Borrower Case Studies
Couple’s Dream Retirement Within Reach
Thanks to Reverse Mortgage Line of Credit
Like many couples in their 60s, Tim and Cate were both excited and nervous as they approached retirement. They had always dreamed of traveling as much as possible in the first decade of their retirement, while they were still healthy and physically able to do so. They knew that to make their dream a reality, they would need to balance the expenses of travel against more practical financial considerations, like rising healthcare and insurance costs and low investment returns. “We wanted to maintain our current home and standard of living while still setting aside a nest egg for the healthcare and long-term care expenses that might crop up later in retirement,” said Tim.
However, unlike most couples planning for retirement, Tim and Cate had a distinct advantage: Tim was a retirement planning expert and published author who’d conducted years of financial research over the course of writing his books on time and money management. He was also a licensed mortgage lender.
First, Tim and Cate took a hard look at just how much money they would need at different points in retirement — bearing in mind a 50% chance that one of them would live past age 90. For example, even though the couple planned to travel extensively only during the first decade of their retirement, they could also expect to have greater health care needs as they aged and an inflation rate of around three percent a year. Because of this steady increase in their expected cost of living, the couple should probably plan to spend just as much money in the latter part of their retirement as they would during the first ten years of travel.
To help improve their retirement income, Tim and Cate decided they would delay drawing on their Social Security benefits until age 70. Those who wait 48 months beyond age 66 to draw on Social Security receive 132% of the benefit to which they’re otherwise entitled. In Tim and Cate’s case, the extra 32% benefit would mean thousands of dollars a year in additional income — or tens of thousands of dollars over the course of their lives.
Finally, the couple calculated how much their other funds — like IRA, 401(k) and personal savings — might contribute to their retirement income. Now Tim and Cate found themselves in the prickly situation so many Americans face when planning for retirement: even after delaying Social Security, Tim and Cate would deplete their savings and fall short of their expected cost of living before age 80. “The biggest fear for most baby boomers,” said Tim, “is running out of money before running out of life.”
Fortunately, Tim’s research had made him familiar with a special type of home equity loan, called a “reverse mortgage,” that is specifically designed for older homeowners like Tim and Cate. Reverse mortgages allow homeowners to receive the equity they’ve built in their own homes as a line of credit, lump sum cash payment or monthly cash advance. In other words, a reverse mortgage could provide Tim and Cate a source of income that would support their desired retirement lifestyle and prevent them from having to deplete their IRA and personal savings too early in retirement or during an economic downturn.
Because they had sufficient income to cover the first several years of retirement expenses, Tim and Cate opted for a reverse mortgage line of credit instead of a cash payment. If they needed to tap into that line of credit, they could do so at any time. Until then, the loan would accrue no interest — and better yet, the line of credit would grow at a rate of about 5% a year, meaning even more financial security down the road.
Amounts borrowed against the line of credit would not be due for repayment unless the couple decided to move or failed to pay their property taxes and insurance — or until Tim and Cate’s death. At that time, Tim and Cate’s children would have the option to refinance the home and keep it, or sell it and cash out any remaining equity.
Now in semi-retirement, Tim and Cate are grateful for the financial security and peace of mind provided by their reverse mortgage. “To me, a line of credit is better than having money in the bank, because it’s tax-free and I don’t have to pay anybody to manage it,” said Tim. “It’s there if I need it and not accruing interest on my loan if I don’t.” The line of credit allowed Tim to feel confident delaying his Social Security benefits until age 70 and enabled him to make more strategic decisions about managing his investments. So far, Tim and Cate have traveled to Bali and the Dominican Republic and look forward to many more adventures over the course of their retirement.
Tim’s advice for others considering a reverse mortgage? “The perfect time to get a reverse mortgage is as young as you can and when interest rates are low. Low interest rates not only save on costs, they actually give the borrower access to more money down the road,” said Tim, referring to the inverse relationship between interest rate and line-of-credit size for reverse mortgages. Borrowers get a smaller line of credit when interest rates are high and a larger line of credit when interest rates are low. “Eventually, the line of credit can grow to exceed the value of the home,” Tim advised. Reverse mortgage lines of credit grow at a rate equal to the loan’s interest rate plus annual mortgage insurance. This means that, unlike traditional mortgage holders, reverse mortgage borrowers actually benefit when interest rates increase because the line of credit grows at an accelerated rate.
