A reverse mortgage professional can often be seen as many things to current and prospective clients, which is likely unavoidable in many cases due to the far more consultative nature of the reverse mortgage product when compared to its forward counterpart. However, this is precisely what can lead to many reverse mortgage professionals wanting to provide more answers for their clients than they perhaps should, emphasizing the importance of staying close to what the professional knows best.
Highlighting this was exactly the intention of a trio of prominent reverse mortgage industry educators in a presentation at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Annual Meeting & Expo this month. Dan Hultquist, VP of organizational development at Finance of America Reverse (FAR) was joined by Jim McMinn, sales training manager at Longbridge Financial and Craig Barnes, corporate education leader at Reverse Mortgage Funding (RMF) as they all donned referee shirts on Zoom to call “penalties” on potential issues similarly to the first presentation of this kind held the prior year in Nashville, Tenn.
While the trio made clear that the presentation was not specifically oriented around the letter of the law, it is instead focused on relevant regulations and guidelines, and calling out potential infractions that may arise from misconceptions surrounding them.
Tax-related issues
The desire to provide as many answers as possible to a client is a laudable goal, but can cause problems if a reverse mortgage professional is giving advice about something that is out of the purview of their profession, which leads to the first point of advice in the presentation: “stay in your lane.” A key example of this is providing advice related to tax issues when you’re not a a tax professional, Hultquist explains.
“For example, ‘making payments might offer you a nice tax deduction.’ I like that word ‘might,’ because that’s not a definitive statement,” he says. “But, tax laws change frequently. And it’s a very complex industry. That’s an area where most loan originators need to be careful, stay in your lane, unless, of course you are a tax professional.”
There are some in the industry on the origination side who actually are tax professionals, Hultquist says, but starting down a path in talking about tax-related issues opens up a whole other avenue for discussion that an originator may not be prepared — or qualified — to discuss, he says.
“Once you start down this path of starting to talk to clients about taxation, there’s a lot of conditions that require expertise,” he says. “Do they actually itemize? Could the potential deduction exceed the standard deduction? What is the standard deduction now? What is their adjusted gross income? What portion of their existing mortgage is acquisition indebtedness versus home equity indebtedness? And now, that makes a big difference [concerning] whether it’s deductible or not.”
This same principle applies to discussions concerning how a reverse mortgage may or may not affect a borrower’s existing government benefits. Particularly for a reverse mortgage professional who may work in a call center environment, this can be a problematic issue to touch upon, Barnes says.
“One of the things that we always want to caution everybody on with this one is [you must clarify] what government benefits are,” he says. “What government? Are we talking about federal, state, maybe local? Again, stay in your lane. You’re probably not a benefits expert for your state, especially if you’re in a call center environment where you are licensed in many, many states. Are you an expert in every single one of those states? What types of benefits are available?”
If a client asks about something like Social Security or Medicare, there could be a higher degree of likelihood that a reverse mortgage professional can speak about those topics with some assurance. The catch-all statement of “government benefits,” however, is broad enough to be potentially problematic.
“If we’re talking about being eligible for food stamp assistance or Medicaid, those are usually administered in states [which all] have different rules,” he says. “So, you want to be very careful about those government benefits. Always speak to someone regarding those benefits, in your state or locality, possibly, but again: stay in your lane. We are not benefit experts.”
Social Security filing timelines
One often-discussed reverse mortgage talking point revolves around the idea of using the proceeds of a reverse mortgage to delay taking Social Security benefits, but discussion with a client in this area can also be unnecessarily sticky due to the myriad of specific details related to the Social Security program. Much like many reverse mortgage professionals are not tax experts, even with general knowledge of Social Security, that is not the same as being an expert on the topic.
“We’ve got to be careful here,” Hultquist says. “Yeah, there might be advantages to delaying Social Security filing, and we have friends at the American College and others that have made very good points on why the reverse mortgage can really help you in a bridge to delay Social Security filing. But number one, the Consumer Financial Protection Bureau (CFPB) doesn’t like the strategy. We know that they have some issues, especially with us being involved in that. Number two, it’s a complex financial decision. And really, a financial planner is much better equipped to advise the client on Social Security filing strategies.”
Other considerations include the borrower’s lifespan, says Barnes. If someone delays taking Social Security benefits until 70 but then passes away at 72, it could be natural to reflect and consider whether or not the delay was worth it in making up the amount of payments that were missed out on by the borrower in hindsight. The point is well-taken, McMinn says.
“If it’s part of a comprehensive plan that they came up with with their financial planner, it may make sense. But is it really our place to kind of put that in play for them without knowing all the particulars?”
Placing the home in a trust
The running theme of referring a borrower to a specialist on a particular financial topic also applies because reverse mortgage originators simply do not want to be put into a position where they can guide a borrower into making a decision that would have a detrimental effect on a client’s financial well-being, McMinn says.
“I’ve seen many cases where someone paid a lot of money to put together a trust, and it doesn’t do what they really wanted it to do,” McMinn explains. “So they have this trust, it’s in place. Do you really want to be responsible for misdirecting a borrower on how they should hold title to their home? I don’t. And really, the Department of Housing and Urban Development (HUD) doesn’t want to either, they don’t want to get involved in that decision-making for the person.”
HUD discusses this in the Federal Housing Administration (FHA)’s final Home Equity Conversion Mortgage (HECM) rule from 2017, which says that the agency is not in a place to dictate to homeowners how to structure legal ownership in a property.
“So for me, I don’t want to be saying to somebody, ‘this is the way you should go, you should be thinking about it.’ Talk to a professional, find out if it meets what [they’re] trying to accomplish, and then put it in place based on [the professional’s] recommendation,” McMinn says.
