When a reverse mortgage loan moves into servicing, it’s not uncommon for a borrower to stay in contact with their originator due to the highly consultative nature of the reverse mortgage business. It’s understandable: older borrowers tend to see their originator as something of a partner, since they have been having conversations with this professional since before the loan even began.
However, the servicing process can also be a complicated and uncomfortable one for borrowers. A whole new group of people tends to come into play that had not been involved in a borrower’s reverse mortgage before, and when questions arise from borrowers about who these people are and why they may be asking questions about their loan, it’s usually the originator they turn to for answers.
This is why servicing professionals aimed to offer advice and information to professionals regarding servicing issues and information at the National Reverse Mortgage Lenders Association (NRMLA) Eastern Regional Meeting earlier this month in Baltimore, Md. Rex Lamb and Gail Balettie of Celink offered their perspectives to the audience of reverse mortgage professionals on the topic during the event.
Bringing reverse mortgage borrowers peace of mind
One thing that may be off-putting for seniors who begin their journey through the servicing process is the volume of documentation and new questions that can come to borrowers from servicing professionals. For Balettie — who has served as an originator in the past — she understands why borrowers may feel the way they do at this point in the loan.
“There is a lot of documentation for the seniors to see, review and understand, and it can be confusing for them,” she says. “But I’m here to tell you that I speak with seniors all the time, and they are not inept as [the media] sometimes makes them out to be. With regard to all the documents that are required, I think, as a salesperson, what you can inform them of is that this is how regulated this program is.”
Pivoting over to the high level of regulation the reverse mortgage product and FHA Home Equity Conversion Mortgage (HECM) program goes through could be very important in terms of illustrating for a borrower how many “eyes” are on the loan in efforts to protect seniors, she says.
“That’s why there’s so much documentation,” she explains. “And so if you flip that coin a little bit for them, I think it gives them a higher comfort level [to know] that the CFPB is all over it. HUD is all over it. We have audits every day from state and federal organizations. So as a loan officer, you can use that to help give them assurance that this program is legit, and it’s not what the media often makes it out to be.”
The key to the relationship with borrowers through servicing, direct deposit
Of course, loan officers are recognized as key to maintaining a relationship with the borrower throughout the loan’s life, Balettie says.
“When [a borrower] gets in trouble, the first person they often call is the loan officer,” Balettie says. “Because you guys are the ones that established the relationship with them, and they have a level of trust with you. So, I think it’s important for loan officers to understand servicing, and it’s not everything you do every day. It’s good to have a reminder every once in a while.”
Some of the issues addressed in this panel were similar to those explored by Balettie at the NRMLA Western Regional Meeting in May, however she did discuss more deeply the prevalence of borrowers who are — contrary to the belief of some — making use of online servicing portals and combing through their necessary documentation in a digital environment.
One of the ways that originators can come into play through this process is by encouraging their borrowers to engage in direct deposit of draws from their lines of credit, since such a method tends to be faster and more secure than relying on traditional mail.
“What you guys can do to help us at closing is make sure the borrower provides a canceled check to sign up for direct deposit,” she says. “That [allows them to] get their funds faster, and we don’t have to deal with the mail. That’s really important from a loan officer perspective, to encourage that direct deposit. It’s also a lot safer.”
It’s also important to remind borrowers that their request for funds will be subject to their initial disbursement limit (IDL), which is generally applicable to all newly-originated reverse mortgages.
“If the borrower doesn’t take all the funds at closing, they’ll be subject to that initial disbursement limit for the first year of the loan,” she says. “So for example, if they have an IDL of $100,000 and a starting unpaid principal balance (UPB) of $100,000, then there’s no draw available in the first year. If they make a $10,000 prepayment and the loan’s open-ended, they can re-borrow that $10,000 in the first year, again, subject to the IDL. Under no circumstances can the borrower access more than that IDL in the first year.”
Reverse mortgage after a natural disaster
With certain parts of the country having to deal with what seems to be an increasing prevalence of natural disasters, naturally certain reverse mortgage borrowers will become affected at some point. In instances like these, communication between borrower and servicer is critical, and the loan officer can serve as an important conduit for that communication.
“Immediately what the borrower should do is contact their insurance carrier when they have a loss either due to a storm, a fire, or whatever it is, and file a claim,” Balettie says. “They also need to document all the repairs, take a bunch of pictures, and their insurance adjuster will determine the claim proceeds. Then, [they need to] contact us regularly to report progress on the repairs being made.”
The process is similar for those properties that require repairs at origination, and the borrower will need a lien waiver to close out the repairs. The servicer will inspect the property a few times during the repair process, but HUD assignment prohibits servicers from cutting checks in a fashion similar to the forward mortgage business since all the repairs must be documented for HUD.
Checks are typically made payable to both the borrower and the servicer or the lender, who is the loss payee in such a situation, Balettie explains.
“And the reason for that is we want the borrower to sign those checks indicating that the work is done to their satisfaction,” she says. “We don’t want to pay contractors directly.”
In response to a hurricane in 2019, the CFPB released a guide for reverse mortgage borrowers affected by natural disasters which remains available for download on the Bureau’s website.