“Plus, if you wait to use a reverse mortgage as a last resort, you may not qualify.” Reverse mortgages are generally available to homeowners beginning at age 62, and it can become more difficult to qualify for a reverse mortgage over time. “Your credit could be hurt, you could lose a spouse or maybe you don’t have the income to qualify for a reverse mortgage anymore,” Tim warned. “It’s better to get the line of credit and not need it than to need it and not have it.”
Today, Tim is a reverse mortgage specialist who helps others achieve financial security in retirement. He is one of only 112 individuals accredited with the Certified Reverse Mortgage Professional (CRMP) designation.
Directors Mortgage is an Oregon-based, Pacific-Northwest focused full-service
mortgage banking firm that offers the Home Equity Conversion (HECM) reverse mortgage.
A sports executive’s vision for his retirement involved living with his wife in his remodeled high-end Portland, Oregon condominium while maintaining a high-profile presence at as many games as possible. In addition to owning the condo outright, he had adequate financial resources for secure retirement income, but he preferred to update his home without tapping into his savings, 401k, stocks, and other financial resources.
He was aware that reverse mortgages were a way to access home equity without selling the home, but he was also attracted to the fact that he could do so without being required to make loan payments. He understood that if he ever wants to pay back any or part of the funds, he could, but he liked that it was an option, but not a condition of the HECM.
Upon research and discussion, his CPA referred him to Directors Mortgage Reverse Mortgage Manager Larry Melton to verify that a reverse mortgage could serve this purpose.
An avid Portland sports fan, Melton not only recognized the prospective borrower, but also the objectives he brought to the table: a homeowner with ample sources of retirement income who could use achieve a more comfortable retirement by using a reverse mortgage to fund updates to their home.
Although the condominium was not FHA approved, its homeowners association soon approved and supported the decision. Thirty brief days later, the condo became FHA approved. The adjustable rate, line of credit HECM was completed soon thereafter, and followed by the desired remodel, allowing the homeowner to remodel it while continuing to attend his favorite sporting events and enjoying his retirement – all without a mortgage payment, or tax implications.
Now, as the homeowner and his wife enjoy his remodeled condominium while continuing to attend his favorite sporting events, they are experiencing an even more financially secure retirement since they have applied the HECM as a resource, with no payment and no costly impact on investment resources.
Lender Case Studies
Fairway Independent Mortgage Corporation
Fairway Independent Mortgage Corporation is a mortgage banker headquartered in Madison, Wisconsin, and Plano, Texas, with more than 260 locations and 3,000 employees nationwide. The company is dedicated to delivering highly personalized service and the best rates for customers while offering some of the fastest turn times in the industry. Fairway has been voted Mortgage Executive Magazine’s number one “Best Company to Work For” for two years in a row.
“The mindset that reverse mortgages are a loan of ‘last resort’ seems to be hotwired into the American consciousness — and we need to shift that paradigm right away,” says Harlan Accola, national reverse mortgage director for Fairway Independent Mortgage Corporation. “Reverse mortgages should not be the last resort — they should be among the first.” In fact, according to Accola, a reverse mortgage early in retirement makes financial sense in a majority of cases that come across his desk. “Fewer than three percent of eligible homeowners have a reverse mortgage, when really, if you look at the population and income statistics, probably 50% or more should have a reverse mortgage,” Accola says.
A number of prominent scholars seem to back Accola up. For example, a 2012 study by Sacks and Sacks found that a typical homeowner can dramatically increase his odds of “cash flow survival” (i.e., not running out of money before life’s end) and increase his net worth by tapping into home equity as supplemental retirement income. A similar 2013 study by Salter, Pfeiffer and Evensky of Texas Tech University specifically examined the “standby reverse mortgage” strategy, which calls for securing a reverse mortgage line of credit early in retirement and tapping into it only during bear markets in order to avoid selling other retirement assets at depreciated prices. Like the Sacks and Sacks study, the Texas Tech study found that reverse mortgages, used wisely, can have a significant positive impact on retirement liquidity.
In short, Accola believes, and many experts agree, that reverse mortgages represent a “win-win”: they’re good business for lenders and improve the long-term financial security of retirement-age borrowers. “With around 10,000 boomers retiring every day — that’s almost 4 million per year — many mortgage banks are considering how to take advantage of the next wave of reverse lending,” says James Fostmeier, marketing manager for Fairway. “In many ways, it’s a marketing problem. Reverse mortgages are poorly understood and can’t seem to shake a bad reputation among not only borrowers, but also lenders and other key participants involved in mortgage lending and retirement planning.”
