During the booming real estate market, the meaning of the term “mortgage professional” eroded. Many homebuyers didn’t care if their mortgage broker knew about market risks or inverted yield curves. All they wanted to know was what their closing costs were going to be and how low their interest rate was. While many mortgage professionals were wrapped up in subprime lending during this time, only a few showed interest in reverse mortgages.

Not having the allure of high commissions or ease of processing — especially compared to the subprime (aka, nonprime) and Alt-A products originated at the time — reverse mortgages were all but ignored.

Since then, however, reverse mortgages — which allow homeowners ages 62 and older to convert their home equity to cash while retaining the title to their home — have emerged as important products to many homeowners. As more baby boomers reach retirement age — and as many face huge losses in their retirement accounts — many struggle for income.

Even financially secure retirees are looking to reverse mortgages. These mortgages can represent an important economic backstop to possible increases in expenses, some of which may take the form of health and medical services.

For mortgage brokers, reverse mortgages offer an important product option poised to grow in relevance in the next several years. The best place to start when considering adding reverse mortgages to your mix is with Home Equity Conversion Mortgages (HECMs), by far the most popular reverse-mortgage option. These loans are insured by the Federal Housing Administration (FHA).

Common resistance

HECM borrowers don’t need to be qualified based on credit, income or assets. In addition to providing an immediate lump-sum payment, monthly payment or credit line — all options with HECMs — these loans also relinquish borrowers from any existing mortgage obligations for the remainder of their lives or until they sell their home. The lending limit on HECMs recently increased to $625,500, and the loans now can be used to buy a home.

Reverse mortgages aren’t, however, without detractors. A great deal of misinformation about the product exists. One area of confusion is the “reverse mortgage” name, which some people take to mean that accrued interest can somehow harm borrowers. In reality, the accrued interest doesn’t come due until the house is sold or the owner dies.

If the owner does die, the obligation reverts to the heirs, who can pay the amount owed and take claim to the house or walk away from the loan with no penalty. As easy as that sounds, this is where reverse-mortgage professionals often face resistance.

The children of some reverse borrowers see these mortgages not as means of betterment for their aging parents but as drains on their own inheritances. This viewpoint serves neither party and can leave their parents without the cash to live their final years as productively as possible.

Borrowers protected

Because so much wealth can rest in many older citizens’ homes, mortgage brokers should consider broaching the subject of a reverse mortgage even before clients feel like they might need one. Brokers also can consult with estate planners and point out the importance of including a HECM option.

In many ways, it’s best to proceed with reverse-mortgage discussions when clients don’t need the money. This allows them to make important decisions without duress. Even if clients don’t see an immediate need for a reverse mortgage, they could see an advantage in opening a HECM line of credit, which can create a powerful and tax-free cash reserve.

HECM borrowers who do opt to set up credit lines can access cash as needed. They also can return any portion of the requested funds without prepayment penalties at any time.

The required FHA mortgage insurance protects the borrower by guaranteeing that the balance due will never exceed the value of the home when the loan becomes due. This also protects heirs, who are relieved of the burden of paying back more than the property value should the balance due exceed the home value at the time the loan matures.

During the review and determination of whether a reverse-mortgage solution is viable, brokers should suggest that borrowers discuss the documents with an attorney, a trusted adviser, family member or someone else who has the clients’ best interests at heart. Brokers also can include these people in conference calls and faceto- face meetings, if clients wish.

Mandatory counseling

Because they’re regulated by the federal government, HECM transactions are exceedingly transparent. Brokers must give specific booklets, information and sample loan documents to clients. Brokers should encourage clients to familiarize themselves with product details.

It’s also often worthwhile to suggest that clients consult an attorney or financial adviser to assist in determining if a reverse-mortgage solution is prudent for their situation.

Clients who decide to apply for a HECM must meet with a HUD-approved counseling agency, a precautionary measure in place to ensure that reverse-mortgage borrowers receive all appropriate information and understand the product.

While it appears the recovery in the real estate finance market will take years, the number of homeowners turning 62 years old continues to increase. Mortgage brokers who introduce equity-rich and cash-poor borrowers to reverse-mortgage options such as the HECM, and who make it their goal to guide consumers carefully and methodically through the process, can help restore faith to the term "mortgage professional" and create a better future.