders are asking for backup documentation, which often includes two doctors’ notes.
“In our experience,” says Fenton, “the people who are coming to us are adquately prepared. If they’re not, they’re usually able to understand those concepts that hud has identified as important.” Commonly, Fenton says, when a power of attorney is in place, it’s more proactively involved.
“Power of attorney can happen early in the process,” says Ernie Castro, reverse mortgage sales manager at MetLife Bank. “If there’s going to be a power of attorney used, we have to collect that documentation at signing. We need a doctor’s letter that says the borrower is competent. if we have that, fine. If there’s an issue, we’d have to refer to the dates that the power of attorney is executed.” Castro says that in cases where the power of attorney has long been signed, the lender requires a note from an attending doctor that says the borrower was competent at the time the Power of Attorney was signed.
“A doctor’s letter is the key factor,” says John Mitchell, owner of Reverse Mortgage USA. “The critical issue is: was a person competent when they signed the power of attorney. Their competency today is irrelevant. That’s why our practice was to just get one doctor to acknowledge that.”
Lawsuit fears were not generally cited from sources RMD spoke with, but some speculate those fears may be the reason for heightened attention to powers of attorney documentation. And while the precautions and backup documentation may help protect lenders, ultimately, says one elder law attorney, the extra documentation can present an unnecessary burden on the process and on the borrower.
“They are assuming that every power of attorney is fraudulent,” says elder law attorney Evan Farr. “[Lenders] are worried that the child who is using the Power of Attorney to help Mom obtain the reverse mortgage is really trying to steal Mom’s money.”
It can add time and effort to the process as well, in cases where a power of attorney was signed years before the reverse mortgage application and in particular cases where a doctor or backup documentation can’t be found.
“It could be weeks, months. It could be impossible,” says Farr. “Say the power of attorney is 10 years old. The doctor could have gone out of business or could have moved twice.”
Farr says that because reverse mortgage borrowers are seniors who are more likely to have powers of attorney, he sees the additional documentation as age discrimination. His office is required and certified to make an assessment of competence as part of the power of attorney process, and yet, he says, lenders won’t accept documentation from him. Rather, they require the doctor’s note.
“They assume that anyone acting on behalf of a reverse mortgage borrower is acting on behalf of malice,” he says. “Lately, I don’t recommend [reverse mortgages] as much as i used to].”
The incidence of powers of sttorney, however, may be on the decline as lenders see the average age of borrowers taking a downward turn.
“The volume of reverse mortgages is increasing, so by the mere fact we’re doing these, you’ll see more powers of attorney in play,” says Castro. But the percentage of POAs is probably going down a little bit because we have a new market for younger, more sophisticated borrowers.”
Written by Elizabeth Ecker