“We recognized reverse mortgages as an area of opportunity,” says Sarah Middleton, Fairway’s EVP of production and marketing, “but we also understood that a serious investment in training and technology would be necessary to make reverse lending a viable part of the company’s growth strategy.” In 2014, the mortgage bank decided it was time to make that investment. With full support from CEO Steve Jacobson and COO Len Krupinski, Fairway brought Accola’s experienced team of reverse lenders on board and charged Accola with overseeing Fairway’s reverse mortgage training program in partnership with Fostmeir, Training Coordinator Linda Ewer and Operations Manager Kari Van Kleef. To justify its investment, Fairway would need to realize substantial growth in its reverse mortgage production.
Creating a Disciplined Approach to Lender Education
“Many lenders just don’t understand all the ways a borrower can benefit from a reverse mortgage. They see a reverse mortgage as something to avoid. How do I know this? Because I used to be one of them,” confesses Accola. “That’s why it has to start with education.” To that end, Accola and Van Kleef began revamping Fairway’s reverse mortgage training program in January 2015.
“We decided to divide our 1,200 lenders into three categories based on their training needs,” says Accola. “First, we focused on lenders with the interest and potential to specialize in reverse lending.” For this group, Fairway developed a three-day live training program and began offering the course in different parts of the country. While lenders pay their own travel expenses, Fairway provides meals and training materials and delivers a comprehensive lesson plan designed to cover everything from reverse loan products to sales techniques to training on the ReverseVision Exchange (RVX) loan origination system.
According to Accola, some sessions have seen as many as 50 attendees, though not all of them went on to become full-time reverse lenders. “All of this training is voluntary,” notes Accola. “Not everyone is going to forsake ‘forward’ lending altogether.” Although Fairway has no plans to limit reverse origination to a set number of individuals, the company expects only about 10% of its lenders will focus their efforts in on reverse lending.
Next, Fairway began offering a half-day training seminar for lenders with a more modest level of interest in reverse mortgages. “These people are usually branch managers or loan officers who want to understand more about reverse lending but don’t expect to originate reverse loans with any frequency,” says Van Kleef. Instead of focusing on specific reverse mortgage products or how to use ReverseVision’s platform, the seminar equips participants with enough knowledge to be productive referral partners. “After this training, lenders can speak intelligently to financial advisors and real estate agents about reverse mortgages and recognize when borrowers should consider a reverse mortgage,” Van Kleef states.
Finally, Fairway is assembling basic training materials to ensure that all 1,200 of the company’s loan officers could receive at least a cursory education on reverse mortgages. “We will offer one- and two-hour webinars and send occasional emails to reinforce the basics of reverse mortgages — like the fact that you’re doing a retirement-age borrower a disservice if you don’t at least consider one,” says Accola.
Giving Loan Officers Expert Assistance
Fairway’s in-house support staff has also contributed to the company’s reverse origination growth. “We have a core team of 15-20 people who are experienced with all aspects of reverse mortgages,” says Ewer. “It’s impossible to learn everything you’ll ever need to know about reverse lending in three days, so good support is critical.” Ewer matches up incoming support calls with the person best suited to provide a quick resolution. Experts partner with freshly trained loan officers and walk them through their first loan, often helping lenders enter data and run scenarios in ReverseVision, assisting with marketing and even connecting loan officers with financial advisors.
Forging Relationships with REALTORS® and Financial Planners
Accola acknowledges that it will take a long-term, dedicated effort to get Fairway’s entire loan-officer population ramped up. Once lenders achieve a solid understanding of the reverse business, they must in turn educate their realtor and financial planner partners. “We have to face the ‘loan of last resort’ perception head-on,” says Accola. “We have to arm financial advisors and real estate agents with the white papers, statistics and research that prove those perceptions are wrong.”
Technology offers another effective way to forge relationships with planners and demonstrate the financial power of reverse mortgages. “With tools like the Comparison Screen in ReverseVision Exchange, I can sit down with a financial planner or real estate agent and model different reverse mortgage products,” Accola says. “This hands-on approach goes a long way in establishing credibility with retirement planners and other trusted borrower advisors.”
