Closing a reverse mortgage loan is a big moment for all involved, most especially the loan’s borrower. However, owing to the generally low penetration rate of the product category when compared to the forward side, sometimes the particulars required to actually close a reverse mortgage can be misunderstood by borrowers or insufficiently explained by originators.
This is why a pair of reverse mortgage industry professionals with expertise in this area offered some ways for originators to navigate some of these issues at last month’s National Reverse Mortgage Lenders Association (NRMLA) Eastern Regional Meeting in Baltimore, Md. Allegiant Reverse Services VP Tina Meilinger and Notaroo COO John Connell outlined some of the most common pitfalls that can hamper a reverse mortgage closing, and how to avoid them.
Closing from two sides
When Connell asked Meilinger specifically about common pitfalls she encountered during the closing process, she explained that there are often two different sides to what is often considered the common closing process: the escrow side, and the signing side.
“The closing process from the escrow perspective is when we’re getting the file ready to go to closing, making sure all the documents are in there [and that] we have updated payoff demands and various other items,” she said. “The secondary part of that is the actual signing itself that’s taking place with the notary present, and representing you as well as us through the closing process.”
One common pitfall on the escrow side of the equation comes in the form of late notices when an updated slate of payoff information is required, which could come with long turnaround times depending on factors including who the lender is. Other sensitivities can often arise from the need for an updated payoff demand, which can further complicate the process, she explained.
Title issues can also be another major complication, she said.
“Missing information in order for us to clear title is another [issue],” she said. “The more information that’s provided upfront, the better off we’re going to be in the closing process. Of course there are outliers, like probate, tracking down private beneficiaries, the borrower not having a valid ID, or trying to locate their trust. There are amendments that go with their trust, their death certs and power of attorney.”
Power of attorney, borrower comfort
Power of attorney (POA) can also be an important factor to consider during closing, since sometimes people who think they have their POA sorted out actually don’t provide all the necessary information.
“When we speak about power of attorney from a closing perspective, probably one of the biggest obstacles that we see in the industry is from a title side,” she said. “We have to have that original Power of Attorney in order for us to record and make that a legal transaction where we can ensure the lender’s title policy. Without that, there could be major issues in reference to it.”
Meilinger also explained that there have been instances where the parties involved have thought that they had the original POA, but that wasn’t the case. This isn’t much of a problem for a borrower with full faculties, but in instances where a borrower may have cognitive issues then there could be a need for a conservatorship, she said.
“That’s a lengthy, expensive and drawn-out process [which is] definitely not in your borrower’s best interest,” she said. “So, if we could check that at the onset, we’re happy to actually hold that and even talk about the possibility of recording it in advance to ensure that that’s already of record, but we’ll [usually] do that in a sidebar conversation.”
Having the right payoff information is also always critical before transitioning into the actual signing process, she explained.
“The main [issue during the signing] is borrowers not being comfortable with their figures,” she said. “They go to sit down and don’t grasp the concept of why the figures are what they are.”
Notary issues, document execution
Delays on the side of the notary can also be a factor in hampering a closing’s progress, and can occur if the notary for some reason cannot reach the borrower to confirm the appointment’s time, location or both.
“We have to remember that there’s location, distance, travel time, traffic and other varying factors that come into play,” she said.
Naturally, documents that are not executed correctly or a delay in the approval process on the side of the U.S. Department of Housing and Urban Development (HUD) can also preclude a loan from going to closing. The document side was challenged particularly during the pandemic, which caused a rush and necessary documents to get out late, she explained.
“That pushes the signing out,” she said. “We have to remember that we’re dealing with the notary that [has] already set that time aside to make sure that your borrowers are taken care of. Redraw after docs have been sent out, because information on the originals were incorrect. Those are probably the biggest critical factors that we see on that side.”
Read part 1 of this presentation.