Fairway’s reverse mortgage business has grown significantly since Accola and his team joined the company just over a year ago. In 2014, despite funding nearly a billion dollars a month in total originations, Fairway loan officers produced just 37 reverse mortgages and the company failed to crack the top 20 in reverse origination. But now, says Area Manager Gregg Steinhaus, “Fairway’s management team understands that reverses are an important part of our future.”
“One of our biggest game changers was bringing aboard Harlan Accola and his reverse team,” agrees Middleton. “Thanks to the strength of his expertise, Fairway is leading the way in reverse mortgage originations for our aging baby boomer population.”
Following the implementation of its reverse mortgage education program, the mortgage banker reported 327% year-over-year growth in reverse mortgage originations in 2015, as reported by Reverse Market Insight (RMI). As of February 2016, Fairway is the number 20 producer of reverse mortgages nationwide.
Universal Lending Corporation
Universal Lending Corporation (ULC) offers both forward and reverse mortgages and currently operates branches in Central Denver and Fort Collins, Colorado, as well as in Iowa, Montana and New Mexico.
Since the incorporation of ULC’s reverse mortgage division in 2004, the firm had cycled through several front-end reverse mortgage origination systems without success. Not only were these systems unreliable, but they also failed to provide an all-encompassing origination environment.
“At one point, we were entering loan information into four different systems,” said Paulette Wisch, vice president of ULC’s reverse lending division. “As you can image, that left quite a bit of room for error.”
Being familiar with the RV Exchange (RVX) platform through a previous company, Wisch convinced ULC President Peter Lansing to make the switch to ReverseVision’s industry-leading reverse mortgage software. RVX connects lenders to the entire reverse mortgage industry. The platform encompasses everything from point of sales through processing, underwriting, closing/funding and post closing so users never have to leave the system. In addition, the RVX platform includes document preparation from proposals to closing and backs its document compliance with a $10 million errors and omissions insurance policy.
Through RVX, ULC has significantly streamlined its reverse mortgage operations, allowing employees to spend more time on the mechanics of loan origination.
“The biggest benefit to RVX is how it has streamlined our workflow from the loan officer down through the processor, underwriter and closer. Our operations are much more efficient,” said Wisch.
In addition, ULC feels more confident regarding compliance, thank to RVX’s doc prep capabilities.
“All of the documents I need for application through closing, no matter what type of reverse loan it is, are available in RVX, which makes my job a lot easier,” Wisch added. “I don’t have to worry about whether the docs are correct. ReverseVision guarantees that they are.”
V.I.P. Mortgage, Inc. is a mid-size, full-service mortgage banker and broker committed to restoring the reputation of the mortgage industry.
Headquartered in Scottsdale, Arizona, V.I.P. Mortgage was founded by Jay Barbour in 2006 amidst the collapse of the housing industry. With licenses in 13 states – AZ, CA, CO, HI, IL, IN, MI, NE, NM, TX, UT, WA, and WI – the company has grown to more than 300 employees in 14 branches nationwide.
According to Tim Nelson, V.I.P. Mortgage’s reverse lending division was ready to expand. However, the division was operating as part of V.I.P.’s forward lending group, which inhibited its ability to grow.
“Because the reverse mortgage division wasn’t operated as a stand-alone entity from the forward side, we were having to re-enter all of our loan information into the forward LOS system so that our information could be included in the end-of-month reporting,” Nelson explained. “That duplication of efforts took up quite a bit of time, and the inefficiencies it created prevented us from increasing our monthly reverse mortgage production.”
Nelson needed to inspire confidence in V.I.P.’s executive team and back-office staff about the ability of the reverse mortgage division to operate separately from the forward division. V.I.P. had been using the RV Exchange (RVX) platform as its reverse mortgage LOS for some time. However, V.I.P. had yet to tap into RVX’s capabilities beyond simple loan production.
To address his executives’ concerns, Nelson demonstrated the advanced reporting capabilities available through RVX. The flexibility of RVX’s reporting makes it an essential tool for companies looking to be efficient. Users can customize reports and drill down to specific data, timeframes, team members and geographical locations. Plus, RVX reports can delivered via email with the frequency of your choice and integrate directly with NMLS call reports, MERS, HMDA reporting and state information.
Utilizing RVX’s reporting capabilities, Nelson was able to ease his executives’ concerns while also substantially increasing V.I.P.’s monthly reverse mortgage production by 200 percent. Nelson was also able to expand his staff, adding on additional loan originators, as well as an underwriter, a closer, a processor, an operations manager and a funder – all solely dedicated to the reverse mortgage division.